Deck 24: Performance Measurement and Responsibility Accounting

Question 1

Evaluation of the performance of an investment center involves only financial measures.

Answer 1

False

Question 2

No standard rule identifies the best basis of allocating expenses across departments,so it is impossible to allocate costs in a manner that will be perceived as fair.

Answer 2

False

Question 3

The concepts of direct expenses and controllable costs are essentially the same;also,indirect expenses and uncontrollable costs are essentially the same.

Answer 3

False

Question 4

Investment center is another name for profit center.

Question 5

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

Question 6

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

Question 7

Direct expenses require allocation across departments because they cannot be readily traced to one department.

Question 8

A department's direct expenses are usually considered uncontrollable costs.

Question 9

Joint costs can be allocated either using a physical basis or a value basis.

Question 10

A cost center does not directly generate revenues.

Question 11

Departmental salary expenses are direct expenses of that department.

Question 12

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

Question 13

Advertising expense can be reasonably allocated to departments on the basis of each department's proportion of sales.

Question 14

An example of a controllable cost is equipment depreciation expense.

Question 15

A responsibility accounting performance report usually compares actual costs to budgeted costs amounts by management level.

Question 16

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

Question 17

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

Question 18

Indirect expenses are allocated to departments based upon the benefits received by each department.

Question 19

A selling department is usually evaluated as a profit center.

Question 20

Departmental information is usually distributed to the public as part of the company's annual report and footnotes.

Question 21

A cost center is a unit of a business that incurs costs without directly generating revenues.All of the following are considered cost centers except:

A)Accounting department at Warner Bros.
B)Purchasing department at Best Buy.
C)Research department at Microsoft.
D)Advertising department at Hertz.
E)Juice division at Coca Cola.

Question 22

Departmental contribution to overhead is the same as gross profit generated by that department.

Question 23

Investment center managers are typically evaluated using performance measures that combine income and assets.

Question 24

An accounting system that accumulates and reports costs incurred by each service department for management to evaluate the performance of a department is a:

A)Departmental accounting system.
B)Cost accounting system.
C)Service accounting system.
D)Revenue accounting system.
E)Standard accounting system.

Question 25

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

Question 26

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

A)Performance center.
B)Profit center.
C)Cost center.
D)Responsibility center.
E)Expense center.

Question 27

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

Question 28

Allocating costs to service departments involves accumulating revenues and direct expenses,allocating indirect expenses,and preparing the department income statement.

Question 29

The type of department that generates revenues and incurs costs,and its manager is responsible for the investments made in operating assets is called a:

A)Profit center
B)Cost center
C)Service department
D)Investment center
E)Responsibility center

Question 30

Departmental contribution to overhead is the amount of sales for that department less its direct expenses.

Question 31

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

Question 32

In producing oat bran,the joint cost of milling the oats into bran,oatmeal,and animal feed is considered a direct cost to the oat bran,because the oat bran cannot be produced without incurring the joint cost.

Question 33

Departmental income statements are prepared for service departments but not operating departments.

Question 34

The process of preparing departmental income statements begins with allocating service department expenses.

Question 35

Measures used to evaluate the manager of an investment center include investment turnover and profit margin.

Question 36

Decentralization refers to companies that have multiple locations.

Question 37

A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.

Question 38

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

Question 39

Return on investment is a useful measure to evaluate the performance of a cost center manager.

Question 40

A department that incurs costs without directly generating revenues is a:

A)Service center.
B)Production center.
C)Profit center.
D)Cost center.
E)Performance center.

Question 41

A challenge in calculating the total costs and expenses of a department is:

A)Determining the gross profit ratio.
B)Assigning direct costs to the department.
C)Allocating indirect expenses to the department.
D)Determining the amount of sales of the department.
E)Determining the direct expenses of the department.

Question 42

Regardless of the system used in departmental cost analysis:

A)Direct costs are allocated,indirect costs are not.
B)Indirect costs are allocated,direct costs are not.
C)Both direct and indirect costs are allocated.
D)Neither direct nor indirect costs are allocated.
E)Total departmental costs will always be the same.

Question 43

Expenses that are easily traced and assigned to a specific department because they are incurred for the sole benefit of that department are called:

A)Direct expenses.
B)Indirect expenses.
C)Controllable expenses.
D)Uncontrollable expenses.
E)Fixed expenses.

Question 44

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

A)Floor space of each department.
B)Relative number of items each department had on sale.
C)Number of customers to enter each department.
D)An equal amount of cost for each department.
E)Proportion of sales of each department.

