Question 1

Which of the following is the correct formula for calculating residual income?

Accepted Answer

A) Weighted Average Cost of Capital - Net Operating Profit After Tax 
B) Operating income - Minimum acceptable operating income 
C) Historical cost of assets - Accumulated depreciation 
D) Operating income ÷ Average assets 
A) Weighted Average Cost of Capital - Net Operating Profit After Tax 
B) Operating income - Minimum acceptable operating income 
C) Historical cost of assets - Accumulated depreciation 
D) Operating income ÷ Average assets

Question 2

Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.

Accepted Answer

A) True 
 B)False

Question 3

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

Accepted Answer

A) True 
 B)False

Question 4

To adequately evaluate an investment center's financial performance, summary performance measures that include both the division's operating income and its assets are required.

Accepted Answer

A) True 
 B)False

Question 5

The first step in developing an activity-based costing system is to identify the activities that will be used to assign the manufacturing overhead and estimate their total costs.

Accepted Answer

A) True 
 B)False

Question 6

To evaluate the performance of an investment center, a business needs key performance indicators that measure:

Accepted Answer

A) manufacturing efficiency and product defect rate. 
B) operating income and efficient use of assets. 
C) customer satisfaction and market share. 
D) generation of sales revenues and control of operating expenses. 
A) manufacturing efficiency and product defect rate. 
B) operating income and efficient use of assets. 
C) customer satisfaction and market share. 
D) generation of sales revenues and control of operating expenses.

Question 7

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Accepted Answer

A) True 
 B)False

Question 8

Manufacturing overhead costs, which are also known as indirect costs, cannot be cost-effectively traced to products.

Accepted Answer

A) True 
 B)False

Question 9

Centralized companies split their operations into different divisions, or operating units, and top management delegates decision making to the division/unit managers.

Accepted Answer

A) True 
 B)False

Question 10

Responsibility reports for a profit center includes:

Accepted Answer

A) revenues only. 
B) invested capital. 
C) both revenues and costs. 
D) returns on investments. 
A) revenues only. 
B) invested capital. 
C) both revenues and costs. 
D) returns on investments.

Question 11

Brad, one of the managers of a multi-national company, is responsible to generate revenues and control costs in order to increase the operating income of his division. However, he is not concerned with investment-related decisions. Brad is most likely to be the manager of a(n):

Accepted Answer

A) cost center. 
B) investment center. 
C) profit center. 
D) revenue center. 
A) cost center. 
B) investment center. 
C) profit center. 
D) revenue center.

Question 12

The product line of a manufacturing company is most likely to be considered as:

Accepted Answer

A) cost centers. 
B) profit centers. 
C) revenue centers. 
D) investment centers. 
A) cost centers. 
B) profit centers. 
C) revenue centers. 
D) investment centers.

Question 13

When a division is operating at full capacity, the transfer price can be any of variable cost, full cost or cost plus a mark-up.

Accepted Answer

A) True 
 B)False

Question 14

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 account inquiry cost will be assigned to the Midwest Office?

Accepted Answer

A) $2,000 
B) $6,500 
C) $3,000 
D) $6,000 
A) $2,000 
B) $6,500 
C) $3,000 
D) $6,000

Question 15

Which of the following internal business perspective key performance indicators (KPIs)is commonly used to assess the innovation process?

Accepted Answer

A) number of new products developed 
B) number of warranty claims 
C) employee turnover rate 
D) rate of on-time deliveries 
A) number of new products developed 
B) number of warranty claims 
C) employee turnover rate 
D) rate of on-time deliveries

Question 16

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:   Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. There is no direct labor. What is the total manufacturing cost per breadbox?

Accepted Answer

A) $17.40 
B) $24.00 
C) $12.40 
D) $26.00 
A) $17.40 
B) $24.00 
C) $12.40 
D) $26.00

Question 17

Uncontrollable costs are the costs that can be influenced by the decisions of a manager.

Accepted Answer

A) True 
 B)False

Question 18

Activity-based costing uses a common allocation base for all activities.

Accepted Answer

A) True 
 B)False

Question 19

Centralized operations are better for small companies due to the smaller scope of their operations.

Accepted Answer

A) True 
 B)False

Question 20

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture. Additional information is as follows:   What is the cost of machining per ceiling fan?

Accepted Answer

A) $18 
B) $180 
C) $30 
D) $144 
A) $18 
B) $180 
C) $30 
D) $144

Exam 24: Cost Allocation and Responsibility Accounting

Which of the following is the correct formula for calculating residual income?

Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

To adequately evaluate an investment center's financial performance, summary performance measures that include both the division's operating income and its assets are required.

The first step in developing an activity-based costing system is to identify the activities that will be used to assign the manufacturing overhead and estimate their total costs.

To evaluate the performance of an investment center, a business needs key performance indicators that measure:

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Manufacturing overhead costs, which are also known as indirect costs, cannot be cost-effectively traced to products.

Centralized companies split their operations into different divisions, or operating units, and top management delegates decision making to the division/unit managers.

Responsibility reports for a profit center includes:

Brad, one of the managers of a multi-national company, is responsible to generate revenues and control costs in order to increase the operating income of his division. However, he is not concerned with investment-related decisions. Brad is most likely to be the manager of a(n):

The product line of a manufacturing company is most likely to be considered as:

When a division is operating at full capacity, the transfer price can be any of variable cost, full cost or cost plus a mark-up.

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 account inquiry cost will be assigned to the Midwest Office?

Which of the following internal business perspective key performance indicators (KPIs)is commonly used to assess the innovation process?

Uncontrollable costs are the costs that can be influenced by the decisions of a manager.

Activity-based costing uses a common allocation base for all activities.

Centralized operations are better for small companies due to the smaller scope of their operations.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Short-Term Business Decisions

Capital Investment Decisions

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