Deck 25: Departmental Accounting

Question 1

A higher departmental gross profit or gross profit percentage means that a department is more profitable overall.

Answer 1

False

Question 2

Many expenses of the entire business may be allocated to departments on a percentage basis.

Answer 2

True

Question 3

Indirect expenses may be allocated to departments based on the amount of sales of each individual department.

Answer 3

True

Question 4

A lower gross profit or gross profit percentage (by one department compared to another) means that one department is less profitable than another.

Question 5

Indirect expenses may be allocated to the departments based on the cost of goods sold in each department.

Question 6

Indirect expenses are allocated to specific departments to determine departmental direct operating margins.

Question 7

A departmental operating expense summary would show the total operating expenses for each department and the total operating expenses for the business.

Question 8

The difference between a department's net sales and cost of goods sold is known as the departmental operating income.

Question 9

A department often uses a specialized sales journal to separate the revenue derived from its various products or services.

Question 10

If a department has a positive direct operating margin, it normally should be discontinued.

Question 11

Departmental reports are part of the basic financial statements of the business.

Question 12

To compute departmental operating income, it is necessary to determine the gross profit and the operating expenses of each department.

Question 13

The difference between a department's gross profit and its operating expenses is known as the departmental direct operating profit.

Question 14

Departmental reports are used for internal management only; therefore the accounting rules for external reporting do not apply.

Question 15

Departmental reports can be useful to creditors for performance evaluation purposes.

Question 16

Indirect expenses are incurred for the benefit of the business as a whole and cannot be traced directly to a specific department.

Question 17

To compute departmental gross profit, it is necessary to determine the net sales, purchases, and inventory by departments.

Question 18

A departmental operating expense summary typically shows both direct and indirect expenses for each department.

Question 19

Direct expenses are incurred for the sole benefit of and are traceable directly to a specific department.

Question 20

Indirect expenses are subtracted from the total direct operating margin to calculate total operating income.

Question 21

Indirect expenses are assigned to departments based on actual direct expenses incurred.

Question 22

The assignment and allocation of departmental operating expenses can be summarized in a departmental gross profit summary.

Question 23

Normally, the report prepared for a department is a(n)

A) balance sheet.
B) income statement.
C) statement of retained earnings.
D) cash flow statement.

Question 24

Direct operating margin may be used as a basis for evaluating departmental performance.

Question 25

Each department should determine its direct operating margin and then subtract indirect expenses from that total as a basis for overall performance evaluation.

Question 26

A departmental income statement showing gross profit can help management identify problems with both the sales prices and purchase prices of its products.

Question 27

The photo department of Santiago Company shows gross sales of $730,600 for chemical supplies and $934,900 for general office supplies. It has determined that chemical supplies cost $534,000 and that general office supplies cost $391,400. What is the gross profit percentage for the general office supplies section of the photo department?

A) $543,500
B) 74.4%
C) 72.0%
D) 58.1%

Question 28

Indirect operating expenses allocated to each department are normally approximations.

Question 29

Departmental gross profit is the difference between a department's net sales and the department's cost of goods sold.

Question 30

Departmental operating expenses may be either direct or indirect.

Question 31

To compute departmental direct operating margin, it is necessary to determine the gross profit and the indirect operating expenses of each department.

Question 32

To compute departmental operating income, direct expenses are assigned to departments based on the actual expenses incurred.

Question 33

Departmental reports can be used to evaluate managers' performance.

Question 34

Operating expenses that are incurred for the benefit of the business as a whole and that cannot be traced directly to any specific department are known as nonallocated expenses.

Question 35

An important part of the control process is to identify the strengths and weaknesses of the different parts of the firm.

Question 36

Departmental reports are useful to management for all of the following purposes EXCEPT

A) planning.
B) controlling.
C) determining revenues generating potential.
D) determining performance potential.

Question 37

Most businesses today determine departmental operating expenses through the use of general ledger accounts for departmental expenses.

Question 38

The difference between a department's gross profit and its direct operating expenses is known as the departmental direct operating margin.

Question 39

Departmental direct operating margin also shows a department's contribution to the company's overall operating income.

Question 40

Direct operating margin may be used as a basis for eliminating a department.

Question 41

Wadsworth Distribution Company has total advertising expenses of $84,000: $32,000 for radio and $52,000 for print advertising. The expense for print advertising is allocated to Department A and Department B based on the total of net sales represented by each department. The total net sales for Wadsworth Distribution Company is $744,000. The net sales generated are $558,000 and $186,000 for Department A and B, respectively. How much of the expense for print advertising should be allocated to Department A?

A) $13,000
B) $39,000
C) $63,000
D) $21,000

Question 42

The PJC department of McIntyre Company shows gross sales of $730,600 for computer supplies and $934,900 for general office supplies. It has determined that computer supplies cost $534,000 and that general office supplies cost $391,400. What is the total gross profit for the PJC department?

A) $934,900
B) $754,000
C) $1,590,900
D) $740,100

Question 43

The difference between a department's gross profit and its operating expenses is known as the

A) departmental gross profit.
B) departmental operating income.
C) departmental operating expenses.
D) departmental direct operating margin.

Question 44

All of the following are used to compute gross profit EXCEPT

A) sales.
B) sales discounts.
C) account receivables.
D) purchases.

Question 45

The bond department shows gross sales of $179,000 and cost of goods sold of $46,000. What is the gross profit of the bond department?

A) $154,000
B) $133,000
C) 67.2%
D) 32.8%

Question 46

Athletic Apparel and Sports Supplies are departments of World of Sports. Sheila manages both departments and employs three experts. Falana works full-time at Athletic Apparel and receives $1,000 each month; Carlos was originally hired to work full-time at Sports Supplies, but now works 60% of the time at Athletic Apparel and 40% of the time at Sports Supplies and receives $1,200 each month; Ana works full-time at Sports Supplies and receives $1,100 each month. To compute departmental operating income, how much salary expense would Sheila record?