Question 45

In a responsibility accounting system:

A)Managers are responsible for their departments' controllable costs.
B)Each accounting report contains all items allocated to a responsibility center.
C)Organized and clear lines of authority and responsibility are only incidental.
D)All managers at a given level have equal authority and responsibility.
E)Outputs of the departments are not part of the evaluation process.

Question 46

A company has two departments,Y and Z that incur wage expenses.An analysis of the total wage expense of $19,000 indicates that Dept.Y had a direct wage expense of $2,000 and Dept.Z had a direct wage expense of $3,500.The remaining expenses are indirect and analysis indicates they should be allocated evenly between the two departments.Departmental wage expenses for Dept.Y and Dept.Z,respectively,are:

A)$8,750;$10,250.
B)$10,250;$8,750.
C)$9,500;$9,500.
D)$2,000;$3,500.
E)$6,750;$6,750.

Question 47

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

A)Common expense.
B)Indirect expense.
C)Direct expense.
D)Administrative expense.
E)Recurring expense.

Question 48

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

A)Fixed expenses.
B)Indirect expenses.
C)Direct expenses.
D)Uncontrollable expenses.
E)Variable expenses.

Question 49

Responsibility accounting performance reports:

A)Become more detailed at higher levels of management.
B)Are usually summarized at higher levels of management.
C)Are equally detailed at all levels of management.
D)Are useful in any format.
E)Are irrelevant at the highest level of management.

Question 50

A report that accumulates the actual expenses that a manager is responsible for and their budgeted amounts is a:

A)Segmental accounting report.
B)Managerial cost report.
C)Controllable expense report.
D)Departmental accounting report.
E)Responsibility accounting performance report.

Question 51

Which of the following is not a step in creating operating department income statements?

A)Prepare the departmental income statements.
B)Accumulate revenues and direct expenses by department.
C)Allocate indirect expenses across departments.
D)Allocate service department expenses to operating departments.
E)Eliminate the uncontrollable costs for each department.

Question 52

Costs that the manager does not have the power to determine or at least significantly affect are:

A)Variable costs.
B)Uncontrollable costs.
C)Indirect costs.
D)Direct costs.
E)Joint costs.

Question 53

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

A)Controllable costs.
B)Contribution percentages.
C)Departmental contributions to overhead.
D)Uncontrollable expenses.
E)Direct costs.

Question 54

Plans that identify costs and expenses under each manager's control prior to the reporting period,typically based on the flexible budget approach,are called:

A)Cost accounting systems.
B)Managerial accounting systems.
C)Responsibility accounting systems.
D)Responsibility accounting budgets.
E)Activity-based accounting systems.

Question 55

The salaries of employees who spend all their time working in one department are:

A)Variable expenses.
B)Indirect expenses.
C)Direct expenses.
D)Responsibility expenses.
E)Unavoidable expenses.

Question 56

A company has two departments,Y and Z that incur delivery expenses.An analysis of the total delivery expense of $9,000 indicates that Dept.Y had a direct expense of $1,000 for deliveries and Dept.Z had no direct expense.The indirect expenses are $8,000.The analysis also indicates that 40% of regular delivery requests originate in Dept.Y and 60% originate in Dept.Z.Departmental delivery expenses for Dept.Y and Dept.Z,respectively,are:

A)$4,500;$4,500.
B)$4,200;$4,800.
C)$5,500;$3,500.
D)$4,800;$4,200.
E)$5,400;$3,600.

Question 57

An accounting system that is set up to control costs and evaluate managers' performance by assigning costs to the managers responsible for controlling them is called a:

A)Cost accounting system.
B)Managerial accounting system.
C)Responsibility accounting system.
D)Financial accounting system.
E)Activity-based accounting system.

Question 58

The difference between a profit center and an investment center is

A)an investment center incurs costs,but does not directly generate revenues.
B)an investment center incurs no costs but does generate revenues.
C)an investment center is responsible for investments made in operating assets.
D)an investment center provides services to profit centers.
E)There is no difference;investment center and profit center are synonymous.

Question 59

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

A)Uncontrollable costs.
B)Controllable costs.
C)Joint costs.
D)Direct costs.
E)Indirect costs.

Question 60

Within an organizational structure,the person most likely to be evaluated in terms of controllable costs would be:

A)A payroll clerk.
B)A cost center manager.
C)A production line worker.
D)A maintenance worker.
E)A sales representative.

