Deck 25: Departmentalized Profit and Cost Centers

Question 1

Allocated expenses can be rounded to the nearest whole dollar on departmental income statements.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Nonoperating income, such as interest income, should be allocated on the basis of total sales in each department.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Office expenses such as postage and stationery should be allocated on the basis of contribution margin of each department.

Question 8

Contribution margin is another name for gross profit.

Question 9

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

Question 10

A department that has a positive contribution margin is contributing something toward the net income of the business.

Question 11

Cost centers do not directly earn revenue.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Some indirect costs may be allocated on the basis of departmental sales in proportion to total sales.

Question 18

Office salaries expense should be allocated on the basis of total sales in each department.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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 25

Department A had total sales of $40,000 and Department B had total sales of $10,000. If office salaries expense is allocated on the basis of total sales, ____________________ percent would be used to determine the allocation for Department
B.

Question 26

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

Question 27

A department's ____________________ is usually more important than its net income or net loss when management is considering whether to close the department.

Question 28

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

Question 29

The Copying Department occupied 9,000 square feet of space and the Printing Department occupied 6,000 square feet of space in the same building. If janitorial costs for the building were $12,000, then the amount that the Copying Department would be allocated for janitorial services would be ________________.

Question 30

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

Question 31

Eliminating a department should eliminate all ____________________ expenses of the department.

Question 32

When a company has departmentalized profit and cost centers each of the following is reported separately except for

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

Question 33

Which of the following is NOT a cost center?

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

Question 34

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

Question 35

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

Question 36

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 37

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

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

Question 38

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

Question 39

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

Question 40

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

Question 41

The telephone expense is allocated on the basis of floor space. Department A occupies 1,875 square feet and Department B occupies 625 square feet. If the telephone expense is $600, the amount allocated to Department A is

A) $150.
B) $300.
C) $450.
D) $288.

Question 42

Department XYZ had sales of $90,000, direct expenses of $60,000 and indirect expenses of $50,000. 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) $20,000 higher.
B) $30,000 higher.
C) $20,000 lower.
D) $30,000 lower.

Question 43

Department A had total sales of $84,000 and Department B had total sales of $36,000. Other Office Expenses, totaling $2,500, are allocated on the basis of total sales. The amount allocated to Department B is

A) $750.
B) $1,750.
C) $1,250.
D) $1,071.

Question 44

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

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

Question 45

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 46

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 47

Department A had gross profit on sales of $20,000, contribution margin of $12,000, total direct expenses of $8,000, and total indirect expenses of $7,000. Department A has

A) a net income from operations of $5,000.
B) a net income from operations of $4,000.
C) a net loss from operations of $4,000.
D) a net loss of $7,000.

Question 48

The contribution margin of a department is the difference between

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

Question 49

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

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

Question 50

Department A had total sales of $84,000 and Department B had total sales of $36,000. Other Office Expenses, totaling $2,500, are allocated on the basis of total sales. The amount allocated to Department A is

A) $750.
B) $1,750.
C) $1,250.
D) $1,071.

Question 51

A transfer price is

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

Question 52

Expenses that are closely related to a particular department and can easily be assigned to it during an accounting period are called

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

Question 53

If a segment of business is considered a profit center

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

Question 54

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 55

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

A) $96,000.
B) $60,000.
C) $84,000.
D) $80,000.

Question 56

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

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

Question 57

Department B had net sales of $70,000, gross profit on sales of $35,000, total direct expenses of $9,000, and total indirect expenses of $6,000. Department B's contribution margin is

A) $20,000.
B) $29,000.
C) $26,000.
D) $35,000.

Question 58

How much of the computer system's cost will be allocated to the Business Consulting Division?

A) $96,000.
B) $60,000.
C) $84,000.
D) $80,000.

Question 59

Department B had net sales of $70,000, gross profit on sales of $35,000, total direct expenses of $9,000, and total indirect expenses of $6,000. Department B's net income is

A) $20,000.
B) $29,000.
C) $26,000.
D) $35,000.

Question 60

One department in a company had a contribution margin of $15,000 and a net loss from operations of $2,000. 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) $2,000 higher.
B) $15,000 lower.
C) $13,000 lower.
D) the same with or without the department.

Question 61

Examine the following partial Income Statement for Gemology Products and determine whether or not to close the Jewelry Department. If the Jewelry Department is closed, the Insurance Expense will be reduced by $500 and one office employee part time position will be eliminated. That position pays $6,500 a year. The other expenses will remain.

Question 62

City Shoe's insurance expense for the year totaled $6,300 and is to be allocated on the basis of the book value of inventory and equipment in each department. Using the financial data given below, compute the amount allocated to each department.
Book value of inventory and equipment:
(1) Women's Shoes, $79,800
(2) Men's Shoes, $69,300
(3) Children's Shoes, $60,900

Question 63

The Whippleton Department had gross profit on sales of $120,000, contribution margin of $60,000, total direct expenses of $18,000, and total indirect expenses of $52,000. The Whippleton Department has

A) a net income from operations of $42,000.
B) a net income from operations of $8,000.
C) a net income from operations of $50,000.
D) a net loss from operations of $10,000.

