Question 1

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

Accepted Answer

It is possible for departments to be considered profit centers if they generate revenue and their expenses are less than the revenue they generate.

Question 2

A cost center does not directly generate revenues.

Accepted Answer

A cost center is a department or function within a company that incurs expenses but does not directly generate revenue. Its main purpose is to support other departments and overall business operations.

Question 3

A department that is responsible for maximizing revenues is known as a profit center.

Accepted Answer

A profit center is a department or business unit that is responsible for generating revenue and profits for the organization.

Question 4

A selling department is usually evaluated as a profit center.

Accepted Answer

A profit center is a department or unit within an organization that generates revenue and is responsible for its own financial performance. Since the selling department is responsible for generating revenue through sales, it is evaluated as a profit center.

Question 5

Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.

Accepted Answer

Departmental information is often considered proprietary and may not be disclosed in detail to the public in a company's annual report and footnotes, as it can contain sensitive or competitive information.

Question 6

Evaluation of the performance of managers of profit centers assumes that the managers can control or influence both costs and revenue generation.

Accepted Answer

Evaluation of the performance of managers of profit centers assumes that the managers have control or influence over both costs and revenue generation. Profit centers are responsible for generating revenue and controlling costs, making it necessary for their managers to be able to influence both aspects to achieve their goals.

Question 7

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

Accepted Answer

Direct costs are costs that can be directly traced to a specific product, process, or project, while controllable costs are costs that management can control or influence. Similarly, indirect costs are costs that cannot be directly traced to a specific product, process, or project, while uncontrollable costs are costs that management cannot influence or control. Therefore, the two concepts are not essentially the same.

Question 8

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

Accepted Answer

Indirect expenses are those expenses which cannot be directly attributed to a particular department or cost center. Therefore, in order to allocate them, it is necessary to determine the benefits received by each department from these expenses. This can be done by using an appropriate basis of allocation, such as the number of employees, the area occupied, or the machine hours used by each department. By doing so, each department can be charged an appropriate share of indirect expenses based upon the benefits received.

Question 9

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

Accepted Answer

Joint costs are costs incurred in producing two or more products simultaneously. These costs can be allocated either based on the physical quantity of each product or based on the relative value of each product.

Question 10

A department's direct expenses can be entirely avoided if the department manager carefully controls and monitors operations.

Accepted Answer

Direct expenses are costs that can be directly attributed to a specific department or product and are not typically avoidable through management actions alone, as they are necessary for the production or operation of the department.

Question 11

Evaluation of the performance of a department involves only financial measures.

Accepted Answer

While financial measures are a key aspect of evaluating departmental performance, they should not be the only measure used. Other factors such as customer satisfaction, employee engagement, and productivity should also be taken into consideration.

Question 12

Generally,it does not matter how cost allocations are designed and explained,because most managers do not care whether the allocations appear to be fair or not.

Accepted Answer

Cost allocations can have significant impacts on budgeting, forecasting, and decision-making. Managers generally strive for fairness and accuracy in cost allocations to ensure they have the most reliable information possible.

Question 13

Departmental wage expenses are direct expenses of that department.

Accepted Answer

Departmental wage expenses are a cost that can be specifically attributed to a particular department, thus making them a direct expense of that department.

Question 14

Investment center is another name for profit center.

Accepted Answer

The answer of Investment center is another name for profit...

Question 15

Direct costs require allocation across departments.

Accepted Answer

Direct costs are directly attributable to a specific department or project and do not require allocation across departments.

Question 16

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

Accepted Answer

A responsibility accounting performance report compares actual costs to budgeted costs amounts for each responsibility center or department to evaluate their performance. It helps in identifying areas of inefficiency and taking corrective actions to improve performance.

Question 17

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

Accepted Answer

Joint costs are costs incurred in the process of producing two or more products simultaneously from the same raw material or input, not for a single product.

Question 18

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

Accepted Answer

The number of hours that equipment and machinery are used in a department is a common activity-based method to allocate depreciation expense. It is based on the assumption that the more the equipment is used, the more it wears out and decreases in value. Therefore, it is reasonable to allocate depreciation based on the usage hours to accurately reflect the reduction in the asset's value over time.

Question 19

Advertising expense can be reasonably allocated to departments on the basis of sales.

Accepted Answer

Advertising expense is often allocated to departments based on the assumption that the more sales a department generates, the more advertising expense it requires. This method of allocating advertising expense is known as sales-based allocation. However, other methods such as equal allocation or usage-based allocation can also be used.

Question 20

Controllable costs are the same as direct costs.

Accepted Answer

Direct costs refer to expenses that are directly related to the production of goods or services, while controllable costs are costs that can be managed or influenced by a business or manager. While some direct costs may be controllable, not all controllable costs are direct costs.

Quiz 24: Performance Measurement and Responsibility Accounting