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Exam 24: Performance Measurement and Responsibility Accounting

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Question 101

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

A) True
B) False

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Question 102

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

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Question 103

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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. $\begin{array}{lcccc}&\text { Purchasing }& \text { Maintenance }&\text { Fabrication }& \text { Assembly }\\ \text { Operating costs } & \$ 32,000 & \$ 18,000 & \$ 96,000 & \$ 62,000 \\\text { No. of purchase orders } && & 16 & 4 \\\text { Sq. ft. of space } & & &3,300 & 2,700\end{array}$ Required: Compute the amount of Purchasing department expense to be allocated to Assembly.

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

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 Purchasing department expense to be allocated to Fabrication. $\begin{array}{lcccc}&\text { Purchasing }& \text { Maintenance }&\text { Fabrication }& \text { Assembly }\\ \text { Operating costs } & \$ 32,000 & \$ 18,000 & \$ 96,000 & \$ 62,000 \\\text { No. of purchase orders } && & 16 & 4 \\\text { Sq. ft. of space } & & &3,300 & 2,700\end{array}$

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

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 street frontage lots using value basis. (Round your intermediate percentages to 2 decimal places.)

Investment center managers are usually evaluated using performance measures

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

Which of the following is not true regarding a responsibility accounting system?

Departmental salary expenses are direct expenses of that department.

Costs that the manager has the power to determine or at least significantly affect are called:

Two investment centers at Marshman Corporation have the following current-year income and asset data: Investment Center B $\begin{array} { | l | r | r | } \hline & \begin{array} { r } \text { Investment } \\\text { Center A }\end{array} & \begin{array} { r } \text { Investment } \\\text { Center B }\end{array} \\\hline \text { Investment center income } & \$ 415,000 & \$ 525,000 \\\hline \text { Investment center average inv ested assets } & \$ 2,400,000 & \$ 1,950,000 \\\hline\end{array}$ - The return on investment (ROI) for Investment Center A is:

A cost center does not directly generate revenues.

In the process of preparing department income statements, a company uses there are three steps before the statements can be completed. Describe those steps.

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 $ 80,000 Maintenance $ 100,000 - 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 Painting Department for the current period is:

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 $ 80,000 Maintenance $ 100,000 - Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The amount of administration expenses that should be allocated to the Painting Department for the current period is:

The first three steps in preparing a departmental income statement are: (1) accumulate of the department, (2) allocate ________ to the department, and (3) allocate ________ to the operating departments.

The amount by which a department's sales exceed its direct expenses is:

Marian Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year: $\begin{array}{lrr}&\text { Black Division}&\text { Navy Division}\\\text { Sales (net) } & \$ 200,000 & \$ 400,000 \\\text { Salary expense } & 28,000 & 48,000 \\\text { Cost of goods sold } & 100,000 & 159,000\end{array}$ The Black Division occupies 20,000 square feet in the plant. The Navy Division occupies 30,000 square feet. Rent is an indirect expense and is allocated based on square footage. Rent expense for the year was $50,000. -Compute gross profit for the Black and Navy Divisions, respectively.