Question 1

Management by exception directs management's attention to important differences between actual and budgeted amounts.

Accepted Answer

A) True 
 B)False

Question 2

The balanced scorecard is a performance evaluation system that requires management to consider financial performance measures of performance, but not nonfinancial measures.

Accepted Answer

A) True 
 B)False

Question 3

The performance measurement system should provide incentives to segment managers for coordinating activities of the subunits and focusing them toward the overall company objectives. Which of the following performance measurement goals has been described by this statement?

Accepted Answer

A)  Motivating segment managers 
B)  Promoting goal congruence 
C)  Providing feedback 
D)  Benchmarking 
A)  Motivating segment managers 
B)  Promoting goal congruence 
C)  Providing feedback 
D)  Benchmarking

Question 4

A company in which major planning and controlling decisions are made by top management is considered as a centralized company.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  Direct labor cost 
B)  Machine processing 
C)  Direct materials cost 
D)  Sales revenues 
A)  Direct labor cost 
B)  Machine processing 
C)  Direct materials cost 
D)  Sales revenues

Question 6

Communicating the expectations of top management to segment managers improves goal congruence.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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):

Accepted Answer

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

Question 9

Sales revenue growth, gross margin growth, and return on investment are the key performance indicators (KPIs) for the:

Accepted Answer

A)  financial perspective. 
B)  customer perspective. 
C)  internal business perspective. 
D)  learning and growth perspective. 
A)  financial perspective. 
B)  customer perspective. 
C)  internal business perspective. 
D)  learning and growth perspective.

Question 10

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

Accepted Answer

A)  number of employees 
B)  number of materials purchased 
C)  number of machine hours 
D)  number of service calls 
A)  number of employees 
B)  number of materials purchased 
C)  number of machine hours 
D)  number of service calls

Question 11

The payroll department of a manufacturing company is most likely to be a(n):

Accepted Answer

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

Question 12

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 13

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true?

Accepted Answer

A)  Many traditional costing systems can distort product costs and profitability. 
B)  Traditional costing systems tend to be more costly than activity-based costing systems. 
C)  Activity-based costing systems tend to combine various costs into a single cost pool. 
D)  Activity-based costing systems tend to use fewer cost pools than does a traditional costing system. 
A)  Many traditional costing systems can distort product costs and profitability. 
B)  Traditional costing systems tend to be more costly than activity-based costing systems. 
C)  Activity-based costing systems tend to combine various costs into a single cost pool. 
D)  Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

Question 15

Which of the following affects the company's ability to make on-time deliveries?

Accepted Answer

A)  return on investment 
B)  product's price 
C)  warranty claims 
D)  production cycle time 
A)  return on investment 
B)  product's price 
C)  warranty claims 
D)  production cycle time

Question 16

Quality Stereo Company has provided the following information regarding its activity-based costing system: 
• Purchasing department costs are allocated based on the number of purchase orders and the cost allocation rate is $75 per purchase order.
• Assembly department costs are allocated based on the number of parts used and the cost allocation rate is $1.00 per part.
• Packaging department costs are allocated based on the number of units produced and the allocation rate is $2.00 per unit produced.
Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all. What is the total cost of the 1,000 stereos?

Accepted Answer

A)  $125,750 
B)  $55,750 
C)  $123,750 
D)  $122,000 
A)  $125,750 
B)  $55,750 
C)  $123,750 
D)  $122,000

Question 17

A company may prefer to use residual income over return on investment for performance evaluation because:

Accepted Answer

A)  return on investment is absolute figure but residual income is a ratio. 
B)  residual income is more likely to lead to goal congruence than return on investment. 
C)  it is easier to calculate residual income than return on investment. 
D)  residual income considers three elements but return on investment considers only two elements. 
A)  return on investment is absolute figure but residual income is a ratio. 
B)  residual income is more likely to lead to goal congruence than return on investment. 
C)  it is easier to calculate residual income than return on investment. 
D)  residual income considers three elements but return on investment considers only two elements.

Question 18

A system of evaluating the performance of each responsibility center and its manager is known as responsibility accounting system.

Accepted Answer

A) True 
 B)False

Question 19

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 maximum transfer price if the division is operating below its capacity?

Accepted Answer

A)  $70 
B)  $170 
C)  $150 
D)  $30 
A)  $70 
B)  $170 
C)  $150 
D)  $30

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

Management by exception directs management's attention to important differences between actual and budgeted amounts.

The balanced scorecard is a performance evaluation system that requires management to consider financial performance measures of performance, but not nonfinancial measures.

The performance measurement system should provide incentives to segment managers for coordinating activities of the subunits and focusing them toward the overall company objectives. Which of the following performance measurement goals has been described by this statement?

A company in which major planning and controlling decisions are made by top management is considered as a centralized company.

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

Communicating the expectations of top management to segment managers improves goal congruence.

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

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):

Sales revenue growth, gross margin growth, and return on investment are the key performance indicators (KPIs) for the:

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

The payroll department of a manufacturing company is most likely to be a(n):

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

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

Which of the following statements is true?

Which of the following affects the company's ability to make on-time deliveries?

A company may prefer to use residual income over return on investment for performance evaluation because:

A system of evaluating the performance of each responsibility center and its manager is known as responsibility accounting system.

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 maximum transfer price if the division is operating below its capacity?

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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