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Exam 9: Performance Measurement and Responsibility Accounting

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Question 101

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Direct expenses require allocation across departments because they cannot be readily traced to one department.

A) True
B) False

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Question 102

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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.

A) $2,500.
B) $3,000.
C) $4,500.
D) $5,625.
E) $1,500.

F) B) and E)
G) All of the above

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Question 103

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Canfield Technical School allocates administrative costs to its respective departments based on the number of students enrolled, while maintenance and utilities are allocated per square feet of the classrooms. Based on the information below, what is the total amount allocated to the Welding Department (rounded to the nearest dollar) if administrative costs for the school were $50,000, maintenance fees were $12,000, and utilities were $6,000?

A ________ incurs costs without directly generating revenues.

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: The amount of salaries that should be allocated to Drilling for the current period is:

Division M makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division O of the same company would like to use the part manufactured by Division M in one of its products. Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M. Division O requires 5,000 units of the part each period. Division M can sell every unit it produces on the outside market. What should be the lowest acceptable transfer price?

Ready Company has two operating (production) departments: Assembly and Painting. Assembly has 150 employees and occupies 44,000 square feet; Painting has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the current period are as follows: Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The total amount of indirect factory expenses that should be allocated to the Painting Department for the current period is:

What is a cost center and how is its performance evaluated?

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Required: Compute the amount of Purchasing department expense to be allocated to Assembly.

Ready Company has two operating (production) departments: Assembly and Painting. Assembly has 150 employees and occupies 44,000 square feet; Painting has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the current period are as follows: Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The amount of maintenance expenses that should be allocated to the Assembly Department for the current period is:

A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:

A responsibility accounting performance report usually compares actual costs to budgeted costs amounts by management level.

Investment center is another name for profit center.

A responsibility accounting performance report displays:

How do companies decide what allocation bases to use to allocate indirect costs to departments?

Responsibility accounting performance reports:

A company produces two joint products (called 301 and 302) in a single operation that uses one raw material called Fruge. Four hundred gallons of Fruge were purchased at a cost of $800 and were used to produce 150 gallons of Product 301, selling for $5 per gallon, and 75 gallons of Product 302, selling for $15 per gallon. How much of the $800 cost should be allocated to each product, assuming that the company allocates cost based on sales revenue?

A lumber mill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. Type 1-400,000 bd. ft. priced to sell at $0.12 per bd. ft. Type 2- 400,000 bd. ft. priced to sell at $0.06 per bd. ft. Type 3- 200,000 bd. ft. priced to sell at $0.04 per bd. ft.

A ________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.

Direct expenses are costs readily traced to a department because they are incurred for that department's sole benefit.