24) Advertising expense totaled $20,000. If indirect advertising costs are allocated based on gross sales per
department, what amount would be allocated to the glassware department if $5,000 of advertising is
indirect?
Gross Sales: jewelry, $80,000; glassware, $30,000; watches, $40,000.
A) $1,000
B) $1,333
C) $2,500
D) $2,667
25) Carla‘s building expenses, which are indirect, are based on each department’s square footage.
Department A occupies 35,000 square feet. Department B occupies 55,000 square feet, and Department C
occupies 10,000 square feet. If the building expenses total $250,000, how much is allocated to Department
B?
A) $83,333
B) $137,500
C) $87,500
D) $25,000
26) The candy department experienced the following revenue and expenses during October:
Sales
$13,500
Cost of Goods Sold
8,200
Direct Operating Expenses
1,100
Indirect Operating Expenses
700
The candy departmental net income is:
A) $6,400.
B) $3,500.
C) $4,200.
D) $5,300.
27) If gross sales for the tools department are $500,000 and gross sales for the appliances department are
$300,000, what is the fraction used to apportion the indirect advertising for the appliances department if it
is based on gross sales?
A) 1/2
B) 1/3
C) 3/8
D) 2/3
28) Julia Company allocates its indirect advertising expenses based on each department’s gross sales. If
the men’s apparel department has gross sales of $225,000 out of a total of $2,025,000 in gross sales, what
fraction would Julia use to allocate its indirect advertising expenses?
A) 1/9
B) 1/10
C) 1/11
D) 1/8
29) The photography department in a department store experienced the following revenue and expenses
during October:
Sales
$6,500
Cost of Goods Sold
2,800
Direct Operating Expenses
200
Indirect Operating Expenses
1,300
The photography departmental net income is:
A) $6,500.
B) $3,700.
C) $3,500.
D) $2,200.
30) Calculate the costume jewelry department net income given the following:
Sales
$1,300
Direct operating expenses
300
Indirect operating expenses
250
Cost of goods sold
1,000
A) $1,300
B) $1,000
C) $300
D) ($250)
31) Departmental accounting requires:
A) measuring departmental gross profit.
B) allocating direct costs to departments.
C) allocating indirect costs to departments.
D) None of these answers is correct.
32) Which of the following expenses is the most difficult to allocate to departments?
A) Cost of goods sold
B) Use of general supplies by everyone
C) Salaries and wages
D) Merchandise purchases
33) Which allocation base is best used to allocate building depreciation?
A) Square feet of space used
B) Number of employees
C) Hours used
D) Building depreciation can be separately traced to each department
34) Which allocation base is best used to allocate advertising expense by selling department?
A) Square feet of spaced used
B) Gross sales of each department as a percent of total gross sales
C) An even split among all selling departments
D) Some other method not listed.
35) Indirect expenses are normally:
A) subjective and approximate.
B) assigned by arbitrary methods.
C) assigned precisely by accepted methods.
D) overlooked.
36) Of two departments, the men’s department has 8,000 square feet and the women’s department has
22,000 square feet. Depreciation is divided by square footage. If total depreciation is $50,000, the total
amount allocated to the men’s department would be approximately $13,333.
37) Sports apparel department’s gross profit is $300,000; clothing department gross profit is $200,000;
indirect advertising expense is $6,000. Indirect expense charged to the sports apparel department based
on gross profit would be $3,600.
38) A indirect expense should be traceable to a respective department.
39) Direct expenses, such as salaries, can be traced to a particular department.
40) A building’s depreciation would be considered an indirect expense.
41) A common way to apportion janitorial expense is to base it on gross sales.
42) Indirect expenses may be allocated to departments based on the cost of goods sold in each
department.
43) Indirect expenses are subjective in nature and may be allocated in a number of ways.
44) Indirect expenses are the same across departments and industries.
45) Sports Galore is trying to allocate its building’s depreciation based on floor space. Determine the
amount that should be assigned to the golf department and to the basketball department.
Golf Basketball Total
Floor Space 30,000 60,000 90,000
Depreciation Exp $39,000
46) You have been hired by Jones to allocate his utilities to each department based on space (in square
footage).
Complete the assignment.
Shoe Dept. Jewelry Dept. Clothing Dept. Total
Space (square feet) 12,000 4,000 24,000 40,000
Utilities Cost $60,000
47) The following information is available for Charter Company:
Item
Department 1
Department 2
Total
Equipment value
$500,000
$250,000
$750,000
Square footage
25,000 sq.ft.
35,000 sq.ft.
60,000 sq.ft
Sales
$1,250,000
$725,000
$1,975,000
Complete the following chart to determine the total cost for each department, using the most appropriate
method to apportion the indirect costs.
Cost
Department 1
Total
Depreciation
$120,000
Utilities
$45,000
Sales Commissions
$59,250
Rent
$150,000
TOTALS
$374,250
Depreciation
Utilities
Sales Commissions
Rent
TOTALS
48) From the following, calculate income by departments.
Dept. 1 Dept. 2
Net Sales $8,000 $6,500
Cost of Goods Sold 5,000 3,200
Delivery Expense 570 420
Advertising Expense 390 310
Depreciation Expense 620 530
49) From the following partial data, prepare a departmental income statement showing income before tax
along with net income for Mason Corporation for the month ended December 31.
