College Accounting, 14e (Slater)
Chapter 24 Departmental Accounting
24.1 Learning Objective 24-1
1) A unit or department that incurs costs and generates revenues is known as a:
A) cost center.
B) profit center.
C) revenue center.
D) corporate center.
2) A unit or department that incurs costs but does not generate revenues is known as a:
A) cost center.
B) profit center.
C) revenue center.
D) division center.
3) Departmental reports are NOT useful for:
A) determining performance.
B) determining future revenue.
C) controlling.
D) calculating gross profit for each department.
4) Which of the following is normally the report prepared for a department?
A) Cash flow statement
B) Statement of equity
C) Income statement
D) Balance sheet
5) A maintenance department would be an example of a:
A) cost center.
B) direct expense.
C) profit center.
D) petty cash.
6) In a department store, the men’s clothing section would be a(n):
A) profit center.
B) direct expense.
C) cost center.
D) indirect expense.
7) Which of the following statements is true in regards to a profit center?
A) A profit center incurs costs.
B) A profit center does not generate revenues.
C) A profit center generates revenue.
D) Both A and C
8) The financial statement(s) that cannot be broken down by departments would be a(n):
A) income statement.
B) balance sheet.
C) statement of owner’s equity.
D) trial balance.
9) The administrative department of a mall is a(n):
A) cost center.
B) profit center.
C) internal center.
D) revenue center.
10) The catering department of a construction firm is a(n):
A) profit center.
B) cost center.
C) investment center.
D) allocation center.
11) Sales minus cost of goods sold yields:
A) operating expenses.
B) gross profit.
C) income before taxes.
D) other revenues.
12) An example of a cost center is:
A) a Holiday Inn.
B) the restaurant in a motel.
C) the administrative department in a hospital.
D) the catering department in a motel.
13) Gross profit by department appears on the:
A) balance sheet.
B) trial balance.
C) statement of cash flows.
D) income statement.
14) The women’s shoe department shows gross sales of $300,000 with the cost of the shoes $140,000. The
men’s shoe department shows gross sales of $150,000 with the cost of the shoes $120,000. What is the
gross profit for each department respectively?
A) $440,000 and $270,000
B) $150,000 and $20,000
C) $160,000 and $30,000
D) $150,000 and $10,000
15) When a company tracks gross profit by department, the sales journal will:
A) not differ from a company that does not track gross profit by department.
B) have a separate column for accounts receivable for each department.
C) have a separate column for sales for each department.
D) have a column for purchases for each department.
16) A company has four departments (A, B, C and D) and the net sales are $30,000; $50,000; $60,000 and
$35,000 respectively. The cost of goods sold per department is $25,000; $15,000; $40,000 and $15,000
respectively. What department has the lowest dollar gross profit?
A) A
B) B
C) C
D) both A and D
17) A company has four departments (A, B, C and D) and the net sales are $30,000; $35,000; $60,000 and
$20,000 respectively. The cost of goods sold per department is $25,000; $15,000; $10,000 and $15,000
respectively. What department has the highest dollar gross profit?
A) A
B) B
C) C
D) D
18) Calculate a department’s gross profit given the following:
Sales $1,920
Operating expenses 300
Cost of goods sold 850
A) $770
B) $1,620
C) $1,070
D) $550
19) The photography department in a department store experienced the following revenue and expenses
during October:
Sales $10,000
Cost of Goods Sold 4,000
Direct Operating Expenses 500
Indirect Operating Expenses 2,000
The photography departmental gross profit is:
A) $3,500.
B) $7,500.
C) $4,000.
D) $6,000.
20) The breakfast department experienced the following revenue and expenses during October:
Sales $22,000
Cost of Goods Sold 10,000
Direct Operating Expenses 3,000
Indirect Operating Expenses 1,000
The breakfast departmental gross profit is:
A) $8,000.
B) $12,000.
C) $6,000.
D) $18,000.
21) What is the total gross profit of the company if there are three departments (A, B, and C) and the net
sales are $210,000, $178,000, and $289,000, respectively, and cost of goods sold is $135,000, $142,000, and
$125,000, respectively?
A) $124,000
B) $86,000
C) $275,000
D) $207,000
22) A company has three departments (A, B, and C) and the net sales are $370,000; $400,000; and $285,000
respectively. The cost of goods sold per department is $291,000; $360,000; and $245,000 respectively. What
department has the highest gross profit?
