Profit margin for an investment center measures

A profit center generates revenue, incurs costs, and has the authority to make significant investing decisions.

True

False

A department's direct expenses are usually considered uncontrollable costs.

True

False

No standard rule identifies the best basis of allocating expenses across departments, so it is impossible to allocate costs in a manner that will be perceived as fair.

True

False

A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.

True

False

If a company reports profit margin of 31.6% and investment turnover of 1.30 for one of its investment centers, the return on investment must be:

32.9%.

4.11%.

41.1%.

30.3%.

24.3%.

Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $470,000; sales of $930,000; and income of $105,000. The investment center profit margin is:

197.9%.

50.5%.

447.6%.

11.3%.

22.3%.

The salaries of employees who spend all their time working in one department are:

Variable expenses.

Responsibility expenses.

Unavoidable expenses.

Direct expenses.

Indirect expenses.

Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

$3,000.

$4,500.

$5,625.

$2,500.

$1,500.

The amount by which a department's sales exceed its direct expenses is:

Departmental profit.

Departmental contribution to overhead.

Contribution margin.

Net sales.

Gross profit.

Advertising expense can be reasonably allocated to departments on the basis of each department's proportion of sales.

True

False

Part 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require. What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?

$30

$20

$17

$47

$21

The type of department that generates revenues and incurs costs, and its manager is responsible for the investments made in operating assets is called a:

Profit center

Cost center

Service department

Investment center

Responsibility center

Indirect expenses are allocated to departments based upon the benefits received by each department.

True

False

Profit margin for an investment center measures:

How efficiently an investment center generates sales from its invested assets.

Investment center income earned per dollar of sales.

Investment center income compared to target investment center income.

Departmental contribution to overhead.

Investment center income generated from its invested assets.

Direct expenses require allocation across departments because they cannot be readily traced to one department.

True

False

A department can never be considered to be a profit center.

True

False

Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. Southwestern Division sells Part AR3 to other companies for $30. The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products. The Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the Northeastern Division would require. What is the lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division?

$26

$27

$30

$21

$23

A responsibility accounting performance report usually compares actual costs to budgeted costs amounts by management level.

True

False

Joint costs can be allocated either using a physical basis or a value basis.

True

False

Regardless of the system used in departmental cost analysis:

Neither direct nor indirect costs are allocated.

Indirect costs are allocated, direct costs are not.

Total departmental costs will always be the same.

Both direct and indirect costs are allocated.

Direct costs are allocated, indirect costs are not.