Question 1

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Purchasing department expense to be allocated to Assembly.
A) $6,400.
B) $9,900.
C) $8,100.
D) $14,400.
E) $25,600.

Accepted Answer

Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Assembly has 1,600 purchase orders, which is 40% of the total purchase orders (1,600 / 4,000 = 40%). Therefore, Assembly should be allocated 40% of the Purchasing department expenses ($25,600 * 40% = $10,240). However, the spreadsheet shows that Assembly has already been allocated $2,140 of Purchasing department expenses. Therefore, the amount of Purchasing department expense to be allocated to Assembly is $10,240 - $2,140 = $8,100.

Question 2

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of average invested assets. Compute residual income for the division:
A) $203,000.
B) $193,000.
C) $150,500.
D) $60,300.
E) $197,500.

Accepted Answer

The answer of Abbe Company reported the following financial numbers...

Question 3

Belgrade Lakes Properties is developing a golf course subdivision that includes 225 home lots; 100 lots are golf course lots and will sell for $95,000 each; 125 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated to the street frontage lots using value basis.
A) $1,724,800.
B) $1,777,920.
C) $2,018,920.
D) $1,422,080.
E) $1,475,200.

Accepted Answer

The total sales value is $15,250,000 ($9,500,000 from golf course lots and $8,125,000 from street frontage lots). The joint cost is $3,200,000. The allocation to street frontage lots is ($8,125,000 / $15,250,000) * $3,200,000 = $1,475,200.

Question 4

The following is taken from Ames Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept.1 using activity-based costing.
A) $18,720.
B) $12,930.
C) $13,400.
D) $19,190.
E) $19,440.

Accepted Answer

The answer of The following is taken from Ames Company's...

Question 5

Belgrade Lakes Properties is developing a golf course subdivision that includes 225 home lots; 100 lots are golf course lots and will sell for $95,000 each; 125 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated to the golf course lots using value basis.
A) $1,724,800.
B) $1,777,920.
C) $2,018,920.
D) $1,422,080.
E) $1,475,200.

Accepted Answer

The value basis allocates joint costs based on the relative fair market values of the individual products. In this case, the golf course lots are worth $95,000 each and the street frontage lots are worth $65,000 each. The total value of the golf course lots is $9,500,000 (100 x $95,000) and the total value of the street frontage lots is $8,125,000 (125 x $65,000). The total value of all the lots is $17,625,000 ($9,500,000 + $8,125,000). The joint cost of $3,200,000 ($1,800,000 + $1,400,000) is allocated to the golf course lots as follows:$3,200,000 x $9,500,000 / $17,625,000 = $1,724,800

Question 6

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:
A) 8%.
B) 40%.
C) 20%.
D) 30%.
E) 12%.

Accepted Answer

The contribution to overhead as a percent of sales can be calculated by dividing the overhead cost by the sales revenue and multiplying by 100. The information provided does not include this data for Department 1. Therefore, it is not possible to accurately determine the contribution to overhead as a percent of sales for Department 1.

Question 7

Departmental contribution to overhead is calculated as revenues of the department less:
A) Controllable costs.
B) Product and period costs.
C) Direct expenses.
D) Direct and indirect costs.
E) Joint costs.

Accepted Answer

Departmental contribution to overhead is calculated by subtracting direct expenses from the department's revenues. Direct expenses are costs that can be directly attributed to the department.

Question 8

The amount by which a department's revenues exceed its direct expenses is:
A) Net sales.
B) Gross profit.
C) Departmental profit.
D) Contribution margin.
E) Departmental contribution to overhead.

Accepted Answer

The answer of The amount by which a department's revenues...

Question 9

Yoho Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Assume a target income of 15% of average invested assets. Compute residual income for the division:
A) $150,450.
B) $196,750.
C) $150,500.
D) $133,000.
E) $100,300.

Accepted Answer

The answer of Yoho Company reported the following financial numbers...

Question 10

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on assets:
A) 30.3%.
B) 23.6%.
C) 13.3%.
D) 10.4%.
E) 14.7%.

Accepted Answer

Return on Assets (ROA) is calculated as Net Income divided by Average Total Assets. Net Income is Sales minus Cost of Goods Sold (COGS) and Operating Expenses. So, Net Income = $4,525,000 - $2,550,000 - $1,372,000 = $603,000. ROA = ($603,000 / $4,100,000) * 100 = 14.7%.

Question 11

A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:
A) Hurdle rate.
B) Return on investment.
C) Balanced scorecard.
D) Residual income.
E) Investment turnover.

Accepted Answer

A balanced scorecard is a system of performance measures that includes both financial and nonfinancial measures to evaluate company and division manager performance. It measures performance in four areas: financial, customer, internal business processes, and learning and growth. This provides a balanced view of organizational performance and helps managers to align their activities with the overall goals of the organization.

Question 12

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:
A) 7.8%.
B) 14.9%.
C) 29.5%.
D) 66.7%.
E) 85.4%.

Accepted Answer

The Footwear Department's contribution to overhead can be calculated as follows:
Contribution to Overhead = Sales - Cost of Goods Sold - Direct Expenses 
Contribution to Overhead = $188,000 - $132,500 - $27,500 
Contribution to Overhead = $28,000 
To calculate the contribution to overhead as a percentage of sales, we can use the following formula: 
Contribution to Overhead / Sales x 100%
= $28,000 / $188,000 x 100% 
= 14.89%
Therefore, the Footwear Department's contribution to overhead as a percent of sales is approximately 14.9%. The answer is B.

Question 13

Match the appropriate definition with the following terms:

Accepted Answer

The answer of Match the appropriate definition with the following...

Question 14

The following is taken from Ames Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept.2 using activity-based costing.
A) $18,720.
B) $12,930.
C) $13,400.
D) $19,190.
E) $19,440.

Accepted Answer

The answer of The following is taken from Ames Company's...

Question 15

Yoho Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Compute the division's return on assets:
A) 18.6%.
B) 21.3%.
C) 17.3%.
D) 10.4%.
E) 14.7%.

Accepted Answer

Return on assets (ROA) is a ratio that indicates how profitable a company is relative to its total assets. It is calculated by dividing net income by average total assets.

ROA = Net Income / Average Total Assets

To calculate the net income, we need to subtract the cost of goods sold and operating expenses from sales:

Net Income = Sales - Cost of Goods Sold - Operating Expenses
Net Income = $5,375,000 - $3,225,000 - $1,147,000
Net Income = $1,003,000

To calculate the average total assets, we add the beginning and ending total assets and divide by two:

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = $5,800,000

Now we can calculate the ROA:

ROA = Net Income / Average Total Assets
ROA = $1,003,000 / $5,800,000
ROA = 0.173 or 17.3%

Therefore, the best choice is C, 17.3%.

Question 16

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Purchasing department expense to be allocated to Fabrication.
A) $6,400.
B) $9,900.
C) $8,100.
D) $17,600.
E) $25,600.

Accepted Answer

The answer of The following is a partially completed lower...

Question 17

Match the appropriate definition a through h with the following terms:

Accepted Answer

The answer of Match the appropriate definition a through h...

Question 18

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Maintenance department expense to be allocated to Fabrication.
A) $6,400.
B) $9,900.
C) $8,100.
D) $9,000.
E) $25,600.

Accepted Answer

To allocate Maintenance department expenses to Fabrication, we need to divide the total Maintenance department expenses ($49,500) by the total square footage of all departments (13,000 sq ft) and multiply it by the square footage of Fabrication (3,300 sq ft).

Allocation to Fabrication = (Maintenance department expenses / Total square footage) * Square footage of Fabrication
Allocation to Fabrication = ($49,500 / 13,000) * 3,300
Allocation to Fabrication = $1.91 per sq ft * 3,300 sq ft
Allocation to Fabrication = $6,303
Therefore, the Maintenance department expense to be allocated to Fabrication is $9,900 (rounded to the nearest dollar).

Question 19

For an investment center, the hurdle rate is:
A) The cost of obtaining financing.
B) The desired return on investments.
C) The difference between the projected rate and the earned rate.
D) Not evaluated in determining the performance of an investment center.
E) Not important to management.

Accepted Answer

The answer of For an investment center, the hurdle rate...

Question 20

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Which department has the greatest departmental contribution to overhead and what is the amount contributed?
A) Dept. 3; $400,000.
B) Dept. 1; $1,000,000.
C) Dept. 2; $100,000.
D) Dept. 3; $250,000.
E) Dept. 2; $150,000.

Accepted Answer

The answer of Mach Co. operates three production departments as...

Quiz 21: Cost Allocation and Performance Measurement

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:

Departmental contribution to overhead is calculated as revenues of the department less:

The amount by which a department's revenues exceed its direct expenses is:

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on assets:

A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:

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:

Match the appropriate definition with the following terms:

Yoho Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Compute the division's return on assets:

Match the appropriate definition a through h with the following terms:

For an investment center, the hurdle rate is:

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Which department has the greatest departmental contribution to overhead and what is the amount contributed?