Question 64

Semidirect and indirect expenses are treated the same for accounting purposes. At the end of the accounting period they are

A) recorded by the department they relate to.
B) allocated.
C) charged to headquarters (corporate) general expenses.
D) treated as direct expenses.

Question 65

Unit Manufacturing Company has a Northeast Division, a Central Division and a Southwest Division and a travel department which supports the employees in all three divisions. The $144,000 in travel department expenses is allocated to the divisions based on the number of reservations required by each of the divisions. If the Northeast Division requires 1,700 reservations and the Central Division requires 2,800 reservations, and the Southwest Division requires 3,500 reservations, calculate the amount of travel department costs that will be allocated to each of the divisions.

Question 66

Prestige Corporation has Sales of $98,500, Indirect Expenses of $26,000, Direct Expenses of $62,400, and Cost of Goods Sold of $49,600. What is Prestige Corporation's Contribution Margin?

A) $36,100
B) ($13,500)
C) ($39,500)
D) $48,900

Question 67

Departmental income statements provide management with information necessary for decision-making. Which of the following is NOT a decision made possible by these statements?

A) where improvements in the profitable departments are needed
B) which departments to expand
C) whether or not to eliminate a department
D) what base to use to allocate costs

Question 68

City Shoe's loss from uncollectible accounts is estimated to be one-half of 1 percent of net credit sales. Using the financial data given below, compute the amount allocated to each department.
Credit sales:
(1) Women's Shoes, $278,200
(2) Men's Shoes, $185,800
(3) Children's Shoes, $116,000
Sales returns and allowances (credit sales):
(1) Women's Shoes, $2,200
(2) Men's Shoes, $1,800
(3) Children's Shoes, $1,000

Question 69

Complete the table of Uncollectible Accounts given below.

Question 70

Which of the following is NOT a limitation to using departmental operating income?

A) It is difficult to determine each department's fair share of semidirect and indirect expenses.
B) If one department is eliminated, many of the expenses allocated to it would continue.
C) Managers rely more on contribution per department than on income from operations.
D) It highlights the individual department's financial information.

Question 71

Which of the following is usually not departmentalized?

A) depreciation expense
B) interest expense
C) payroll taxes expense
D) rent expense

Question 72

Cody Reese, manager of Cobra Sports, Ink, decided to eliminate its Division
A) Division A had a contribution margin of $14,000 and a loss from operations of $2,500. What other information does Cody need to make the correct decision?

A) which direct expenses will still be incurred
B) the amount of Cost of Goods Sold
C) the Gross Profit on Sales
D) which of the indirect expenses will still be incurred

Question 73

Data related to the income and expenses of Moffet Company for the year ended December 31, 2013, are shown below. Use this information to prepare a departmental income statement showing contribution margin and net income of each department.

Question 74

Barista Coffee Shoppe and Store has two departments. The Store sells ground coffees, coffee beans, grinders, coffee makes, cappuccino machines, mugs, aprons, flavored additives, and flavored creamers. The Shoppe sells brewed coffees. Prepare the gross profit section of the Income Statement for Barista Coffee Shoppe and Store as of its yearend on June 30, 2013 using the information given. Include the proper heading.

Question 75

Prepare the Operating Expenses section of the Income Statement for Sanjam Company at yearend, March 31, 2013. The Gross Profit for Sanjam Petit Fours is $36,500 and for Chocolates it is $102,350. (Hint: The first line of your partial Income Statement after the heading should be Operating Expenses, and the final line should be Total Indirect Expenses. Include Contribution Margin in its proper place.)

Question 76

City Shoe's office expenses for the year totaled $63,000 and are to be allocated on the basis of the total sales of each department. Using the financial data given below compute the amount allocated to each department.
Total sales:
(1) Women's Shoes, $322,500
(2) Men's Shoes, $270,000
(3) Children's Shoes, $157,500

Question 77

McKay Corporation has Sales of $147,500, Cost of Goods Sold of $70,200, Direct Expenses of $35,300, and Indirect Expenses of $30,000. What is McKay Corporation's Contribution Margin?

A) $77,300
B) $47,300
C) $42,000
D) $12,000

Question 78

City Shoe's custodial expense for the year totaled $7,000 and is to be allocated on the basis of the floor space occupied by each department. Using the financial data given below, compute the amount allocated to each department.
Floor space occupied:
(1) Women's Shoes, 6,615 sq. ft.
(2) Men's Shoes, 5,145 sq. ft.
(3) Children's Shoes, 2,940 sq. ft.

Question 79

The departments of Cacophony Music Company are listed below. For each, determine whether it is a cost center or a profit center.
________ 1. Instrument Rental Department
________ 2. Instrument Repair Department
________ 3. Accounting Department
________ 4. Recording Studio
________ 5. Maintenance Department
________ 6. Sheet Music Department
________ 7. Storeroom
________ 8. Customer Service
________ 9. CDs and Tapes Department
________ 10. Purchasing & Receiving

Question 80

Shigley and Lothian, CPAs, allocate the expenses of the duplicating center to the Audit Department and the Tax Department, based on the number of copies that each department requests. During 2014, the Audit Department requested 80,000 copies and the Tax Department requested 120,000 copies. Total expenses of the duplicating center were $640,000 in 2014. How much of the duplicating center's expenses will be allocated to the Audit Department and the Tax Department?