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Exam 22: Decentralization and Performance Evaluation

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Question 51

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A company produces two joint products (called 101 and 202) in a single operation that uses one raw material called Casko. Four hundred gallons of Casko were purchased at a cost of $800 and were used to produce 150 gallons of Product 101, selling for $5 per gallon, and 75 gallons of Product 202, selling for $15 per gallon. How much of the $800 cost should be allocated to each product, assuming that the company allocates cost based on sales revenue?

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Question 52

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Expense allocations cannot always avoid some arbitrariness.

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Question 53

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Vaughn Co. operates three separate departments (A, B, C). The data below are provided for the current year: Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

What is a transfer price and what methods are used to set its' value?

Direct costs must be allocated across departments.

Regardless of the system used in departmental cost analysis:

Which of the following is an example of a performance measure of the customer perspective which would be found in a balanced scorecard?

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.

The Footwear Department of Lee's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department's contribution to overhead as a percent of sales is:

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

The process of preparing departmental income statements starts with allocating service departments.

A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a(n) :

Assume Rock Bottom Golf is divided into four departments which operate as profit centers and that the data below is from the most recent fiscal year. $\begin{array}{lrrrr}&\text { Golf Clubs }&\text {Golf Bags}&\text { Golf Balls }&\text {Golf Apparel }\\\text { Sales } & \$ 200,000 & \$ 400,000 & \$ 800,000 & \$ 1,600,000 \\\text { Cost of Goods } & 90,000 & 220,000 & 400,000 & 960,000\\\text { Sold }\\\text { Direct Expenses }\\\text { Salaries } & 18,000 & 54,000 & 90,000 & 226,000 \\\text { Insurance } & 2,000 & 3,000 & 6,000 & 120,000 \\\text { Utilities } & 1,000 & 2,000 & 3,000 & 10,000\end{array}$ -Given the information above, which of Rock Bottom Golf's departments has the highest contribution margin as a percent of sales?

A company manufactures two products, X and Y, from a single raw material called ZZ. ZZ is purchased in 55-gallon drums, and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y. X sells for $10.00 per gallon and Y sells for $30.00 per gallon. During the current period, the company used 400 drums of ZZ to manufacture X and Y. The cost of ZZ was $90 per drum. Required: (1) If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced, how much of the total cost of the 400 drums should be charged to each product? (2) If the cost of ZZ is allocated to the X and Y products in proportion to their market values, how much of the total cost of the 400 drums should be charged to each product? (3) Which basis of allocating the cost is most likely to be used by the company? Check one and briefly explain. _______ The relative number of gallons of each product produced. _______ The relative market values of each product at the point of separation.

A cost center is a unit of a business that incurs costs but does not directly generate revenues. Which of the following would definitely not be considered a cost center?

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 retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were: $\begin{array}{lr}\text { Department A } & \$ 356,250 \\\text { Department B } & 641,250 \\\text { Department C } & 427,500\end{array}$ How much advertising expense should be allocated to each department?

Bridgestreet, Inc. has three operating departments: Cutting, Assembling and Finishing. Cutting has 5,000 employees and occupies 15,000 square feet. Assembling has 4,000 employees and occupies 12,000 square feet. Finishing has 1,000 employees and occupies 23,000 square feet. Indirect factory costs for the current period were Administrative, $170,000 and Maintenance, $212,000. Administrative costs are allocated to operating departments based on the number of workers and maintenance costs are allocated to operating departments based on square footage occupied. -Based on the above data, determine the administrative cost allocated to each operating department of Bridgestreet, Inc. $\begin{array}{|l|l|l|l|}\hline \text { (A) } & \text { Cutting: } \$ 70,666 & \text { Assembling: } \$ 70,666 & \text { Finishing: } \$ 70,666 \\\hline \text { (B) } & \text { Cutting: } \$ 15,000 & \text { Assembling: } \$ 12,000 & \text { Finishing: } \$ 23,000 \\\hline \text { (C) } & \text { Cutting: } \$ 63,600 & \text { Assembling: } \$ 50,880 & \text { Finishing: } \$ 97,520 \\\hline \text { (D) } & \text { Cutting: } \$ 127,333 & \text { Assembling: } \$ 127,333 & \text { Finishing: } \$ 127,333 \\\hline \text { (E) } & \text { Cutting: } \$ 115,000 & \text { Assembling: } \$ 91,680 & \text { Finishing: } \$ 175,720 \\\hline\end{array}$

General Chemical produced 10,000 gallons of Greon and 20,000 gallons of Baron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Greon has a market value of $6.00 per gallon and Baron $2.00 per gallon. What portion of the joint costs should be allocated to Greon if the basis is market value at point of separation?

Mach Co. operates three manufacturing departments as profit centers. The following information is available for its most recent year: $\begin{array}{rrrrr}&& \text { Cost of } & \text { Direct } & \text { Indirect } \\\text { Dept. }&\text { Sales } & \text { Goods Sold } & \text { Expenses } & \text { Expenses }\\1 & \$ 1,000,000 & \$ 700,000 & \$ 100,000 & \$ 80,000 \\2 & 400,000 & 150,000 & 40,000 & 100,000 \\3 & 700,000 & 300,000 & 150,000 & 20,000\end{array}$ -Which department has the greatest departmental contribution to overhead and what is the amount contributed?