QUESTION: 281 Topic 5: Part 2 Sec Five (258 to 317)

The segmented income statement for a retail company with three product lines is presented below:

The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result, the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result1 the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The segmented income statement for this retail company does not facilitate performance evaluation because it does not distinguish between controllable and uncontrollable costs. The only costs and expenses controllable at the product-line level for this retail company are

Commissions, cost of sales, and rent.
Advertising, cost of sales, and salaries.
Commissions, cost of sales, and salaries.
Administration, advertising, and rent.

Answer(s): C

Explanation:

Commissions, cost of sales, and salaries are all traceable to each of the product lines and are therefore controllable. Administrative expenses are common or corporate-level expenses, advertising does not promote a specific product line, and rent is paid on a building shared by all product lines.

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QUESTION: 282 Topic 5: Part 2 Sec Five (258 to 317)

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Controllable costs

Arise from periodic appropriation decisions and have no well-specified function relating inputs to outputs.
Are primarily subject to the influence of a given manager of a given responsibility center for a given time span.
Arise from having property, plant, and equipment, and a functioning organization.
Result specifically from a clear-cut measured relationship between inputs and outputs.

Answer(s): B

Explanation:

Controllable costs can be changed by action taken at the appropriate management (responsibility) level. All costs are controllable, but they are controlled at different management levels; e.g., the decision to build another plant is made at a higher level of management than the decision to buy office supplies.

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QUESTION: 283 Topic 5: Part 2 Sec Five (258 to 317)

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Conversion costs do not include

Depreciation.
Direct materials.
Indirect labor.
Indirect materials.

Answer(s): B

Explanation:

Conversion costs are necessary to convert raw materials into finished products. They include all manufacturing costs, for example, direct labor and factory overhead, other than direct materials.

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QUESTION: 284 Topic 5: Part 2 Sec Five (258 to 317)

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Conversion cost pricing

Places minimal emphasis on the cost of materials used in manufacturing a product.
Could be used when the customer furnishes the material used in manufacturing a product.
Places heavy emphasis on indirect costs and disregards consideration of direct costs.
Places heavy emphasis on direct costs and disregards consideration of indirect costs.

Answer(s): B

Explanation:

Conversion costs consist of direct labor and factory overhead, the costs of converting raw materials into finished goods. Normally, a company does not consider only conversion costs in making pricing decisions, but if the customer were to furnish the raw materials, conversion cost pricing would be appropriate.

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QUESTION: 281 Topic 5: Part 2 Sec Five (258 to 317)

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QUESTION: 282 Topic 5: Part 2 Sec Five (258 to 317)

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QUESTION: 283 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 284 Topic 5: Part 2 Sec Five (258 to 317)

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