College Accounting, 12e (Slater)
Chapter 24 Departmental Accounting
24.1 Learning Objective 24-1
1) A profit center is a unit in which the manager:
A) has the responsibility for controlling costs, but not for directly generating revenue.
B) is not responsible for controlling costs, but is responsible for generating revenue.
C) is responsible for controlling costs and generating revenue.
D) None of these answers are correct.
2) In a cost center, the manager:
A) has the responsibility for controlling costs, but not directly generating revenue.
B) is not responsible for controlling costs, but is responsible for generating revenue.
C) is responsible for controlling costs and generating revenue.
D) None of these answers are correct.
3) Departmental reports are useful for all of the following purposes except:
A) determining performance.
B) determining future revenue.
C) controlling.
D) planning.
4) Normally, the report prepared for a department is a(n):
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) None of these answers are correct.
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) A unit or department that incurs costs and generates revenues is a(n):
A) expense center.
B) direct center.
C) cost center.
D) profit center.
8) The financial statement(s) that can be broken down by departments would be:
A) income statement.
B) balance sheet.
C) statement of owner’s equity.
D) All of these answers are correct.
9) The administrative department of a mall is a(n):
A) cost center.
B) profit center.
C) investment center.
D) revenue center.
10) The sales 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) net income.
12) An example of a cost center is:
A) a Holiday Inn.
B) the restaurant in a motel.
C) the administrative department in a motel.
D) the catering department in a motel.
13) Gross profit by department appears on the:
A) balance sheet.
B) statement of retained earnings.
C) statement of cash flows.
D) income statement.
14) The women’s shoe department shows gross sales of $245,000 with the cost of the shoes $147,000. The
men’s shoe department shows gross sales of $184,000 with the cost of the shoes $110,000. What is the
gross profit for each department respectively?
A) $392,000 and $294,000
B) $245,000 and $184,000
C) $98,000 and $74,000
D) $429,000 and $257,000
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 $35,000; $40,000; $60,000 and
$25,000 respectively. The cost of goods sold per department are $25,000; $15,000; $40,000 and $15,000
respectively. What department has the lowest 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 $35,000; $40,000; $60,000 and
$25,000 respectively. The cost of goods sold per department are $25,000; $15,000; $40,000 and $15,000
respectively. What department has the highest gross profit?
A) A
B) B
C) C
D) D
18) Calculate a department’s gross profit on sales given the following:
Sales
$1,600
Operating expenses
350
Cost of goods sold
900
A) $350.
B) $700.
C) $1,050.
D) $1,250.
19) The photography department in a department store experienced the following revenue and expenses
during October:
Sales
$11,000
Cost of Goods Sold
5,000
Direct Operating Expenses
800
Indirect Operating Expenses
2,100
The photography departmental gross profit on sales is:
A) $3,100.
B) $5,200.
C) $6,000.
D) $8,100.
20) The espresso department experienced the following revenue and expenses during October:
Sales
$17,000
Cost of Goods Sold
9,000
Direct Operating Expenses
4,000
Indirect Operating Expenses
2,000
The espresso departmental gross profit on sales is:
A) $2,000.
B) $4,000.
C) $8,000.
D) $11,000.
21) What is the total gross profit of the company if there are three departments (A, B, and C) and the net
sales are $200,000, $164,000, and $286,000, respectively, and cost of goods sold is $86,000, $92,000, and
$82,000, respectively?
A) $390,000
B) $650,000
C) $400,000
D) $260,000
22) A company has three departments (A, B, and C) and the net sales are $350,000; $410,000; and $285,000
respectively. The cost of goods sold per department are $295,000; $360,000; and $225,000 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 $730,600 for computer supplies and $934,900 for
office supplies. The cost of the computer supplies was $534,000 and the cost of the office supplies was
$491,400. What is the gross profit for each category of the department respectively?
A) $730,600 and $934,900
B) $534,000 and $491,400
C) $239,200 and $400,900
D) $196,600 and $443,500
24) The photography department in a department store experienced the following revenue and expenses
during October:
Sales
$23,500
Cost of Goods Sold
8,200
Direct Operating Expenses
1,000
Indirect Operating Expenses
2,300
The photography departmental gross profit on sales is:
A) $15,300.
B) $20,200.
C) $13,000.
D) $14,300.
25) All of the following are used to compute gross profit except:
A) sales.
B) purchase returns and allowances.
C) rent expense.
D) purchases.
26) All of the following are used to compute gross profit except:
A) sales.
B) sales returns and allowances.
C) accounts receivable.
D) purchases.
27) A profit center and a cost center both generate revenue.
28) A profit center and a cost center both generate costs.
29) The toy department of a department store would be a cost center.
30) A human resource department would be a profit 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, but not expenses by departments.
33) A department with sales of $80,000 and cost of goods sold of $55,000 has a gross profit of $25,000.
34) To calculate departmental gross profit, separate accounts should be set up for Sales, Purchases, etc.,
for each department.
35) To calculate gross profit, subtract cost of goods sold and operating expenses from net sales.
36) To calculate gross profit, subtract cost of goods sold 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 also prepare departmental balance
sheets.
40) 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 $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 volume of revenues generated.
43) The accountant must always consider operating expenses, such as rent and advertising, when
determining gross profit for a department.
44) When a company tracks gross profit by department, the sales journal has separate columns for Sales
for each department.
45) When a company tracks gross profit by department, the sales journal has separate columns for
Accounts Receivable for each department.
46) Explain the difference between a “cost center” and a “profit center.”
47) The dairy department for a food store. ________
48) The pro shop for a resort. ________
49) The personnel office for a department store. ________
50) The maintenance office of a mall. ________
51) The warehouse area for a wholesale club. ________
52) The cosmetic counter of a major retailer ________
53) The repair shop area of an airline. ________
54) The tax offices of a CPA firm. ________
55) The repair center of a car dealership. ________
56) The reservations call center for a hotel chain. ________
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 the board of directors.
C) some reasonable basis, such as square footage.
D) generally accepted accounting principles.
3) To determine how each profit center is performing, management would analyze the:
A) income tax rate.
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 more than one department.
D) None of these answers are correct.
5) Indirect expenses are those expenses that:
A) may be incurred outside the control of a department manager.
B) cannot 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?
A) Depreciation expense
B) Sales salaries
C) Building expense
D) Administrative expense
7) Which of the following would not be considered a direct expense?
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) Office salaries
C) Advertising expense
D) Sales salaries and Advertising expense
9) Administrative 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 incorrect?
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 10,000 square feet and the total building cost is
$30,000 for a 40,000 square foot building, the cost that would be allocated to the cosmetic department
would be:
A) $30,000.
B) $10,000.
C) $22,500.
D) $7,500.
12) If the music department in a department store is 8,000 square feet and the total square feet is 40,000,
how much of the total building cost of $40,000 will be allocated to music?
A) $8,000
B) $1,000
C) $32,000
D) $10,000
13) Advertising totaled $10,000; $3,000 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 delivery expense is not traceable to a department, it would be considered a(n):
A) direct expense.
B) indirect expense.
C) profit center issue.
D) cost center issue.
15) Joyful Praises Corporation has total advertising expenses of $84,000: $32,000 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 $558,000 and Department B has net sales of
$186,000. How much of the print advertising should be allocated to Department A?
A) $13,000
B) $39,000
C) $63,000
D) $21,000
16) If the gross sales for the computer department are $3,700 and the book department gross sales are
$6,300, what is the allocation for advertising expense of $750 to these departments, based on gross sales?
A) Computer department $425; book department $325
B) Computer department $375; book department $375
C) Computer department $277.50; book department $472.50
D) Computer department $462.50; book department $287.50
17) Windermere Corporation has 25,000 square feet in department A; 20,000 square feet in department B;
and 55,000 square feet in department C. Janitorial services as based on square footages in each
department. How will the $35,000 of janitorial services be allocated?
A) $19,250 to C; $7,000 to B; and $8,750 to A.
B) $19,250 to A; $7,000 to B; and $8,750 to C.
C) Split evenly ($11,666.67) 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) Sales salaries
B) Delivery expense for related items
C) Advertising for the sales department
D) All are direct departmental expenses.
19) If the property, plant, and equipment can 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 $550,000, direct expenses
$235,000, indirect expenses are $110,000 and sales are $875,000.
A) ($20,000)
B) $530,000
C) $205,000
D) $325,000
21) If there is a total of 50,000 square feet of floor space, and the hardware department utilizes 12,500
square feet, what percent of the total square footage is in hardware?
A) 20%
B) 25%
C) 40%
D) 80%
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 $40,000. 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?
Gross Sales: Jewelry, $60,000; Glassware, $50,000; Watches, $40,000.
A) $16,000
B) $4,000
C) $20,000
D) $3,333