Exam 24: Cost Allocation and Responsibility Accounting

A good balanced scorecard focuses only on lead indicators, because lag indicators are not important for the scorecard.

The responsibilities of a manager of an investment center are to generate profits and to efficiently manage the center's invested capital.

When a division is operating at full capacity, the transfer price must be:

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

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters What is the cost per line for the account billing activity?

Cost center responsibility reports generally focus on the static budget variance.

For a pharmaceutical company, the most suitable base for allocating research and development costs to the finished products would be:

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.

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?

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.

Which of the following four perspectives of the balanced score card enables the management to answer the question: "How can we continue to improve and create value?"

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

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters How much of the account verification costs will be assigned to the Northeast Office?

ROI (Return on Investment) measures the profitability of an investment center, not efficiency.

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

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

The transfer price should be an amount between the market price and the variable cost.

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

Regardless of the type of responsibility center, responsibility reports should focus on information, not blame.

Which of the following statements is correct regarding the activity-based costing system?