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Exam 9: Performance Measurement and Responsibility Accounting

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Question 81

True/False

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

A) True
B) False

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Question 82

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A department can never be considered to be a profit center.

A) True
B) False

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Question 83

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Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:

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?

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

What is the purpose of a responsibility accounting system?

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of $3,500,000; investment center income $610,000; a target income of 12% of average invested assets. The residual income for the division is:

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

The investment center return on investment is ________ divided by ________.

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on investment:

If a company reports profit margin of 31.6% and investment turnover of 1.30 for one of its investment centers, the return on investment must be:

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:

Explain the difference between direct and indirect expenses in accounting for departments.

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 the total office expenses that should be allocated to Drilling for the current period is:

Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period: The total cost of operating the Milling Department for the current period is:

A firm produces and sells two products, Plus and Max. The following information is available relating to setup costs (a part of factory overhead) : 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:

What is the purpose of a departmental accounting system?

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

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