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Exam 9: Performance Measurement and Responsibility Accounting

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Question 31

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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: $\begin{array}{lll}\text { Office Expenses } & \text { Total } & \text { Allocation Basis } \\\text { Salaries } & \$ 30,00 \mathrm{C} & \text { Number of employees } \\\text { Depreciation } & 20,000 & \text { Cost of goods sold } \\\text { Advertising } & 40,000 & \text { Net sales }\end{array}$ $\begin{array}{lrrr}\text { Item } &{\text { Drilling }} & \text { Grinding } & \text { Total } \\\text { Number of employees } & 1,00 0& 1,500 & 2,500 \\\text { Net sales } & \$ 325,000& \$ 475,000 & \$ 800,000 \\\text { Cost of goods sold } & \$ 75,000& \$ 125,000 & \$ 200,000\end{array}$ The amount of the total office expenses that should be allocated to Grinding for the current period is:

A) $35,750.
B) $45,000.
C) $54,250.
D) $90,000.
E) $600,000.

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

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Question 32

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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. Compute the amount of Maintenance department expense to be allocated to Assembly.

A) $6,400.
B) $9,900.
C) $8,100.
D) $9,000.
E) $25,600.

F) A) and B)
G) C) and D)

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Question 33

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The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year: $\begin{array}{lr}\text { Sales }(150,000 \text { pounds of chocolate) } & \$ 60,000 \\\text { Variable expenses } & 37,500 \\\text { Contribution margin } & 22,500 \\\text { Fixed expenses } & 12,000 \\\text { Profit } & \$ 10,500\end{array}$ Assume that the Dark Chocolate Division is currently operating at its capacity of 150,000 pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current profit?

A profit center generates revenue, incurs costs, and has the authority to make significant investing decisions.

Since service departments do not generate revenues, it is unnecessary to accumulate and allocate their costs.

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

In regard to joint cost allocation, the "split-off point" is:

Regardless of the system used in departmental cost analysis:

In a decentralized organization, decisions are made by managers throughout the company rather than by a few top executives.

No standard rule identifies the best basis of allocating expenses across departments.

Riu Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Repair Division has asked the Parts Division to provide it with 2,000 special parts each year. The special parts would require $17.00 per unit in variable production costs. The Repair Division has a bid from an outside supplier for the special parts at $28.00 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the B83 that it presently is producing. The B83 sells for $34.00 per unit, and requires $22.00 per unit in variable production costs. Packaging and shipping costs of the B83 are $4.00 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 10,000 units of the B83 each year. Production and sales of the B83 would drop by 10% if the new special part is produced for the Repair Division. Required: a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 2,000 special parts per year from the Parts Division to the Repair Division? b. Is it in the best interests of Riu Corporation for this transfer to take place? Explain.

All of the following are associated with reporting controllable costs except:

A company produces two products, XX and YY, from a single raw material called Zub. Zub is purchased in 55-gallon drums, and the contents of one drum are sufficient to produce 30 gallons of XX and 15 gallons of YY. XX sells for $10.00 per gallon and YY sells for $30.00 per gallon. During the current period, the company used 400 drums of Zub to produce XX and YY. The cost of Zub was $90 per drum. Required: (1) If the cost of Zub is allocated to the XX and YY products on the basis of the number of gallons produced, how much of the total cost of the 400 drums should be charged to each product? (2) If the cost of Zub is allocated to the XX and YY products in proportion to their market values, how much of the total cost of the 400 drums should be charged to each product? (3) Which basis of allocating the cost is most likely to be used by the company?

________ are costs incurred to produce or purchase two or more products at the same time.

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:

CakeCo, Inc. has three operating departments. Information about these departments is listed below. Maintenance is service department at CakeCo that incurred $12,000 of costs during the period. If allocated maintenance cost is based on floor space occupied by each of the operating departments, compute the amount of maintenance cost allocated to the Baking Department. $\begin{array}{lrrr} &{\text { Mixing }} &{\text { Baking }} & \text { Packaging } \\\text { Direct costs } & \$ 21,000 & \$ 15,000 & \$ 9,000 \\\text { Sq. ft. of space } & 1,000 & 1,500& 500\end{array}$

Regal Furniture Company allocates its indirect salaries of $22,500 on the basis of sales. Determine the indirect salaries allocated to Departments 1 and 2 using the following information. Salaries allocated to Dept. 1 ________ Salaries allocated to Dept. 2 ________

A selling department is usually evaluated as a profit center.

A unit of a business that generates revenues and incurs costs is called a:

Return on investment can be split into which of the following two measures?