Question 1

The biggest problem with allocating indirect expenses to segments is that:

Accepted Answer

Allocating indirect expenses to segments can be somewhat arbitrary and subjective, as there may be multiple ways to allocate these expenses based on different assumptions and methods. As a result, the results of allocating indirect expenses can vary widely depending on the allocation method used. This can create inconsistency and difficulties when comparing the performance of different segments.

Question 2

The fixed budget performance report of Discount Sale Pty Ltd for the year ended 30 June 2011 shows budgeted manufacturing costs of $420 000 and actual manufacturing costs of $370 000.The favourable variance of $50 000 must have been due to:

Accepted Answer

D

Question 3

The item,department or job for which costs are accumulated is called a:

Accepted Answer

A cost object is the specific item, department, or job for which costs are accumulated. It is used in cost accounting to enable the calculation of the cost of goods sold and the determination of the profitability of different products, departments or services.

B, C, and D are not correct as they are not the specific term used for the item, department or job for which costs are accumulated.

Question 4

Which of these departments would not be considered a service department for a tyre retailer?

Accepted Answer

The workshop is a core operational department for a tyre retailer, as it directly involves the fitting and repair of tyres, unlike the other departments which provide support services.

Question 5

Management by exception means:

Accepted Answer

Management by exception is a management approach where managers only investigate and intervene in situations where actual results differ significantly from planned results. This means that they focus on identifying and addressing deviations or exceptions from the plan, rather than scrutinizing every detail of operations.

Question 6

Which of these statements is not true? A responsibility accounting system:

Accepted Answer

A responsibility accounting system does not only recognise that expenses are the collective responsibility of the organisation but also measures and holds individual managers responsible for costs and income over which they have control. Therefore, statement A is not true.

Question 7

Y Co allocates advertising expenses to its two departments,A and B,on the basis of sales.For the current year the sales for department A are $200,000 and for department B $800,000 and total advertising expenses are $16,800.The amount allocated to the two departments is:

Accepted Answer

The advertising expenses are allocated on the basis of sales. So, the ratio of sales of department A to that of department B is 200,000:800,000 or 1:4. Therefore, the advertising expenses allocated to department A will be 1/5 of the total expenses and that to department B will be 4/5 of the total expenses. Hence, the amount allocated to department A is $16,800 * 1/5 = $3,360 and that to department B is $16,800 * 4/5 = $13,440.

Question 8

The statement that is not true is:

Accepted Answer

Performance reports should present the causes of variances to help managers understand why there may be differences between actual and expected results. Providing this information enables managers to take corrective actions and make better decisions in the future.

Question 9

A flexible is a budget where:

Accepted Answer

A flexible budget is a budget that adjusts to changes in the actual level of activity, and includes estimates for a range of activities, rather than just one level. This allows for greater flexibility in responding to changes in the business environment, and more accurate estimates of costs and revenues. Fixed costs are still included in a flexible budget, but they are separated from variable costs, which vary with the level of activity. The estimates can be revised if they are not attained, allowing for better planning and control. The preparation of a flexible budget should not be postponed if the entity is busy or short-staffed, as timely budgeting is essential for effective management.

Question 10

The Corporation has three departments,Widgets,Ridgets and Digits.At the end of the accounting period the following information is available. $\begin{array}{|l|r|r|r|r|}
\hline & \text { Widgets } & \text { Ridgets } & \text { Digits } & \text { Total } \
\hline \text { Net Sales } & \$ 5000 & \$ 9000 & \$ 6000 & \$ 20000 \
\hline \text { Cost of sales }& \underline{3000} & \underline{400} & \underline{2400} & \underline{900} \
\hline \text { Gross Profit }&\$ 2000 & 4500 & \$ 3600 & \$ 10100 \
\hline \text { Direct Operating Exps }&\underline{500} & \underline{1000} & \underline{1500} & {3000} \
\hline \text { Departmental Margin }&1500 & \$ 3500 & \$ 2100 & \$ 7100 \
\hline \text { Indirect Operating Exps }&& & & \underline{3000} \
\hline \text { Profit }&& & & \$ 4100 \
\hline 
\end{array}$ The Corporation is considering eliminating the Widgets department.What will be the change in The Corporation's profit if the Widgets department is eliminated? Assume that all indirect expenses are unavoidable and that all other circumstances are held constant.

Accepted Answer

The answer of The Corporation has three departments,Widgets,Ridgets and Digits.At...

Question 11

Department A has a gross profit of $20,000,direct departmental expenses of $6,400 and allocated expenses of $19,000 giving a net loss of $5,400.What would be the effect on the total organisation's profit if Department A was closed?

Accepted Answer

If Department A is closed, the direct departmental expenses of $6,400 will no longer exist, but the allocated expenses of $19,000 will still be incurred by the organization. Therefore, the total expense reduction would be $6,400, which would lead to an increase in the organization's profit by $5,400 ($20,000 gross profit minus $19,000 allocated expenses after the closure of Department A). However, since Department A currently has a net loss of $5,400, closing it would remove this loss, resulting in a total decrease in profit of $13,600 ($5,400 loss eliminated plus $5,400 profit increase from expense reduction).

Question 12

In a decision relating to the possible elimination of a department consideration needs to be given to all of the following except:

Accepted Answer

Unavoidable expenses are not relevant to the decision of eliminating a department because they will remain regardless of the decision made.

Question 13

Redoing the budget to actual output is most useful:

Accepted Answer

Redoing the budget to actual output is most useful as a tool to help evaluate performance, as it allows for comparison between budgeted and actual results and helps identify areas for improvement. While it can also be helpful for planning purposes and calculating profitability accurately, these are not the primary benefits of redoing the budget to actual output.

Question 14

Mayfield Retailers has departments A and B with departmental income statements as follows: $\begin{array}{|l|r|r|}
\hline & \text { Department A } & \text { Department B } \
\hline \text { Net sales } & \$ 70000 & \$ 50000 \
\hline \text { Cost of sales } & 30000 & 20000 \
\hline \text { Other Expenses } & 13000 & 31000 \
\hline \text { Profit (Loss) } & \$ 27000 & (\$ 1000) \
\hline
\end{array}$ Mayfield is considering eliminating Department B.Of the total 'other expenses' for the two departments of $44 000,$32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales.It is estimated that the elimination of Department B will cause a 10% decrease in the sales of Department A.What will be the profit or loss of Department A after the elimination of Department B?

Accepted Answer

The answer of Mayfield Retailers has departments A and B...

Question 15

A responsibility centre that is held accountable for controlling both costs and income is called a:

Accepted Answer

A profit centre is a responsibility centre that is accountable for both costs and income, with the ultimate goal of generating profit. It is responsible for generating revenue and minimizing expenses by making decisions about pricing, sales, production, and cost control. Profit centres are often found in businesses where managers have been given considerable autonomy to make decisions and reduce costs in pursuing the company's goals.

Question 16

Broadway Store is considering closing down one of its low-profit departments.Assume that discontinuance of this department will not affect sales of the remaining departments.Which of the cost classifications below should be compared with departmental income to determine whether or not to close the department?

Accepted Answer

The best cost classification to be compared with departmental income to determine whether or not to close the department is avoidable costs. These costs are those that can be eliminated if the department is shut down. If the department's income is less than its avoidable costs, then it would be wise to close the department to avoid further losses. The other cost classifications (variable costs, direct costs, and controllable costs) may not fully capture the true costs of the department and may not be sufficient in making a decision on whether to close the department.

Question 17

Which accounting report is most commonly prepared for departmental reporting?

Accepted Answer

The income statement is the most commonly prepared accounting report for departmental reporting as it provides a summary of the revenue and expenses for a specific period of time, which allows each department to track its financial performance. The balance sheet shows the financial position of the company at a specific point in time, the cash flow statement shows the inflows and outflows of cash during a period, and the manufacturing statement is used in manufacturing companies to calculate the cost of goods sold.

Question 18

Which of these factors is the least controllable by the department manager and therefore not his/her main focus of attention?

Accepted Answer

Indirect operating expenses are typically controlled by upper management or the finance department and are not within the direct control of the department manager. Therefore, it is not their main focus of attention. The department manager can focus on controlling factors such as the number of units sold, selling prices, and mix of products sold, as these are more directly influenced by their actions and decisions.

Question 19

A basis for the allocation of delivery expenses to other departments which results in an answer that is not an estimate is:

Accepted Answer

The answer of A basis for the allocation of delivery...

Question 20

Mayfield Retailers has departments A and B with departmental income statements as follows: $\begin{array}{|l|r|r|}
\hline & \text { Department A } & \text { Department B } \
\hline \text { Net sales } & \$ 70000 & \$ 50000 \
\hline \text { Cost of sales } & 30000 & 20000 \
\hline \text { Other Expenses } & 13000 & 31000 \
\hline \text { Profit (Loss) } & \$ 27000 & (\$ 1000) \
\hline
\end{array}$ Mayfield is considering eliminating Department B.Of the total 'other expenses' for the two departments of $44 000,$32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales.What is the present departmental contribution of Department B?

Accepted Answer