Professional Documents
Culture Documents
RESPONSIBILITY ACCOUNTING
Multiple Choice
c
3. In
is
a.
b.
c.
d.
117
9. If
a.
b.
c.
d.
118
a general rule, the best transfer price to use to transfer the costs
a service center to an operating department is
the price charged by an outside company for the same service.
the price that encourages goal congruence.
one that is based on budgeted variable cost.
one that is based on budgeted total cost.
119
120
d 29. Which of the following is a good reason for allocating indirect costs
to operating departments?
a. The company could lose money if the operating departments do not pay
for the services they use.
b. To remind managers of the need to cover indirect costs.
c. To encourage managers to use more services.
d. To determine the true costs of operating departments.
b 30. When a manager takes an action that benefits his or her responsibility
center, but not the company as a whole,
a. it is a non-controllable action.
b. there is a lack of goal congruence.
c. the center must be an artificial profit center.
d. the manager should be fired.
d 31. Which of the following is a good reason for NOT allocating indirect
costs to operating departments?
a. The company saves money if the operating departments do not pay for
the services they use.
b. To remind managers of the need to cover indirect costs.
c. To encourage managers to use more services.
d. The costs are not controllable by the operating departments.
d 32. Which of the following is a good reason for NOT allocating indirect
costs to operating departments?
a. To remind managers that revenues must cover indirect costs.
b. To recognize that operating departments benefit from the services.
c. To encourage managers to use services wisely.
d. Because allocating them might prompt operating managers to use
nonincremental costs in making decisions.
b 33. A profit center is a responsibility center
a. that sells its output outside the company.
b. whose manager is responsible for both revenues and costs.
c. that provides a service to other responsibility centers.
d. within an investment center.
d 34. An
a.
b.
c.
d.
investment center is
larger than a cost center.
larger than a profit center.
seldom the responsibility of a single manager.
not truthfully characterized in any of the above statements.
121
Sales
Variable costs
Contribution margin
Planned
------$80,000
50,000
------$30,000
=======
Actual
------$78,900
48,500
------$30,400
=======
Planned sales were 10,000 units; actual sales were 9,700 units. The
sales price variance is
a. $1,100 U.
b. $1,000 F.
c. $900 U.
d. $400 F.
c 40. Cascade Company had the following results in June.
Sales
Variable costs
Contribution margin
Planned
------$80,000
50,000
------$30,000
=======
Actual
------$78,900
48,500
------$30,400
=======
Planned sales were 10,000 units, actual sales were 9,700 units. The
sales volume variance is
a. $1,100 U.
b. $1,000 F.
c. $900 U.
d. $400 F.
122
b 41. Certainty Stores has three stores and one service center. The
percentage of services used in the current year are Store X, 35%; Store
Y, 40%; and Store Z, 25%. The service center costs were budgeted at
$160,000 fixed and $240,000 variable. Actual fixed costs were $140,000
and actual variable costs were $270,000. Actual service center costs
are allocated to the stores based on actual usage of the service
center. Service center costs allocated to Store Y are
a. $64,000.
b. $164,000.
c. $410,000.
d. some other number.
c 42. Certainty Stores has three stores and one service center. The
percentage of services used in the current year are Store X, 35%; Store
Y, 40%; and Store Z, 25%. The service center costs were budgeted at
$350,000 fixed and $250,000 variable. Actual fixed costs were $370,000
and actual variable costs were $280,000. Budgeted service center costs
are allocated to the stores based on actual usage of the service
center. Service center costs allocated to Store Y are
a. $140,000.
b. $148,000.
c. $240,000.
d. $260,000.
c 43. Wabasha Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$240
$400
Services performed by Dept. A
40%
40%
20%
Services performed by Dept. B.
20%
70%
10%
Wabasha uses the direct method to allocate service department costs.
The service department cost allocated to Department Y is
a. $88.
b. $96.
c. $130.
d. $240.
123
c 44. Wabasha Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$250
$400
Services performed by Dept. A
40%
40%
20%
Services performed by Dept. B.
20%
70%
10%
Wabasha uses the step-down method to allocate service department costs.
Department A costs are allocated first. The service department cost
allocated to Department Y is
a. $90.
b. $97.50.
c. $112.50.
d. $130.
c 45. Wabasha Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$150
$300
Services performed by Dept. A
40%
40%
20%
Services performed by Dept. B.
20%
70%
10%
Wabasha uses the reciprocal method to allocate service department
costs. The service department cost allocated to Department Y is
a. $60.
b. $75.
c. $85.
d. $135.
d 46. Olson Stores has three stores and one service center. The percentage of
services used in the current year are Store A, 40%; Store B, 25%; and
Store C, 45%. The expected long-term budgeted usages are Store A, 30%;
Store B, 30%; and Store C, 40%. The service center costs were budgeted
at $450,000 fixed and $550,000 variable. Actual fixed costs were
$430,000 and actual variable costs were $570,000. Olson allocates the
budgeted variable costs of the central purchasing unit based on actual
use of the unit's services, and allocates budgeted fixed costs based on
expected long-term use of the unit's services. Service center costs
allocated to Store A are
a. $135,000.
b. $220,000.
c. $300,000.
d. $355,000.
