Deck 25: Departmentalized Profit and Cost Centers

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Nondepartmentalized expenses include items often found under "Other Income and Other expense".

Question 8

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

Question 9

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

Question 10

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

Question 11

A segment or department that has a negative contribution margin is often in jeopardy of being closed.

Question 12

Cost centers do not directly earn revenue.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Expenses that do not change in total with a fluctuation in volume of unit sales of a business are ____________________ expenses.

Question 24

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

Question 25

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

Question 26

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

Question 27

Contribution margin is another name for gross profit.

Question 28

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

Question 29

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

Question 30

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

Question 31

A business is said to ________________ when total revenues equal total expenses.

Question 32

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

Question 33

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 34

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

Question 35

The breakeven point occurs when the ____________________ equals the fixed expenses of the business.

Question 36

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

Question 37

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

Question 38

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

Question 39

The fixed expense of a business totals $35,000.The company sells only one product for $45 per unit.The corresponding variable cost of the item sold is $25 per unit.To breakeven,the company must sell ___________ units.

Question 40

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

Question 41

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 42

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

Question 43

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

Question 44

Apartment Unit A had collected $250,000 of rent in the third quarter whereas Apartment Unit B had collected $750,000 in the same period.The accounting office supports both offices with more time spent collecting receivables for Unit B.The company chose to use rent collections as its basis for allocating $125,000 in salary and benefits of the accounting department to each Unit.Apartment Unit B will have to absorb ____________ of cost related to accounting services for the quarter just ended.

Question 45

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 46

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

Question 47

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 48

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 49

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 50

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 51

Ace Company sells a variety of merchandise and wants to evaluate contribution margin by product line for 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 respectively were $122,000;$34,000;and $64,000.Indirect expenses were allocated to each department based on 70% of the direct expense for each segment.The contribution margin of Plumbing was:

A) $163,000.
B) $77,600.
C) $20,200.
D) $28,200.

Question 52

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

Question 53

Which of the following is NOT a cost center?

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

Question 54

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 55

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 $400,000 are allocated to each center based on number of patients.Eldercare Two would be allocated cost of:

A) $100,000.
B) $80,000.
C) $60,000.
D) $50,000.

Question 56

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

Question 57

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 58

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 59

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 60

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 61

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 62

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 63

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 64

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 40% of the capacity,the Tax Division would require 25% of the capacity,and the Business Consulting Division would require 35% of the capacity.The computer system will cost $240,000. 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 65

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

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

Question 66

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 40% of the capacity,the Tax Division would require 25% of the capacity,and the Business Consulting Division would require 35% of the capacity.The computer system will cost $240,000. 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 67

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 68

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 69

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 70

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

A) Positive contribution margin and income from operations.
B) Fixed and variable expenses exceed contribution margin.
C) Fixed expenses exceed contribution margin.
D) Contribution margin equals fixed expenses.

Question 71

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 72

TBS Toys purchases a product from overseas including insurance and shipping costs for $65 per unit.TBS marks the toy up 30% to $84.50.Other traceable direct costs amount to $4.50 per unit.The indirect costs associated with this product amount to $45,000.How many toys must TBS sell in order to break even?

A) 1,875.
B) 2,308.
C) 3,000.
D) 2,250.

Question 73

XYZ Company has four sales territories and is considering eliminating the Great Lakes Region which had sales of $100,000,direct expenses of $70,000 and indirect expenses of $50,000.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) $20,000 higher.
B) $30,000 higher.
C) $20,000 lower.
D) $40,000 lower.

Question 74

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 75

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 76

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 77

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 78

Department X began the current year with $20,000 in inventory.During the year,Department X net purchases amounted to $65,000 and its ending inventory was $12,000.Sales during the year totaled $170,000,other direct expenses were $37,000,and total indirect expenses of $25,000.Department B's contribution margin is

A) $35,000.
B) $37,000.
C) $60,000.
D) $97,000.

Question 79

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 80

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.