A) A
B) B
C) C
D) Both departments A and B
23) The PPC department of Ajax shows gross sales of $805,600 for computer supplies and $910,600 for
office supplies. The cost of the computer supplies was $530,000 and the cost of the office supplies was
$488,000. What is the gross profit for each category of the department respectively?
A) $317,600 and $380,600
B) $275,600 and $910,600
C) $275,600 and $422,600
D) $805,600 and $422,600
24) The photography department in a department store experienced the following revenue and expenses
during September:
Sales $23,800
Cost of Goods Sold 10,100
Direct Operating Expenses 1,000
Indirect Operating Expenses 2,000
The photography departmental gross profit is:
A) $12,700.
B) $22,800.
C) $13,700.
D) $10,700.
25) All of the following are used to compute gross profit except:
A) sales.
B) purchase returns and allowances.
C) sales salary expense.
D) purchases.
26) All of the following are used to compute gross profit except:
A) sales.
B) sales returns and allowances.
C) office supplies.
D) purchases.
27) A profit center and a cost center both generate revenue.
28) A cost center only generates revenues.
29) The toy department of a department store would be a profit center.
30) A human resource department would be a revenue center.
31) The data processing department of a tax firm would be a profit center.
32) In departmental accounting, it is necessary to break down revenue and expenses by departments.
33) A department with sales of $75,000 and cost of goods sold of $55,000 has a gross profit of $130,000.
34) To calculate departmental gross profit, separate accounts should be set up for Assets, Liabilities, etc.,
for each department.
35) To calculate gross profit, subtract sales expense from net sales.
36) To calculate gross profit, subtract operating expenses from net sales.
37) Departmental income statements are prepared to indicate how well each department is performing.
38) A department income statement showing gross profit by department is a useful tool in analyzing
performance of individual departments.
39) Most companies that prepare departmental income statements typically don’t prepare departmental
balance sheets.
40) A department with sales of $130,000; cost of goods sold of $75,000; and operating expenses of $20,000
has a gross profit of $25,000.
41) A department with sales of $120,000; cost of goods sold of $75,000; and operating expenses of $20,000
has a gross profit of $45,000.
42) A cost center is evaluated on the amount of costs it incurs.
43) The accountant must always consider cost of goods sold when determining gross profit for a
department.
44) When a company tracks gross profit by department, the sales journal has one column for Sales for
each department.
45) When a company tracks gross profit by department, the sales journal does not have separate columns
for Accounts Receivable for each department.
Below is a list of departments; you are to identify each as either [1] a profit center or [2] a cost center.
46) The meat department for a food store. ________
47) The snack shop for a ski resort. ________
48) The human resource office for a department store. ________
49) The maintenance office of a mall. ________
50) The warehouse area for a wholesale club. ________
51) The jewelry department of a major retailer. ________
52) The data center department of a manufacturer. ________
53) The tax offices of a CPA firm. ________
54) The repair center of a car dealership. ________
55) The housekeeping department for a hotel chain. ________
56) Explain the difference between a “cost center” and a “profit center.”
24.2 Learning Objective 24-2
1) The difference between a department’s gross profit and its operating expenses is known as the:
A) departmental operating margin.
B) departmental operating cost.
C) departmental operating income.
D) departmental gross profit.
2) Indirect expenses are allocated to departments based on:
A) decisions of the stockholders.
B) directives from customers.
C) some reasonable basis, such as percent of sales.
D) generally accepted accounting principles.
3) To determine how each profit center is performing, management would analyze the:
A) current forecast.
B) indirect expenses.
C) gross profit for each profit center.
D) other expenses.
4) Direct expenses are those expenses that:
A) can be identified with a specific department.
B) cannot be identified with a specific department.
C) can be identified with a general or specific common area.
D) None of these answers is correct.
5) Indirect expenses are those expenses that:
A) can be controlled by a department manager.
B) can be identified with a specific department.
C) are incurred for the general benefit of a company.
D) All of these answers are correct.
6) Which of the following would be a direct expense for a shoe department in a department store?
A) Depreciation expense
B) Salary expense of shoe department sales staff
C) Building expense
D) Administrative expense
7) Which of the following would NOT be considered a direct expense for a shoe department in a
department store?
A) Building expenses
B) Advertising expense
C) Administrative expense
D) All of the above
8) Which of the following would be a direct expense of a sales department?
A) Sales salaries
B) Administrative expense
C) Advertising expense
D) Both A and C
9) General expenses are:
A) indirect expenses.
B) direct expenses.
C) not broken down by department.
D) All of these answers are correct.
10) Which of the following statements is false as it relates to direct and indirect expenses?
A) Building expense is an indirect expense.
B) Indirect expenses cannot be assigned to different departments based on an allocation such as square
feet.
C) If an expense is traceable to a particular department, it is a direct expense.
D) Advertising expense can be both a direct and an indirect expense.
11) If the cosmetic department in the store measures 20,000 square feet and the total building cost is
$90,000 for a 40,000 square foot building, the cost that would be allocated to the cosmetic department
would be:
A) $45,000.
B) $8,889.
C) $180,000.
D) $90,000.
12) If the music department in a department store is 10,000 square feet and the total square feet is 80,000,
how much of the total building cost of $50,000 will be allocated to music?
A) $25,000
B) $400,000
C) $50,000
D) $6,250
13) Advertising totaled $20,000; $1,000 was indirect. What would be the best choice to use to allocate the
indirect cost?
A) Allocate the indirect expense based on square feet.
B) Allocate the indirect expense based on gross sales.
C) Charge indirect expense to administrative expense.
D) Allocate the indirect expense based on goods shipped.
14) If an expense is traceable to a department, it would be considered a(n):
A) direct expense.
B) indirect expense.
C) profit center issue.
D) advertising expense.
15) Joyful Praises Corporation has total advertising expenses of $83,000: $31,000 for radio advertising and
$52,000 for print advertising. The print advertising is allocated to Departments A and B based on net sales
generated in each department. Department A has net sales of $462,000 and Department B has net sales of
$308,000. How much of the print advertising should be allocated to Department A?
A) $12,400
B) $32,578
C) $52,000
D) $31,200
16) If the gross sales for the computer department are $60,000 and the book department gross sales are
$40,000, what is the allocation for advertising expense of $16,000 to these departments, based on gross
sales?
A) Computer department $9,600; book department $6,400
B) Computer department $8,000; book department $8,000
C) Computer department $6,400; book department $9,600
D) Computer department $60,000; book department $40,000
17) Windermere Corporation has 55,000 square feet in department A; 20,000 square feet in department B;
and 25,000 square feet in department C. Janitorial services are based on square footages in each
department. How will the $30,000 of janitorial services be allocated? (Round your answer to the nearest
dollar.)
A) $16,500 to C; $6,000 to B; and $7,500 to A.
B) $16,500 to A; $6,000 to B; and $7,500 to C.
C) Split evenly ($10,000.00) to each department.
D) Cannot be determined by given information.
18) Which of the following is NOT a direct departmental expense in a sales department?
A) Salaries of Sales personnel
B) Delivery expense for unrelated items
C) Advertising for the sales department
D) Cost of promotional items
19) If the property, plant, and equipment cannot be traced to a specific department, depreciation expense
is a(n):
A) direct expense.
B) indirect expense.
C) cash expense.
D) sales expense.
20) Compute net income for the housewares department, when gross profit is $680,000, direct expenses
are $237,000, indirect expenses are $90,000 and sales are $890,000.
A) -$210,000
B) $443,000
C) $590,000
D) $353,000
21) If there is a total of 100,000 square feet of floor space, and the hardware department utilizes 30,000
square feet, what percent of the total square footage is in hardware?
A) 15%
B) 7.5%
C) 30%
D) 60%
22) Which of the following indirect expenses would most likely be allocated on the basis of gross sales?
A) Rent expense
B) Utilities expense
C) Miscellaneous expense
D) None of the above
23) Advertising expense totaled $70,000. If indirect advertising costs are allocated based on gross sales per
department, what amount would be allocated to the Jewelry department if $10,000 of advertising is
indirect? (Round any percentages two decimal places, X.XX%, and round your final answer to the nearest
dollar.)
Gross Sales: Jewelry, $50,000; Glassware, $40,000; Watches, $10,000.
A) $3,333
B) $5,000
C) $35,000
D) $16,667