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Exam 25: Departmentalized Profit and Cost Centers

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Question 61

Multiple Choice

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Expenses that are closely related to and can easily be allocated to a specific department during an accounting period are:

A) operating expenses.
B) indirect expenses.
C) direct expenses.
D) allocated expenses.

E) A) and C)
F) A) and D)

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Question 62

Multiple Choice

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McKay Corporation has Sales of $174,500, Cost of Goods Sold of $72,000, Direct Expenses of $39,300, and Indirect Expenses of $29,000. What is McKay Corporation's Contribution Margin?

A) $102,500
B) $63,200
C) $34,200
D) $72,000

E) A) and D)
F) A) and C)

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Question 63

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

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

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

A department probably would be considered for elimination if it had:

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

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

Prestige Corporation has Sales of $104,200, Indirect Expenses of $29,600, Direct Expenses of$64,200, and Cost of Goods Sold of $51,800. What is Prestige Corporation's Contribution Margin?

Office expenses, such as postage and stationery, should be allocated to the departments based on the contribution margin of each department.

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

Nonoperating income, such as interest income, should be allocated to departments based on the total sales in each department.

Expenses that are allocated to the departments can be rounded to the nearest whole dollar on the departmental income statements.

Contribution margin is another name for gross profit.

Examine the following Income Statement for Gemology Products and determine whether or not to close the Jewelry Department. If the Jewelry Department is closed, the Insurance Expense will be reduced by $500 and one office employee part time position will be eliminated. That position pays $6,500 a year. The other expenses will remain. Gemology Products Income Statement Partial For the Year Ended September 30, 2019

Office salaries expense is most commonly allocated to departments based on the total sales in each department.

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

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

Ace Company sells a variety of merchandise and wants to evaluate contribution margin by product line for the 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 were $136,000; $37,000; and $72,000, respectively. Indirect expenses were allocated to each department at 60% of the direct expense for each segment. The contribution margin of Plumbing was:

Cost centers do not directly earn revenue.