124
b 47. Olson Stores has three stores and one service center. The percentage of
services used in the current year are Store A, 45%; Store B, 35%; and
Store C, 20%. The expected long-term budgeted usages are Store A, 30%;
Store B, 40%; and Store C, 30%. The service center costs were budgeted
at $450,000 fixed and $550,000 variable. Actual fixed costs were
$430,000 and actual variable costs were $570,000. Olson allocates the
budgeted variable costs of the central purchasing unit based on actual
use of the unit's services, and allocates budgeted fixed costs based on
expected long-term use of the unit's services. Service center costs
allocated to Store B are
a. $350,000.
b. $372,500.
c. $400,000.
d. $550,000.
d 48. Basin Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
A
B
X
Y
------- ------ ------ -----Direct costs
$200
$400
Services performed by Dept. A
20%
40%
40%
Services performed by Dept. B.
30%
60%
10%
Basin uses the direct method to allocate service department costs. The
service department cost allocated to Department X is
a. $280.
b. $300.
c. $320.
d. $443.
a 49. Basin Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
A
B
X
Y
------- ------ ------ -----Direct costs
$200
$400
Services performed by Dept. A
20%
40%
40%
Services performed by Dept. B.
30%
60%
10%
Basin uses the step-down method to allocate service department costs.
Department A costs are allocated first. The service department cost
allocated to Department X is
a. $457.
b. $443.
c. $320.
d. $300.
125
c 50. Basin Co. has two service departments (A and B) and two producing
departments (X and Y). Data provided are as follows:
Service Depts. Operating Depts.
A
B
X
Y
------- ------ ------ -----Direct costs
$200
$400
Services performed by Dept. A
20%
40%
40%
Services performed by Dept. B.
30%
60%
10%
Basin uses the reciprocal method to allocate service department costs.
The service department cost allocated to Department X is
a. $300.
b. $340.
c. $417.
d. $468.
True-False
F
2. The sales volume variance is the difference between actual and planned
unit sales multiplied by the actual contribution margin per unit.
8. The sales price variance is the difference between the actual selling
price and the planned selling price multiplied by actual units sold.
126
Problems
1. The following data are for Billings Stores, which has two stores and one
service center.
Helena
Butte
----------Percentage of services used in current year
20%
80%
Expected long-term use of services
30%
70%
Budgeted central purchasing costs were $225,000 fixed and $125,000
variable. Actual fixed costs were $240,000 and actual variable costs were
$115,000. The managers wish to allocate the actual central purchasing
costs to the stores based on actual use of the central purchasing service.
a. Compute the allocation to the Helena store.
b. Compute the allocation to the Butte store.
SOLUTION:
a. To Helena:
$71,000
b. To Butte:
$284,000
2. The following data are for Billings Stores, which has two stores and one
service center.
Helena
Butte
----------Percentage of services used in current year
20%
80%
Expected long-term use of services
30%
70%
Budgeted central purchasing costs were $225,000 fixed and $125,000
variable. Actual fixed costs were $240,000 and actual variable costs were
$115,000. The company wishes to allocate the budgeted variable costs of
the central purchasing unit based on actual use of the unit's services and
to allocate budgeted fixed costs based on expected long-term use of the
unit's services.
a. Compute the total cost allocated to the Helena store for the services
of the central purchasing unit.
b. Compute the total cost allocated to the Butte store for the services of
the central purchasing unit.
SOLUTION:
a. To Helena:
$92,500
b. To Butte:
$257,500
127
3. Following are data about Alphabet Co.'s two service departments and two
operating departments.
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$200
$500 $1,500 $2,000
Services performed by Dept. A
20%
40%
40%
Services performed by Dept. B.
10%
90%
a. Alphabet allocates costs of its service departments using the direct
method of allocation. Find the total cost that will be allocated to
Dept. X.
b. Alphabet allocates the costs of its service departments using the stepdown method, beginning with Dept. A. Find the total amount of cost that
will be allocated to Dept. X.
SOLUTION:
a. Allocated to X:
$600
b. Allocated to X:
$620
B
----
X
----
Y
----
$ 40
500
----$540
(540)
$80
$80
540
---$620
0
---
Allocated to X
Allocated to Y
$80
4. Following are data about Alphabet Co.'s two service departments and two
operating departments.
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$400 $1,000 $3,000 $4,000
Services performed by Dept. A
20%
40%
40%
Services performed by Dept. B.
10%
90%
Alphabet allocates costs of its service departments using the reciprocal
method of allocation. Find the total cost that will be allocated to Dept.