Net Sales-Sporting Goods $3,000
Net Sales-Shoes 1,500
Cost of Goods Sold-Sporting Goods 1,950
Cost of Goods Sold-Shoes 900
Income Tax Rate is 30%
Sporting Goods Dept.-5,000 square feet
Shoe Dept.-3,000 square feet
The following items are indirect expenses and should be allocated:
Basis of Appropriation
Building Expense $240 Square Footage
Delivery Expense $135 Net Sales
Depreciation Expense $40 Square Footage
50) Below is a list of expenses (direct and indirect). You are to determine the total direct cost for
departments A and B.
Salary Expense $ 80,000
Depreciation Expense –
Equipment 4,000
Depreciation Expense –
Building 24,000
Heating Expense 1,800
Lighting Expense 2,400
Cleaning & Maintenance Expense 900
Department [A] [B]
Cost of Goods Sold $100,000 $300,000
Employees 2 6
Value of Equipment in each area $ 8,000 $ 12,000
Square footage of use 200 sq. ft. 400 sq. ft.
Direct cost for department A $ ________ B $ ________
51) Electricity for the stove in a restaurant. ________
52) Paint for the restaurant dining room. ________
53) Rent paid for the building. ________
54) Wages paid to the restaurant wait staff. ________
55) Electricity for the general lighting in a store. _______
56) Paint sold by the hobby department. ________
57) General employee insurance. ________
58) Rent paid for the freezers in the frozen foods department of a food store. ________
59) Insurance paid on employees working in high risk areas of a machine shop. ________
60) Wages paid to the mechanics of an automobile repair shop. ________
1) When preparing an income statement showing departmental contribution margin:
A) indirect expenses are combined with direct expenses.
B) indirect departmental expenses are added to contribution margin.
C) direct expenses are subtracted from contribution margin on sales.
D) None of these answers are correct.
2) Compute the contribution margin for the video department, when gross profit is $880,000, direct
expenses $370,000, and indirect expenses are $190,000.
A) $320,000
B) $690,000
C) $510,000
D) $700,000
3) 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. Direct expenses were $56,600 for the company and indirect expenses were $75,200. What was
the contribution margin for the company?
A) $640,100
B) $583,500
C) $508,300
D) $564,900
4) A line on the income statement that indicates what a department has left after covering cost of goods
and sold and direct expenses is:
A) the gross margin.
B) the net income.
C) the contribution margin.
D) None of these answers are correct.
5) What is the purpose for determining contribution margin?
A) To show the contribution by department toward covering indirect costs
B) To help determine whether or not to eliminate a department
C) To show the effect on net income each department
D) All of these answers are correct.
6) Supporters of the contribution margin approach believe that:
A) indirect expenses should be departmentalized.
B) indirect expenses should not be used for evaluating departmental performance.
C) indirect expenses are proportionally charged to each department.
D) direct expenses should not be used in evaluating departmental performance.
7) The cosmetic department experienced the following revenue and expenses during December:
Sales
$86,000
Cost of Goods Sold
29,000
Direct Operating Expenses
7,000
Indirect Operating Expenses
3,000
The cosmetic department’s contribution margin is:
A) $57,000.
B) $50,000.
C) $53,000.
D) $47,000.
8) On a departmental income statement, contribution margin minus total indirect expenses equals:
A) departmental contribution margin.
B) net income.
C) income before taxes.
D) income taxes.
9) On a departmental income statement, sales less cost of goods sold and direct expenses equals:
A) gross margin.
B) income before taxes.
C) indirect expenses.
D) departmental contribution margin.
10) 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 department’s contribution margin is:
A) $15,300.
B) $20,200.
C) $13,000.
D) $14,300.
11) When a department showing a loss is eliminated, other departments will always achieve a greater
contribution margin.
12) Direct expenses and indirect expenses are separated in determining contribution margin.
13) Direct expenses are assigned to departments based on the actual expenses incurred.
14) Eliminating one department may increase the sales of another department.
15) Department contribution margin equals gross profit on sales minus indirect departmental expenses.
16) Departmental income statements would not be a useful to tool for management to determine the
viability of a department.
17) A department should always be eliminated when it becomes unprofitable.
18) A net income would occur if the contribution margin is less than indirect expenses.
19) Trends in the industry, such as advancements in technology, should always be a consideration in
determining whether or not a department is eliminated.
20) The availability of suppliers and a firm’s potential capacity is a consideration before a department is
added.
21) Why would it be advisable for a company to keep separate accounting records for various
departments?
22) Prepare an income statement showing departmental contribution margin based on the following:
Dept. X Dept. Y Rent Expense
Space (square feet) 17,500 35,000
Net Sales $60,000 $ 40,000
Cost of Goods Sold 18,000 16,000
Rent Expense (allocated based on square feet) $2,700
23) Hawkeye Golf is considering dropping the clothing department because it is not generating a profit as
disclosed by the following data:
Sales $1,800
Cost of Goods Sold 800
Gross Profit on Sales $1,000
Direct Expenses 700
Indirect Expenses 500
Net Loss $( 200)
Note: None of the indirect expenses can be avoided by dropping the department.
Should Hawkeye drop the department? Show your computations.
24) Given the following, calculate contribution margin and net income:
Indirect
DVD CD Expense
Net Sales $7,500 $3,900
Cost of Goods Sold 4,100 1,800
Operating Expenses (Indirect) $2,600