A) $3,300 for World of Sports
B) $1,580 for Athletic Apparel; $1,720 for Sports Supplies
C) $1,720 for Athletic Apparel; $1,580 for Sports Supplies
D) $2,200 for Athletic Apparel; $1,100 for Sports Supplies

Question 47

Selena located an excellent office location and she and Ian rented the office space. Selena uses 30% of the space solely for her business; Ian uses 40% of the space solely for his business. The remainder is shared equally by both. How should the total rent and other space expenses be allocated?

A) 30% to Selena; 40% to Ian
B) 45% to Selena; 55% to Ian
C) 50% to Selena; 50% to Ian
D) 30% to Selena; 40% to Ian; 30% to Building Expense

Question 48

Direct expenses are assigned to departments based on

A) estimated expenses.
B) actual expenses.
C) the percentage of total net sales represented by each department.
D) the percentage of gross sales represented by each department.

Question 49

Departmental direct operating margin less departmental indirect expenses equals

A) direct operating expenses.
B) departmental income.
C) total operating income.
D) departmental operating income.

Question 50

Indirect operating expenses are normally

A) approximations.
B) assigned by arbitrary methods.
C) precise expenses determined by managers.
D) overlooked.

Question 51

A department should be discontinued if it has

A) a negative direct operating margin.
B) consistent net sales.
C) high direct operating expenses.
D) a negative operating income.

Question 52

Gross profit less direct operating expenses equals

A) indirect operating expenses.
B) gross profit.
C) direct operating margin.
D) net income.

Question 53

The PJC department of McIntyre Company shows gross sales of $730,600 for computer supplies and $934,900 for general office supplies. It has determined that computer supplies cost $534,000 and that general office supplies cost $391,400. What is the gross profit percentage for the PJC department?

A) $2,590,900
B) 64.32%
C) 1.56%
D) 44.44%

Question 54

The document that shows all operating expenses, their classification as direct or indirect, their assignment or allocation to the departments, and the total operating expenses for each department is known as the

A) departmental operating expense summary.
B) cash flow summary.
C) income summary.
D) gross profit summary.

Question 55

The parts department shows gross sales of $116,000 and cost of goods sold of $38,000. What is the gross profit percentage of the parts department?

A) 67.2%
B) 32.8%
C) 48.7%
D) 51.3%

Question 56

The difference between a department's gross profit and its direct operating expenses is known as the

A) departmental gross profit.
B) departmental operating income.
C) departmental operating expenses.
D) departmental direct operating margin.

Question 57

A department may gather operating expense data by maintaining

A) direct expenses.
B) indirect expenses.
C) amounts allocated to each department.
D) total operating expenses for each department.

Question 58

Indirect expenses are allocated to departments based on

A) generally accepted accounting principles.
B) some reasonable basis.
C) directives from the board of directors.
D) decisions of the stockholders.

Question 59

The difference between a department's net sales and cost of goods sold is known as the

A) departmental gross profit.
B) departmental operating income.
C) departmental operating expenses.
D) departmental direct operating margin.

Question 60

The PJC department of McIntyre Company shows gross sales of $730,600 for computer supplies and $934,900 for general office supplies. It has determined that computer supplies cost $534,000 and that general office supplies cost $391,400. What is the gross profit percentage for the computer supplies section of the PJC department?

A) $196,600
B) 1.4%
C) 26.9%
D) 73.0%

Question 61

Justin owns an appliance store that offers free delivery. Mileage records are maintained for the three sales departments. ​
The cost of using the truck for the last year including depreciation amounted to $12,000.
​
Required:
Allocate the cost of the truck among the three sales departments on the basis of miles driven.

Question 62

The sales, gross profit, and direct and indirect operating expenses of Departments A and B of Cardoba Inc. are as follows: ​
Required:
Compute the departmental direct operating margin and direct operating margin percentage for each department.

Question 63

The sales, gross profit, and direct and indirect operating expenses of Departments A and B of Wilmont Corporation are as follows: Required:
Compute the departmental direct operating margin and direct operating margin percentage for each department.

Question 64

Emma Fuentes and Carol Toner are partners in a business called Jump Start Corporation that sells athletic equipment. They have organized the business into three departments based on the type of merchandise sold. At the end of the first year of operations, the sales and cost of goods sold for the three departments are shown below: ​
Required:
Prepare the gross profit section of a departmental income statement for the year ended December 31. Show the gross profit for each department and for the business as a whole.

Question 65

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
Operating expenses that are incurred for the sole benefit of and are traceable to a specific department.

Question 66

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
The difference between a department's gross profit and its direct operating expenses.

Question 67

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
Operating expenses that are incurred for the benefit of the business as a whole.

Question 68

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
The difference between a department's net sales and cost of goods sold.

Question 69

Lalia rents 110,000 square feet of store space for $358,000 per year. The amount of square footage by department is shown below: ​
Required:
Allocate the annual rent expense among the four departments on the basis of relative square feet of floor space occupied.

Question 70

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
The difference between a department's gross profit and its operating expenses.

Question 71

Roger owns an electronics store. He has divided his store into three departments. Net sales for the month of September are as follows: Advertising expense for September was $36,000.
​
Required:
Allocate the advertising expense among the three departments on the basis of relative net sales.

Question 72

Match the terms with the definitions.a.departmental direct operating margin
b.departmental gross profit
c.departmental operating expense summary
d.departmental operating income
e.direct expenses
f.indirect expenses
The assignment and allocation of departmental operating expenses, which shows the classification of each operating expense as direct or indirect, the amount assigned or allocated to each department, and total operating expenses for each department.