Exam 24: Cost Allocation and Responsibility Accounting

If a company allows division managers to negotiate a cost-based transfer price, it is better to use actual costs rather than standard costs. Otherwise, the selling division has no motivation to control costs.

Companies with diverse products can obtain better costing information by using a single plant wide rate.

Companies evaluate investment centers using the same measures as the profit centers.

The responsibility report of Keith Paul, a manager of one of the divisions of a manufacturing company, includes profits as well as return on investment and residual income. Keith is most likely to the manager of a(n):

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its customers.

Which of the following statements most accurately describes the company's "climate for action?"

RI (Residual Income)considers both the division's operating income and its average total assets. In addition, it also incorporates another piece of information known as top management's target rate of return.

In a balanced scorecard, which of the following is a key performance indicator of the internal business perspective?

The target rate of return is the maximum rate of return that top management expects a division to earn with its average total assets.

Pitt Jones Company had the following activities, allocated costs, and allocation bases: The above activities are carried out at two of their regional offices. How much of the correspondence cost will be assigned to the Northeast Office?

Opportunity cost means:

Which of the following statements is true of performance reporting?

Performance report of a profit center includes both revenues and expenses.

Which of the following statements is true?

WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating below its capacity?

Which of the following would most likely be treated as an activity in an activity-based costing system?

A lag indicator is a performance measure that forecasts future performance.

A high rate of employee turnover indicates that:

The term goal congruence refers to the:

Companies calculate predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs.