Question 1

A market-based transfer price considers the ________ when determining the price.

Accepted Answer

A)  variable costs 
B)  sales price of goods 
C)  cost of the goods 
D)  contribution margin 
A)  variable costs 
B)  sales price of goods 
C)  cost of the goods 
D)  contribution margin

Question 2

Operating income alone does not indicate how efficiently a segment is using its assets.

Accepted Answer

A) True 
 B)False

Question 3

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

Accepted Answer

A) True 
 B)False

Question 4

A high rate of employee turnover indicates that:

Accepted Answer

A)  employees of the organization leave jobs frequently. 
B)  pay packages of employees are at par with that of industry. 
C)  the employees' retention ratio is also high. 
D)  employees also participate in the decision making process. 
A)  employees of the organization leave jobs frequently. 
B)  pay packages of employees are at par with that of industry. 
C)  the employees' retention ratio is also high. 
D)  employees also participate in the decision making process.

Question 5

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

Accepted Answer

A)  hours of employee training 
B)  number of warranty claims 
C)  percentage of market share 
D)  return on investment 
A)  hours of employee training 
B)  number of warranty claims 
C)  percentage of market share 
D)  return on investment

Question 6

Pitt Jones Company had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \
\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 10,000 & 1,000 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of their regional offices.
$$\begin{array} { | l | r | r | } 
\hline & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \
\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \
\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \
\hline \text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters } \
\hline
\end{array}$$ 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 7

Which of the following statements is true of performance reporting?

Accepted Answer

A)  Responsibility reports should focus on the person responsible for unfavorable variances, rather than information. 
B)  Managers should not be held accountable for uncontrollable variances. 
C)  Only unfavorable variances should be explained in the reports. 
D)  Every variance, regardless of magnitude, must be investigated by the managers. 
A)  Responsibility reports should focus on the person responsible for unfavorable variances, rather than information. 
B)  Managers should not be held accountable for uncontrollable variances. 
C)  Only unfavorable variances should be explained in the reports. 
D)  Every variance, regardless of magnitude, must be investigated by the managers.

Question 8

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

Accepted Answer

A)  Defect rate 
B)  Employee satisfaction 
C)  Gross margin growth 
D)  Number of repeat customers 
A)  Defect rate 
B)  Employee satisfaction 
C)  Gross margin growth 
D)  Number of repeat customers

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

Which of the following is the last step in developing an activity-based costing system?

Accepted Answer

A)  estimate the total quantity of the cost driver 
B)  estimate the total indirect costs of each activity 
C)  identify the activities 
D)  allocate indirect costs to the cost object 
A)  estimate the total quantity of the cost driver 
B)  estimate the total indirect costs of each activity 
C)  identify the activities 
D)  allocate indirect costs to the cost object

Question 13

Which of the following is a disadvantage of decentralization?

Accepted Answer

A)  increases the customer response time 
B)  only the top management is allowed to make decisions 
C)  demotivates employees as the decision making powers are not delegated 
D)  problems in achieving goal congruence 
A)  increases the customer response time 
B)  only the top management is allowed to make decisions 
C)  demotivates employees as the decision making powers are not delegated 
D)  problems in achieving goal congruence

Question 14

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: $$\begin{array} { | l | l | c | } 
\hline  { \text { Activity } } &  { \text { Allocation Base } } & \text { Cost Allocation Rate \$ } \
\hline \text { Materials handling } & \text { Number of parts } & 0.08 \
\hline \text { Machining } & \text { Machine hours } & 7.20 \
\hline \text { Assembling } & \text { Number of parts } & 0.35 \
\hline \text { Packaging } & \text { Number of finished units } & 2.70 \
\hline
\end{array}$$ What is the cost of materials handling per ceiling fan?

Accepted Answer

A)  $1.60 
B)  $7.20 
C)  $6.00 
D)  $5.00 
A)  $1.60 
B)  $7.20 
C)  $6.00 
D)  $5.00

Question 15

Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property developers. The sales office is a revenue center and must prepare a monthly performance report. Below is the partially completed performance report. $$\begin{array}{l}
\text { Revenue Center Performance Report }\
\begin{array} { | c | r | c | c | c | c | c | c | } 
\hline &{ \text { Actual } } & \text { Flexible Budget } & & \text { Flexible } & \text { Sales Volume } & & \text { Static } \
\hline \text { Product type: } & \text { Sales Revenue } & \text { Variance } & \text { U/F } & \text { Budget } & \text { Variance } & \text { U/F } & \text { Budget } \
\hline 40 \text { inch } & \$ 31,500 & & & \$ 30,000 & & & \$ 40,000 \
\hline 36 \text { inch long } & \$ 40,150 & & & \$ 42,000 & & & \$ 33,000 \
\hline 36 \text { inch short } & \$ 36,200 & & & \$ 33,000 & & & \$ 30,000 \
\hline 32 \text { inch } & \$ 19,000 & & & \$ 20,000 & & & \$ 28,000 \
\hline
\end{array}
\end{array}$$ The company uses management by exception to address flexible budget variances. On which variance would the company focus first?

Accepted Answer

A)  40 inch 
B)  36 inch long 
C)  36 inch short 
D)  32 inch 
A)  40 inch 
B)  36 inch long 
C)  36 inch short 
D)  32 inch

Question 16

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 17

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Accepted Answer

A) True 
 B)False

Question 18

Oscar prizes, a manufacturer of gift articles, uses a single plant wide rate to allocate indirect costs. The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base. Estimated overhead cost for the year is $5,000,000 and estimated machine hours are 25,000. During the year, the actual machine hours used were 30,000. Calculate the predetermined overhead allocation rate.

Accepted Answer

A)  $166 
B)  $250 
C)  $200 
D)  $150 
A)  $166 
B)  $250 
C)  $200 
D)  $150

Question 19

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 20

Opportunity cost means:

Accepted Answer

A)  benefit received by selling goods on behalf of other division. 
B)  benefit received by selling goods to one of the other divisions within the company. 
C)  benefit foregone by purchasing goods at a price lower than its total manufacturing cost. 
D)  benefit foregone by choosing an alternative course of action. 
A)  benefit received by selling goods on behalf of other division. 
B)  benefit received by selling goods to one of the other divisions within the company. 
C)  benefit foregone by purchasing goods at a price lower than its total manufacturing cost. 
D)  benefit foregone by choosing an alternative course of action.

Exam 24: Cost Allocation and Responsibility Accounting

A market-based transfer price considers the ________ when determining the price.

Operating income alone does not indicate how efficiently a segment is using its assets.

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

A high rate of employee turnover indicates that:

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

Which of the following statements is true of performance reporting?

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

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 is the correct formula for calculating residual income?

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.

Which of the following is the last step in developing an activity-based costing system?

Which of the following is a disadvantage of decentralization?

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

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

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

Opportunity cost means:

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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