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Exam 25: Departmentalized Profit and Cost Centers

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Question 1

True/False

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

A) True
B) False

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Question 2

Multiple Choice

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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.

E) A) and B)
F) None of the above

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Question 3

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

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

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

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

A transfer price is

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

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

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

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

The contribution margin of a department is the difference between

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?

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.)

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

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

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

Match the following terms with the definitions.

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

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