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Exam 9: Performance Measurement and Responsibility Accounting

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Question 1

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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: $\begin{array}{rrrrr}&&&&\text { Indirect }\\\text { Dept.} &\text {Sales } & \text { Cost of Goods Sold}&\text { Direct Expenses}&\text { Expenses }\\1 & \$ 1,000,000 & \$ 700,000 & \$ 100,000 & \$ 80,000 \\2 & 400,000 & 150,000& 40,000 & 100,000 \\3 & 700,000 & 300,000 & 150,000 & 20,000\end{array}$

A) 52.5%
B) 20.0%
C) 35.7%
D) 30.0%
E) 57.1%

F) A) and E)
G) C) and D)

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Question 2

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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: The amount of the advertising cost that should be allocated to Grinding for the current period is:

A) $325,000.
B) $16,250.
C) $54,250.
D) $45,000.
E) $23,750.

F) B) and D)
G) B) and E)

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Question 3

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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 administration expenses that should be allocated to the Painting Department for the current period is:

A company rents a building with a total of 50,000 square feet, which are evenly divided between two floors. The company allocates the rent for space on the first floor at twice the rate of space on the second floor. The total monthly rent for the building is $30,000. How much of the monthly rental expense should be allocated to a department that occupies 10,000 square feet on the first floor?

An expense that is readily traced to a department because it is incurred for that department's sole benefit is a(n) :

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

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 ________ is a report of the amount of sales less direct expenses for a department.

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

A useful measure used to evaluate the performance of an investment center is investment center residual income.

A(n) ________ is a department that generates revenues and incurs costs and whose manager is also responsible for using the center's assets to generate income for the center.

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

A ________ generates revenues and incurs costs.

A cost center does not directly generate revenues.

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:

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:

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

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

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.

Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $470,000; sales of $930,000; and income of $105,000. The investment turnover is: