Deck 25: Departmentalized Profit and Cost Centers

Question 1

When a departmentalized income statement is prepared, the sales journal must also be departmentalized.

Answer 1

True

Question 2

Interest income and interest expense are treated as direct costs and are traced to departments or business segments.

Answer 2

False

Question 3

Miscellaneous Income must be traced to a specific department or segment.

Answer 3

False

Question 4

The amount of floor space occupied by each department is a common basis for allocating rent expense or utilities expense.

Question 5

Cost centers do not directly earn revenue.

Question 6

Decisions to retain, eliminate, expand or contract a segment of the business are based on the analysis of gross margin of the department or product.

Question 7

Responsibility accounting provides detailed data for each cost center and profit center so that management can determine how efficiently the individual segments are operating.

Question 8

In departmental accounting, any costs and expenses not directly related to a specific department are allocated to all departments.

Question 9

When a business is organized into separate departments, it is necessary to provide accounting information about each of the separate departments.

Question 10

A company may have several cost centers, but it can have only one profit center.

Question 11

For accounting purposes, both revenue and cost data are accumulated for a profit center.

Question 12

A business segment or department with a positive contribution margin contributes to increasing the net income of the business.

Question 13

Income from operations provides a better measure for determining whether a segment or department should be discontinued over contribution margin of the segment or department.

Question 14

Some indirect costs may be allocated to departments based on departmental sales in proportion to total sales.

Question 15

Contribution margin figures are provided in traditional financial reports such as the Income Statement.

Question 16

A segment or department with a negative contribution margin is often in jeopardy of being eliminated.

Question 17

Non-departmentalized expenses include items often found under the "Other Income and Other expense" section of the Income Statement.

Question 18

Traditional financial statements may not contain adequate information for managing a business.

Question 19

Management decisions involving the elimination of a department should be based primarily on the contribution margin of the department.

Question 20

The purchasing, information systems, and maintenance departments are examples of profit centers of a company.

Question 21

Semidirect and indirect expenses are allocated to the sales department at the time the expenses are incurred.

Question 22

Departments that provide services to other departments of the firm are often organized as
centers.

Question 23

The difficulty of fairly allocating direct expenses is one limitation of departmental income statements.

Question 24

Departmental financial statements are internal assessment tools used to assign responsibility for profits or losses.

Question 25

A department's is usually more heavily relied on than its net income or net loss when management is considering whether to eliminate the department.

Question 26

Office expenses, such as postage and stationery, should be allocated to the departments based on the contribution margin of each department.

Question 27

Eliminating a department that has a negative contribution margin would result in net income for the company than if the department were not eliminated.

Question 28

Nonoperating income, such as interest income, should be allocated to departments based on the total sales in each department.

Question 29

A systematic and logical way to allocate the for a building to various sales departments would be on the basis of floor space.

Question 30

In departmental accounting, expenses that can be closely identified to an individual department are
expenses.

Question 31

When total revenues equal total expenses, a business is said to .

Question 32

Expenses that are allocated to the departments can be rounded to the nearest whole dollar on the departmental income statements.

Question 33

Operating expenses that cannot be easily assigned to particular departments at the time transactions occur and are recorded are expenses.

Question 34

The breakeven point is when the equals the fixed expenses of the business.

Question 35

The fixed expenses of a business total $41,800. The company sells only one product for $46 per unit. The corresponding variable cost of the item sold is $24 per unit. To breakeven, the company must sell units.

Question 36

Office salaries expense is most commonly allocated to departments based on the total sales in each department.

Question 37

Expenses of a business that do not change in total with fluctuations in sales are
expenses.

Question 38

The difference between a department's gross profit on sales and its direct expenses is the
.

Question 39

Operating expenses that cannot be readily traced to and are not closely related to activity within a department are expenses.

Question 40

Contribution margin is another name for gross profit.

Question 41

Department A had total sales of $60,000 and Department B had total sales of $20,000. If office salaries expense is allocated on the basis of total sales, percent of the office salaries expense would be allocated to Department B.

Question 42

The Copying Department occupied 9,000 square feet of space and the Printing Department occupied 16,000 square feet of space in the same building. If janitorial costs for the building were
$15,000 and are allocated based on the floor space occupied, the amount of the janitorial costs allocated to the Copying Department would be .

Question 43

Managerial accounting is generally utilized to provide financial information about all of the following except

A)business segments.
B)business activities.
C)products.
D)corporate headquarters.

Question 44

Departmental Unit A had collected $250,000 of rent in the third quarter whereas Departmental Unit B had collected $750,000 in the same period. The accounting office supports both offices but spent more time collecting receivables for Unit B. The company chose to use rent collections as its basis for allocating the $152,000 in salary and benefits of the accounting department to each Unit. Departmental Unit B will have to absorb of cost related to accounting services for the third quarter.

Question 45

Costs that cannot be directly assigned to a specific department, but are closely related to departmental activities are categorized as:

A)indirect expenses.
B)direct expenses.
C)semidirect expenses.
D)general expenses.

Question 46

Which of the following enables management to evaluate the performance of each business segment?

A)responsibility accounting
B)transfer pricing
C)profit center costing
D)cost center costing

Question 47

When a company has departmentalized profit and cost centers, which of the following would not be reported separately?

A)General Office Expense.
B)Sales.
C)Purchases.
D)Merchandise inventories.

Question 48

A common way to allocate janitorial wages to various departments would be on the basis of
.

Question 49

An example of a direct expense in a department store is:

A)interest expense.
B)sales salaries expense.
C)rent expense for the building where the store is located.
D)utilities expense.

Question 50

If an attempt is made to identify and accumulate the revenue and cost data for a specific segment of a company, that segment is called a(n)center.

Question 51

Ace Company sells a variety of merchandise and wants to evaluate contribution margin by product line for the Plumbing, Outdoor Products, and Hardware departments. Gross profit for each of these departments was $285,000; $78,000 and $137,000, respectively. Direct expenses for each department were $136,000; $37,000; and $72,000, respectively. Indirect expenses were allocated to each department at 60% of the direct expense for each segment. The contribution margin of Plumbing was:

A)$203,400.
B)$149,000.
C)$94,600.
D)$67,400.

Question 52

Eldercare One, Two and Three are managed as a profit centers by the parent company. Revenues were $1,200,000, $500,000 and $300,000, respectively, and patients numbered 270, 80 and 50, respectively. Insurance costs of $625,000 are allocated to each center based on number of patients. Eldercare Two would be allocated cost of:

A)$156,250.
B)$208,333.
C)$125,000.
D)$80,000.

Question 53

Expenses that are closely related to and can easily be allocated to a specific department during an accounting period are:

A)operating expenses.
B)indirect expenses.
C)direct expenses.
D)allocated expenses.

Question 54

The basic principle of accounting is that management should be able to evaluate the performance of each segment of the business and assign responsibility for its financial results.

Question 55

The area of accounting that provides financial information about individual segments, activities, or products of a business is called accounting.

Question 56

Expenses that are closely related to the activities in each department, but cannot be allocated to any specific department are expenses.

Question 57

Floor space would be a reasonable basis for the allocation of:

A)rent expense for a building.
B)sales revenue.
C)payroll taxes expense.
D)advertising expense.

Question 58

Eliminating a department should eliminate all expenses of the department.

Question 59

The price at which goods are moved from one segment of a company to another is the
price.

Question 60

Which of the following is NOT a cost center?

A)accounting department
B)shoe department
C)purchasing department
D)research laboratory

Question 61

TBS Toys purchases a product from overseas, including insurance and shipping costs, for $62 per unit. TBS marks the toy up by 35% to $83.70. Other traceable direct costs amount to $4.10 per unit. The indirect costs associated with this product amount to $51,920. How many toys must TBS sell in order to break even?

A)2,950.
B)2,393.
C)621.
D)2,250.

Question 62

Taylor and King, CPAs installed a new computer system. When the needs of the various divisions were analyzed, it was determined that the Audit Division would require 25% of the capacity, the Tax Division would require 45% of the capacity, and the Business Consulting Division would require 30% of the capacity. The computer system will cost $270,000.

-
How much of the computer system's cost will be allocated to the Tax Division?

A)$90,000.
B)$67,500.
C)$121,500.
D)$81,000.

Question 63

One department in a company had a contribution margin of $18,000 and a net loss from operations of $3,000. The indirect expenses allocated to this department would have been incurred whether or not the department existed. If this department had been eliminated, the company's reported net income would have been:
A)$18,000 lower.

A)$3,000 higher.
B)$15,000 lower.
D)the same with or without the department.

Question 64

Department A had total sales of $84,000 and Department B had total sales of $36,000. Other Office Expenses, totaling $3,100, are allocated to the departments based on total sales.

-The amount of Other Office Expense allocated to Department A is:

A)$750.
B)$930.
C)$1,250.
D)$2,170.

Question 65

XYZ Company has four sales territories and is considering eliminating the Great Lakes Region which had sales of $110,000, direct expenses of $70,000 and indirect expenses of $60,000. If the Great Lakes Region is eliminated, 80% of the indirect expenses would still remain. If this region were to be eliminated, the company's overall net income would be:

A)$12,000 higher.
B)$10,000 higher.
C)$40,000 lower.
D)$28,000 lower.

Question 66

The transfer price is:

A)the price for which a company sells its products to customers.
B)the price at which a company purchases its products from a supplier.
C)the basis on which indirect expenses are allocated.
D)the price at which goods are moved from one department of a company to another department of the company.

Question 67

Department XYZ had sales of $96,000, direct expenses of $58,000 and indirect expenses of $53,000. The indirect expenses allocated to this department would have been incurred whether or not the department existed. If this department had been eliminated, the company's reported net income would have been:

A)$58,000 higher.
B)$38,000 lower.
C)$53,000 lower.
D)$15,000 higher.

Question 68

The telephone expense is allocated to the departments based on floor space occupied. Department A occupies 1,875 square feet and Department B occupies 625 square feet. If the telephone expense is $880, the amount allocated to Department A is:

A)$660.
B)$880.
C)$440.
D)$220.

Question 69

Department B had net sales of $70,000, gross profit on sales of $32,000, total direct expenses of
$10,200, and total indirect expenses of $5,800. Department B's contribution margin is:

A)$21,800.
B)$32,000.
C)$16,000.
D)$26,200.

Question 70

Department B had net sales of $82,000, gross profit on sales of $41,600, total direct expenses of $12,500, and total indirect expenses of $7,300. Department B's net income is:

A)$29,100.
B)$20,600.
C)$34,300.
D)$21,800.

Question 71

In a store with several sales departments, departmentalized accounts would be used for

A)sales only.
B)sales and other income items only.
C)sales, purchases, and merchandise inventory.
D)all expense accounts.

Question 72

Department A had total sales of $84,000 and Department B had total sales of $36,000. Other Office Expenses, totaling $3,100, are allocated to the departments based on total sales.

- The amount of Other Office Expense allocated to Department B is:

A)$750.
B)$930.
C)$1,250.
D)$2,170.

Question 73

If a segment of business is considered a profit center:

A)it must sell products or services to customers outside the business.
B)only revenue is accumulated for the segment.
C)no indirect expenses can be allocated to the segment.
D)both revenue and cost data must be accumulated for the segment.

Question 74

A department probably would be considered for elimination if it had:

A)a positive contribution margin and a net income from operations.
B)a positive contribution margin and a net loss from operations.
C)a negative contribution margin and a net loss from operations.
D)a net loss, regardless of the contribution margin.

Question 75

Taylor and King, CPAs installed a new computer system. When the needs of the various divisions were analyzed, it was determined that the Audit Division would require 25% of the capacity, the Tax Division would require 45% of the capacity, and the Business Consulting Division would require 30% of the capacity. The computer system will cost $270,000.

-
How much of the computer system's cost will be allocated to the Audit Division?

A)$90,000.
B)$67,500.
C)$121,500.
D)$81,000.

Question 76

The procedure for assigning indirect expenses to departments at the end of an accounting period is called

A)valuation.
B)amortization.
C)distribution.
D)allocation.

Question 77

Which of the following measurements provides a better basis for eliminating a department?

A)a positive contribution margin and income from operations.
B)fixed expenses that exceed contribution margin.
C)fixed and variable expenses that exceed contribution margin.
D)the contribution margin equals fixed expenses.

Question 78

Indirect expenses of the human resource of a company might include:

A)wages of the human resource manager.
B)benefits of the department secretary.
C)supplies ordered and used by the department.
D)rent expense.

Question 79

The contribution margin of a department is the difference between:

A)its net sales and the total expenses.
B)its gross profit on sales and its direct expenses.
C)its gross profit on sales and its indirect expenses.
D)its net sales and its cost of goods sold.

Question 80

Department X began the current year with $26,000 in inventory. During the year, Department X net purchases amounted to $72,000 and its ending inventory was $13,600. Sales during the year totaled $162,000, other direct expenses were $33,800, and total indirect expenses of $24,200. Department X's contribution margin is

A)$84,400.
B)$43,800.
C)$77,600.
D)$53,400.