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Exam 24: Performance Measurement and Responsibility Accounting

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Question 81

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Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3) Southwestern Division sells Part AR3 to other companies for $30. The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products. The Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the Northeastern Division would require. What is the lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division?

A) $23
B) $27
C) $21
D) $26
E) $30

F) None of the above
G) All of the above

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Question 82

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Holo Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Compute the division's return on investment:

A) 17.3%.
B) 14.7%.
C) 21.3%.
D) 18.6%.
E) 10.4%.

F) A) and E)
G) B) and D)

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Question 83

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Product lines are often evaluated as profit centers.

A(n) ___________is a department that generates revenues and incurs costs and whose manager is also responsible for using the center's assets to generate income for the center.

With respect to cycle time, companies strive to reduce non-value added time in order to improve ________.

A company rents a building with a total of 50,000 square feet, which are evenly divided between two floors. The company allocates the rent for space on the first floor at twice the rate of space on the second floor. The total monthly rent for the building is $30,000. - How much of the monthly rental expense should be allocated to a department that occupies 10,000 square feet on the first floor?

Pleasant Hills Properties is developing a golf course subdivision that includes 250 home lots; 100 lots are golf course lots and will sell for $95,000 each; 150 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. -Compute the amount of joint cost to be allocated to the golf course lots using value basis. (Round your intermediate percentages to 2 decimal places.)

A useful measure used to evaluate the performance of an investment center is investment center residual income.

A cost incurred to produce or purchase two or more products at the same time is a(n) :

The most useful data for evaluation of a manager's cost performance is based on:

Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Plus and Max, respectively is:

Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

Division P of Launch Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per wheel set, and the variable production cost per unit is $65. Division Q of Launch Corporation currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of $90 per wheel set. If Division Q were to buy the 30,000 wheel sets it needs annually from Division P at $87 per wheel set, the change in annual net operating income for the company as a whole, compared to what it is currently, would be:

In the preparation of departmental income statements, the preparer completes the following steps in the following order:

Holliday, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows: Holliday, Inc.Departmental Income Statement for Year Ended December 31 $\begin{array}{l|l|l|l}&\text { Dept. A }&\text { Dept. B }&\text { Combined }\\ \hline \text { Sales } & \$ 180,000 & \$ 200,000 & \$ 380,000 \\\hline \text { Direct expenses } & \underline{129,900} & \underline{142,870} & \underline{272,770} \\\hline \text { Contributions to overhead } & \$ 50,100 & \$ 57,130 & \$ 107,230 \\\hline \text { Indirect expenses: } & & & \\\hline \text { Depreciation--Building } & 10,000 & 11,760 & 21,760 \\\hline \text { Maintenance } & 1,600 & 1,700 & 3,300 \\\hline \text { Utilities } & 6,200 & 6,320 & 12,520 \\\hline \text { Office expenses } & 1,800 & 2,000 & 3,800 \\\hline \text { Total indirect expenses } & \$ 19,600 & \$ 21,780 & \$ 41,380 \\\hline \text { Net income } & \$ 30,500 & \$ 35,350 & \$ 65,850 \\\hline\end{array}$ Holliday allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales. Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200. Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.) $\begin{array} { l | r | r | l | l } & \text { Dept. A } & \text { Dept. B } & \text { Dept. C } & \text { Combined } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & & \\\hline \text { Direct expenses } & 129,900 & 142,870 & & \\\hline \begin{array} { l } \text { Contributions to } \\\text { overhead }\end{array} & \$ 50,100 & \$ 57,130 & & \\\hline \text { Indirect expenses } & & & & \\\hline \text { Depreciation -building } & & & & \\\hline \text { Maintenance } & & & & \\\hline \text { Utilities } & & & & \\\hline \text { Office expenses } & & & & \\\hline \text { Total indirect expenses } & & & & \\\hline \text { Net income } & & & & \\\hline\end{array}$

The Menswear Department of Major's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Menswear Department's contribution to overhead as a percent of sales is:

Allocating costs to service departments involves accumulating revenues and direct expenses, allocating indirect expenses, and preparing the department income statement.

In a firm that manufactures clothing, the department that is responsible for actually assembling the garments could best be described as a(n) :

Investment center managers are evaluated on their use of investment center assets to generate income.

In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring the joint cost.