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Exam 25: Departmental Accounting

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Question 1

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Lalia rents 110,000 square feet of store space for $358,000 per year. The amount of square footage by department is shown below: $\begin{array}{ll}\text { Department A } & 45,000 \text { square feet } \\\text { Department B } & 30,000 \text { square feet } \\\text { Department C } & 18,000 \text { square feet } \\\text { Department D } & 17,000 \text { square feet }\end{array}$ ​ Required: Allocate the annual rent expense among the four departments on the basis of relative square feet of floor space occupied.

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Question 2

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Indirect expenses are allocated to departments based on

A) generally accepted accounting principles.
B) some reasonable basis.
C) directives from the board of directors.
D) decisions of the stockholders.

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

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Question 3

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The difference between a department's gross profit and its operating expenses is known as the

The PJC department of McIntyre Company shows gross sales of $730,600 for computer supplies and $934,900 for general office supplies. It has determined that computer supplies cost $534,000 and that general office supplies cost $391,400. What is the gross profit percentage for the PJC department?

A departmental operating expense summary would show the total operating expenses for each department and the total operating expenses for the business.

Departmental reports are useful to management for all of the following purposes EXCEPT

Departmental reports can be useful to creditors for performance evaluation purposes.

Emma Fuentes and Carol Toner are partners in a business called Jump Start Corporation that sells athletic equipment. They have organized the business into three departments based on the type of merchandise sold. At the end of the first year of operations, the sales and cost of goods sold for the three departments are shown below: $\begin{array}{lrrr}&\text { Dept. A }&\text { Dept. B }&\text { Dept. C }\\\text { Sales } & \$ 54,400 & \$ 78,600 & \$ 24,600 \\\text { Cost of goods sold } & 41,400 & 39,200 & 11,600\end{array}$ ​ Required: Prepare the gross profit section of a departmental income statement for the year ended December 31. Show the gross profit for each department and for the business as a whole.

Most businesses today determine departmental operating expenses through the use of general ledger accounts for departmental expenses.

Match the terms with the definitions. -Operating expenses that are incurred for the benefit of the business as a whole.

Direct expenses are incurred for the sole benefit of and are traceable directly to a specific department.

Indirect expenses are assigned to departments based on actual direct expenses incurred.

Departmental gross profit is the difference between a department's net sales and the department's cost of goods sold.

The difference between a department's gross profit and its direct operating expenses is known as the

Match the terms with the definitions. -The difference between a department's net sales and cost of goods sold.

Departmental reports can be used to evaluate managers' performance.

A department may gather operating expense data by maintaining

Roger owns an electronics store. He has divided his store into three departments. Net sales for the month of September are as follows: $\begin{array}{lr}\text { Audio } & \$ 16,400 \\\text { Video } & 20,500 \\\text { Computers } & 45,100\end{array}$ Advertising expense for September was $36,000. ​ Required: Allocate the advertising expense among the three departments on the basis of relative net sales.

Operating expenses that are incurred for the benefit of the business as a whole and that cannot be traced directly to any specific department are known as nonallocated expenses.

If a department has a positive direct operating margin, it normally should be discontinued.