X.
128
SOLUTION:
Allocated to X: $1,195.92
A = $400 + .1B
A = 510.20
B = $1,000 + .2A
B = 1,102.04
Direct costs
A's cost allocated
B's costs allocated
A
B
------------$400.00 $1,000.00
(510.20)
102.04
110.20 (1,102.04)
Allocated to X
Allocated to Y
X
-------
Y
-------
$204.08
991.84
------$1,195.92
$204.08
0
------$204.08
5. The following data are for Lexington Stores, which has two stores and one
service center.
Concord
Graham
-----------Percentage of services used in current year
40%
60%
Expected long-term use of services
30%
70%
Budgeted central purchasing costs were $100,000 fixed and $75,000
variable. Actual fixed costs were $140,000 and actual variable costs were
$105,000. The managers wish to allocate the actual central purchasing
costs to the stores based on actual use of the central purchasing service.
a. Compute the allocation to the Concord store.
b. Compute the allocation to the Graham store.
SOLUTION:
a. To Concord:
$98,000
b. To Graham:
$147,000
6. The following data are for Lexington Stores, which has two stores and one
service center.
Concord
Graham
-----------Percentage of services used in current year
40%
60%
Expected long-term use of services
30%
70%
Budgeted central purchasing costs were $100,000 fixed and $75,000
variable. Actual fixed costs were $140,000 and actual variable costs were
$105,000. The company wishes to allocate the budgeted variable costs of
the central purchasing unit based on actual use of the unit's services and
to allocate budgeted fixed costs based on expected long-term use of the
unit's services.
a. Compute the total cost allocated to the Concord store for the services
of the central purchasing unit.
129
b. Compute the total cost allocated to the Graham store for the services
of the central purchasing unit.
SOLUTION:
a. To Concord:
b. To Graham:
$60,000
$115,000
7. Following are data about Hamilton Co.'s two service departments and two
operating departments.
Service Depts. Operating Depts.
-------------- --------------A
B
X
Y
------- ------ ------ -----Direct costs
$400
$600 $2,000 $3,000
Services performed by Dept. A
30%
30%
40%
Services performed by Dept. B.
20%
70%
10%
a. Hamilton allocates costs of its service departments using the direct
method of allocation. Find the total cost that will be allocated to
each of the operating departments.
b. Hamilton allocates the costs of its service departments using the stepdown method, beginning with Dept. A. Find the total amount of cost that
will be allocated to each of the operating departments.
c. Hamilton allocates costs of its service departments using the
reciprocal method of allocation. Find the total cost that will be
allocated to each of the operating departments.
SOLUTION:
a. Allocated to X:
Allocated to Y:
b. Allocated to X:
130
c. Allocated to X:
A = $400 + .2B
B = $600 + .3A
$702.13, Allocated to Y:
A = 553.19
B = 765.96
Direct costs
A's cost allocated
B's costs allocated
A
------$400.00
(553.19)
153.19
B
------$600.00
165.96
(765.96)
Allocated to X
Allocated to Y
$297.87
X
-------
Y
-------
$165.96
536.17
------$702.13
$221.27
76.60
------$297.87
8. Following are data about Hawley Co.'s two service departments and three
operating departments.
Service Depts.
Operating Depts.
-------------- ---------------------A
B
X
Y
Z
------- ------ ------ ------ -----Direct costs
$400
$600
Services performed by Dept. A
30%
40%
20%
10%
Services performed by Dept. B.
40%
20%
20%
20%
Hawley allocates costs of its service departments using the reciprocal
method of allocation. Find the total costs that will be allocated to each
of the operating departments.
SOLUTION:
Allocated to x: $454.55, allocated to Y:
A = $400 + .4B
A = 727.27
B = $600 + .3A
B = 818.18
Direct costs
A's cost allocated
B's costs allocated
A
------$400.00
(727.27)
327.27
B
------$600.00
218.18
(818.18)
Allocated to X
Allocated to Y
Allocated to Z
X
-------
Y
-------
Z
-------
$290.91
163.64
------$454.55
$145.45
163.64
-------
$ 72.72
163.64
-------
$309.09
$236.36
10%
20%
15%
$477.50
A
---$150
(150)
B
----
C
-------
X
-------
Y
-------
$ 30
300
---$330
(330)
$ 45.00
$ 60.00
$ 15.00
73.33
350.00
------$468.33
(468.33)
183.34
73.33
234.16
-----$477.50
234.16
------
$322.50
Sales
Variable costs at $5 per unit
Contribution margin
Planned
-------$160,000
100,000
-------$ 60,000
========
Actual
-------$162,500
102,500
-------$ 60,000
========
Planned sales were 20,000 units, actual sales were 20,500 units.
a. Find the sales price variance.
Indicate F or U
Indicate F or U
SOLUTION:
a. $1,500 U
b. $1,500 F
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