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Exam 24: Performance Measurement and Responsibility Accounting

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Question 1

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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 from the perspective of Division O?

A) $75
B) $66
C) $16
D) $50
E) $25

F) A) and D)
G) None of the above

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Question 2

Multiple Choice

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

A) Service department.
B) Operating or production department.
C) Cost center.
D) Department in which all of the costs incurred are direct expenses.
E) Department in which all of the costs incurred are indirect expenses.

F) C) and D)
G) All of the above

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Question 3

Multiple Choice

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A retail store has three departments,S,T,and U,and does general advertising that benefits all departments.Advertising expense totaled $50,000 for the year,and departmental sales were as follows.Allocate advertising expense to Department T based on departmental sales.

Joint costs are costs incurred in producing or purchasing a single product.

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

Nesbit Co.has two operating (production)departments supported by a number of service departments.The following information was collected for a recent period: Indirect costs are allocated as follows: salaries on the basis of sales,office expenses on the basis of the number of employees,and all other costs on the basis of square footage.Additional information about the production departments follows: Sales for the Machining Department are $724,404 and sales for the Assembly Department are $356,796.Determine the departmental contribution to overhead and the departmental net income for each production department.

The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.

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 Assembly Department for the current period is:

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

Expenses that are not easily associated with a specific department,and which are incurred for the joint benefit of more than one department,are:

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 of maintenance cost to the Carpentry 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?

The following is a partially completed departmental expense allocation spreadsheet for Brickland.It reports the total amounts of direct and indirect expenses for its 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 Fabrication.

An example of a service department is the human resources department.

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.

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?

Profit center managers are evaluated on their ability to generate revenues in excess of costs.

Boiano Corp.operates a retail store and has two service departments and two operating departments,Hardware and Automotive.During the current year,the departments had the following direct expenses and occupied the following amount of floor space. The advertising department developed and aired 150 spots.Of these spots,60 spots were for Hardware and 90 spots were for Automotive.The store sold $1,500,000 of merchandise during the year;$675,000 in Hardware and $825,000 in Automotive.Indirect expenses include rent,utilities,and insurance expense.Total indirect expenses of $220,000 are allocated to all departments.Prepare a departmental expense allocation spreadsheet for Boiano.The spreadsheet should assign (1)direct expenses to each of the four departments, (2)allocate the indirect expenses to each department on the basis of floor space occupied, (3)the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4)the administrative department's expenses based on the amount of sales.Complete the departmental expense allocation spreadsheet below.Provide supporting computations for the expense allocations below the spreadsheet.

Riemer,Inc.has four departments.Information about these departments is listed below.Maintenance is a service department.If allocated maintenance cost is based on floor space occupied by each of the other departments,compute the amount of maintenance cost allocated to the Cutting Department.

Chancellor Company is divided into four departments.Departments A and B are service departments and Departments 1 and 2 are operating (production)departments.The services of the two service departments are used by the other departments as follows: Complete the following table:

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 administration expense that should be allocated to the Assembly Department for the current period is: