Question 1

The balanced scorecard focuses only on lead indicators, because lag indicators are not important for performance evaluation.

Accepted Answer

A) True 
 B)False

Question 2

Reynolds Construction Materials Company has a sales office that sells concrete culvert pipes to property developers. The sales office is a revenue center and prepares a monthly responsibility report. The following information is provided. $$\begin{array}{l}
\text { Revenue Center Respansibility Repart }\
\begin{array} {| c | c | c | l | l | l | l | l |} 
\hline \begin{array} { c } 
\text { Product } \
\text { Type }
\end{array} & \begin{array} { c } 
\text { Actual } \
\text { Sales } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Flexible } \
\text { Budget } \
\text { Variance }
\end{array} & \text { U/F } & \begin{array} { c } 
\text { Flexible } \
\text { Budget }
\end{array} & \begin{array} { c } 
\text { Sales } \
\text { Volume } \
\text { Variance }
\end{array} & \text { U/F } & \begin{array} { c } 
\text { Static } \
\text { Budget }
\end{array} \
\hline 40 \text { inch } & \$ 31,700 & & & \$ 30,000 & & & \$ 40,800 \
\hline 36 \text { inch long } & 40,200 & & & 42,200 & & & 33,000 \
\hline 36 \text { inch short } & 36,000 & & & 33,100 & & & 31,100 \
\hline \text { 32 inch } & 19,100 & & & 20,900 & & & 28,000 \
\hline
\end{array}
\end{array}$$ What is the flexible budget variance for the 40-inch pipe?

Accepted Answer

A)  $1700 U 
B)  $10,800 F 
C)  $10,800 U 
D)  $1700 F 
A)  $1700 U 
B)  $10,800 F 
C)  $10,800 U 
D)  $1700 F

Question 3

Sirius, Inc. has average total assets of $300,000. The annual operating income of the company is $125,000. The target rate of return for the company is 15%. Calculate the residual income.

Accepted Answer

A)  $45,000 
B)  $175,000 
C)  $18,750 
D)  $80,000 
A)  $45,000 
B)  $175,000 
C)  $18,750 
D)  $80,000

Question 4

Flagship Logistics provides the following information: $$\begin{array} { | l | r | } 
\hline \text { Operating income } & \$ 1,500,000 \
\hline \text { Net sales } & \$ 14,000,000 \
\hline \text { Average total assets } & \$ 2,000,000 \
\hline \text { Management's target rate of return } & 25 \% \
\hline
\end{array}$$ What is the company's asset turnover ratio? (Round your answer to two decimal places.)

Accepted Answer

A)  4.00 
B)  4.48 
C)  12.44 
D)  7.00 
A)  4.00 
B)  4.48 
C)  12.44 
D)  7.00

Question 5

Sousa Corporation provides the following financial information: $$\begin{array} { | l | r | } 
\hline \text { Minimum acceptable operating income } & \$ 556,600 \
\hline \text { Average total assets } & \$ 2,600,000 \
\hline \text { Operating income } & \$ 708,000 \
\hline \text { Return on investment } & 27 \% \
\hline \text { Net sales } & \$ 900,000 \
\hline
\end{array}$$ Calculate the residual income of Sousa Corporation.

Accepted Answer

A)  $2,043,400 
B)  $343,400 
C)  $151,400 
D)  $412,274 
A)  $2,043,400 
B)  $343,400 
C)  $151,400 
D)  $412,274

Question 6

For each of the following responsibility centers, state the typical focus of the responsibility report and briefly discuss the focus.
 $$\begin{array} { | l | l | l | } 
\hline \begin{array} { c } 
\text { Responsibility } \
\text { Center }
\end{array} & \begin{array} { c } 
\text { Focus of the } \
\text { Responsibility Report }
\end{array} & \text { Brief Discussion of the Focus } \
\hline \text { Cost } & & \
\hline \text { Revenue } & & \
\hline \text { Profit } & & \
\hline
\end{array}$$

Accepted Answer

None

Question 7

The limitations of financial performance measures ________.

Accepted Answer

A)  lead management to use accelerated depreciation methods 
B)  make it easy for companies to create goal congruence 
C)  lead management to use the net book value of assets 
D)  can be overcome by taking a broader view of performance with a balanced scorecard 
A)  lead management to use accelerated depreciation methods 
B)  make it easy for companies to create goal congruence 
C)  lead management to use the net book value of assets 
D)  can be overcome by taking a broader view of performance with a balanced scorecard

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Opportunity cost is the benefit ________.

Accepted Answer

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

Question 12

When operating at capacity, a market-based transfer price should be used.

Accepted Answer

A) True 
 B)False

Question 13

GrowHealthy, a manufacturer of vegetarian food options, had the following results from its Subunit A:
 $$\begin{array} { | l | r | r | r | l | } 
\hline \text { Subunit A } & \begin{array} { c } 
\text { Actual } \
\text { Results }
\end{array} & \begin{array} { c } 
\text { Flexible } \
\text { Budget }
\end{array} & \begin{array} { c } 
\text { Flexible } \
\text { Budget } \
\text { Variance } \
\text { (F or U) }
\end{array} & \begin{array} { c } 
\text { \% of Variance } \
\text { (F or U) }
\end{array} \
\hline \text { Net Sales Revenue } & \$ 587,000 & \$ 562,000 & & \
\hline \text { Variable Expenses } & \underline { 372,000 } & \underline { 362,000 } & & \
\hline \text { Contribution Margin } & 215,000 & 200,000 & & \
\hline \text { Traceable Fixed Expenses } & \underline { 50,000 } & \underline { 37,000 } & & \
\hline \text { Divisional Segment Margin } & \$ 165,000 & \$ 163,000 & & \
\hline
\end{array}$$ Requirements:
1. Complete the performance evaluation report for this subunit (round to two decimal places).
2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit?
3. Which items should be investigated if management's decision criteria is to investigate all variances equal to or exceeding $9,000 and 10% (both criteria must be met)?
4. Is it possible that the variances are due to a higher-than-expected sales volume?
5. Which balanced scorecard perspective is being addressed by this performance report? Is it a lead or lag indicator?

Accepted Answer

Requirement 1:
 \[\begin{array} { | l |

Question 14

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 15

Fill in the blank with the phrase that best completes the sentence.
-A(n) ________ is a part of the organization for which a manager has decision-making authority and accountability for the results of those decisions.

Accepted Answer

A) responsibility center 
B) cost center 
C) investment center 
D) revenue center 
E) profit center 
A) responsibility center 
B) cost center 
C) investment center 
D) revenue center 
E) profit center

Question 16

Profit center responsibility reports include ________.

Accepted Answer

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

Question 17

In a decentralized company, all the planning and controlling decisions are made by top management.

Accepted Answer

A) True 
 B)False

Question 18

The following is divisional information for Randolph Enterprises:
 $$\begin{array} { | l | r | r | } 
\hline & \text { East Division } & \text { West Division } \
\hline \text { Operating income } & \$ 250,000 & \$ 200,000 \
\hline \text { Net sales } & 2,225,000 & 1,575,000 \
\hline \text { Total assets at Jan. 1 } & 1,500,000 & 840,000 \
\hline \text { Total assets at Dec .31 } & 1,200,000 & 1,000,000 \
\hline
\end{array}$$ The target rate of return is 12% for the East Division and is 10% for the West Division.
Compute the return on investment for each division. (Round to one decimal place.)

Accepted Answer

Average assets: (Beginning ass

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The best measure for evaluating the effectiveness of a manger in an investment center would be ________.

Accepted Answer

A)  residual income measures 
B)  success in controlling costs 
C)  success in meeting budgeted revenues 
D)  current ratio measures 
A)  residual income measures 
B)  success in controlling costs 
C)  success in meeting budgeted revenues 
D)  current ratio measures

Exam 24: Responsibility Accounting and Performance Evaluation

The balanced scorecard focuses only on lead indicators, because lag indicators are not important for performance evaluation.

Sirius, Inc. has average total assets of $300,000. The annual operating income of the company is $125,000. The target rate of return for the company is 15%. Calculate the residual income.

Flagship Logistics provides the following information: Operating income \ 1,500,000 Net sales \ 14,000,000 Average total assets \ 2,000,000 Management's target rate of return 25\% What is the company's asset turnover ratio? (Round your answer to two decimal places.)

Sousa Corporation provides the following financial information: Minimum acceptable operating income \ 556,600 Average total assets \ 2,600,000 Operating income \ 708,000 Return on investment 27\% Net sales \ 900,000 Calculate the residual income of Sousa Corporation.

For each of the following responsibility centers, state the typical focus of the responsibility report and briefly discuss the focus. Responsibility Center Focus of the Responsibility Report Brief Discussion of the Focus Cost Revenue Profit

The limitations of financial performance measures ________.

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

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

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

Opportunity cost is the benefit ________.

When operating at capacity, a market-based transfer price should be used.

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

Fill in the blank with the phrase that best completes the sentence. -A(n) ________ is a part of the organization for which a manager has decision-making authority and accountability for the results of those decisions.

Profit center responsibility reports include ________.

In a decentralized company, all the planning and controlling decisions are made by top management.

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

The best measure for evaluating the effectiveness of a manger in an investment center would be ________.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Investments

Current Liabilities and Payroll

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost Management Systems: Activity-Based Just-In-Time

Cost Volume Profit Analysis

Variable Costing

Master Budgets

Flexible Budgets and Standard Cost Systems

Short-Term Business Decisions

Capital Investment Decisions

Understanding Accounting Information Systems and their Components

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