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Exam 25: Departmentalized Profit and Cost Centers

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Question 41

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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.

A) True
B) False

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Question 42

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

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Question 43

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

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

Max and Morris operate a restaurant and bakery. They share some basic accounting, information systems and office space. Max runs the restaurant with sales of $63,000 and direct expenses of 60% of his sales while Morris runs the bakery with sales of $127,000 and direct expenses of 55% of his sales. With fixed costs of $25,000 allocated evenly between the two, what is the net income earned by Max and Morris for the prior year.

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

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

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

City Shoe's insurance expense for the year totaled $8,600 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

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?

The Whippleton Department had gross profit on sales of $120,000, contribution margin of $102,000, total direct expenses of $18,000, and total indirect expenses of $52,000. The Whippleton Department has:

Match the following definitions with the terms

City Shoe's office expenses for the year totaled $76,000 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

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?

Data related to the income and expenses of Moffet Company for the year ended December 31, 2019, are shown below. Use this information to prepare a departmental income statement showing contribution margin and net income of each department.

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:

Annie Tyme Clocks purchases a cuckoo clock from Switzerland, including insurance and shipping costs, for $620 per unit. The markup on the clock is 40% for a sales price of $868. Other traceable direct costs amount to $14 per unit. The indirect costs associated with this product amount to $47,960. How many cuckoo clocks must Annie sell in order to break even?

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.

The departments of Cacophony Music Company are listed below. For each, determine whether it is a cost center or a profit center. -Storeroom

The departments of Cacophony Music Company are listed below. For each, determine whether it is a cost center or a profit center. -Maintenance Department