Question 61

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 Grinding for the current period is:

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

Question 62

Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron.Joint costs incurred in producing the two products totaled $7,500.At the split-off point,Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon.Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

A)$2,500.
B)$3,000.
C)$4,500.
D)$5,625.
E)$1,500.

Question 63

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

A)It is designed to measure the performance of managers in terms of controllable costs.
B)It assigns responsibility for costs to the appropriate managerial level that controls those costs.
C)It should not hold a manager responsible for costs over which the manager has no influence.
D)It can be applied at any level of an organization.
E)It is only relevant in manufacturing companies.

Question 64

Wren Pork Company uses the relative market value method of allocating joint costs in its production of pork products.Relevant information for the current period follows: The total joint cost for the current period was $43,000.How much of this cost should Wren Pork allocate to Loin chops?

A)$0.
B)$5,909.
C)$8,600.
D)$10,750.
E)$43,000.

Question 65

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product M for this period's $660 of joint costs if the value basis is used.

A)$264.
B)$396.
C)$330.
D)$1,364.
E)$796.

Question 66

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.

A)$500.
B)$4,500.
C)$3,724.
D)$6,000.
E)$4,153.

Question 67

Calculating return on investment for an investment center is defined by the following formula:

A)Contribution margin/Ending assets.
B)Gross profit/Ending assets.
C)Net income/Ending assets.
D)Income/Average invested assets.
E)Contribution margin/Average invested assets.

Question 68

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product L for this period's $660 of joint costs if the value basis is used.

A)$264.
B)$396.
C)$330.
D)$1,364.
E)$796.

Question 69

A granary allocates the cost of unprocessed wheat to the production of feed,flour,and starch.For the current period,unprocessed wheat was purchased for $240,000,and the following quantities of product and sales revenues were produced. How much of the $240,000 cost should be allocated to feed?

A)$24,500.
B)$84,000.
C)$90,000.
D)$70,000.
E)$200,000.

Question 70

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

A)Product cost.
B)Incremental cost.
C)Differential cost.
D)Joint cost.
E)Fixed cost.

Question 71

Allocating joint costs to products using a value basis method is based on their relative:

A)Sales values.
B)Direct costs.
C)Gross margins.
D)Total costs.
E)Variable costs.

Question 72

A responsibility accounting performance report displays:

A)Only actual costs.
B)Only budgeted costs.
C)Both actual costs and budgeted costs.
D)Only direct costs.
E)Only indirect costs.

Question 73

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

A)A physical basis method to allocate costs based on ratio of some physical characteristic.
B)The difference between the actual and market value of joint costs.
C)The point at which some products are sold and some remain in inventory.
D)The point at which separate products can be identified.
E)Not acceptable when using the value basis for allocating joint costs.

Question 74

Investment center managers are usually evaluated using performance measures

A)that combine income and assets.
B)that combine income and capital.
C)based on assets only.
D)based on income only.
E)that combine assets and capital.

Question 75

A lumber mill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Compute the portion of the $70,000 joint cost to be allocated to No.2 Common.

A)$0.
B)$17,500.
C)$23,333.
D)$35,000.
E)$70,000.

Question 76

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.

A)$11,000.
B)$14,000.
C)$16,667.
D)$22,500.
E)$50,000.

Question 77

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.

A)$400.
B)$1,200.
C)$4,000.
D)$7,500.
E)$6,000.

Question 78

Two investment centers at Marshman Corporation have the following current-year income and asset data:

A)578.3%
B)24.1%
C)17.3%
D)39.2%
E)19.1%

Question 79

Two investment centers at Marshman Corporation have the following current-year income and asset data: The return on investment (ROI)for Investment Center B is:

A)371.4%
B)26.9%
C)24.1%
D)39.2%
E)21.7%

Question 80

A lumber mill bought a shipment of logs for $40,000.When cut,the logs produced a million board feet of lumber in the following grades.Compute the cost to be allocated to Type 1 and Type 2 lumber,respectively,if the value basis is used. Type 1-400,000 bd.ft.priced to sell at $0.12 per bd.ft.
Type 2- 400,000 bd.ft.priced to sell at $0.06 per bd.ft.
Type 3- 200,000 bd.ft.priced to sell at $0.04 per bd.ft.

A)$16,000;$16,000.
B)$13,333;$4,444.
C)$40,000;$24,000.
D)$24,000;$12,000.
E)$24,000;$8,000.