Henry Company is preparing a segmented income statement, subdivided into departments (billing, purchasing, and telemarketing). Which of the following choices correctly describes the accounting treatment of the firm's compensation cost for key executives (president and vice-presidents)?
A) The cost is charged to the departments.
B) The cost is not charged to the departments because, although easily traceable to the departments, it is not controllable at the departmental level.
C) The cost is not charged to the departments because, although controllable at the departmental level, it is not easily traceable to the departments.
D) The cost is not charged to the departments because it is both easily traceable to the departments and controllable by the departments.
E) The cost is not charged to the departments because it is neither easily traceable to the departments nor controllable by the departments.

Question

Quizplus · Accepted Answer

Compensation cost for key executives is a corporate expense and cannot be directly attributed to individual departments. Therefore, it is not easily traceable to departments. It is also not controllable by individual departments. Therefore, it is not charged to the departments in a segmented income statement.

Henry Company Is Preparing a Segmented Income Statement, Subdivided into Departments