Question 1

Which of the following best describes the manager of a profit center?

Accepted Answer

A) The manager is only responsible for controlling costs. 
B) The manager is responsible for generating profits and efficiently managing the center's invested capital. 
C) The manager is only responsible for generating revenues. 
D) The manager is responsible for generating revenues and controlling costs. 
A) The manager is only responsible for controlling costs. 
B) The manager is responsible for generating profits and efficiently managing the center's invested capital. 
C) The manager is only responsible for generating revenues. 
D) The manager is responsible for generating revenues and controlling costs. D

Question 2

The manager of which of the following centers has the authority to open new stores or close existing ones?

Accepted Answer

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

Question 3

The following is divisional information for Falcon 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 residual income for each division.

Accepted Answer

Average assets: (Beginning assets + Ending assets)/ 2
 $$\begin{aligned}
\text { East Division } & = ( \$ 1,500,000 + \$ 1,200,000 ) / 2 \
& = \$ 2,700,000 / 2 \
& = \$ 1,350,000
\end{aligned}$$ 
 $$\begin{aligned}
\text { West Division } & = ( \$ B 40,000 + \$ 1,000,000 ) / 2 \
& = \$ 1,840,000 / 2 \
& = \$ 920,000
\end{aligned}$$ 
Minimum acceptable operating income = Average assets × Target rate of return
 $$\begin{aligned}
\text { East Division } & = \$ 1,350,000 \times 0.12 \
& = \$ 162,000
\end{aligned}$$ 
 $$\begin{aligned}
\text { West Division } & = \$ 920,000 \times 0.10 \
& = \$ 92,000
\end{aligned}$$ 
Residual income = Operating income - Minimum acceptable operating income
 $$\text { East Division } = \$ 250,000 - \$ 162,000 = \$ 88 , 000$$ $\text { West Division }=\$ 200,000-\$ 92,000=\$ 108,000$

Question 4

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 5

The term goal congruence refers to the ________.

Accepted Answer

A) matching of financial goals of the company with its nonfinancial goals 
B) aligning the goals of business segment managers with the goals of top management 
C) achievement of the goals set by the management by utilizing the resources available 
D) duplication of costs as a result of decentralization 
A) matching of financial goals of the company with its nonfinancial goals 
B) aligning the goals of business segment managers with the goals of top management 
C) achievement of the goals set by the management by utilizing the resources available 
D) duplication of costs as a result of decentralization

Question 6

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 7

Holmes,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 the component is $20.What is the transfer price if the division is operating at full capacity?

Accepted Answer

A) $65 
B) $170 
C) $150 
D) $20 
A) $65 
B) $170 
C) $150 
D) $20

Question 8

Which of the following is the correct formula for the profit margin ratio?

Accepted Answer

A) Net profit / Sales 
B) Net sales / Average total assets 
C) Net profit × Capital invested 
D) Operating income / Net sales 
A) Net profit / Sales 
B) Net sales / Average total assets 
C) Net profit × Capital invested 
D) Operating income / Net sales

Question 9

A profit center performance report includes both revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 10

Raphael,Inc.has a division that manufactures a component that sells for $190 and has a variable cost of $35.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $22.What is the minimum transfer price if the division is operating below its capacity?

Accepted Answer

A) $190 
B) $35 
C) $57 
D) $22 
A) $190 
B) $35 
C) $57 
D) $22

Question 11

Return on investment measures the profitability of an investment center but not the efficiency in using its assets.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a responsibility that is common to the managers of cost,profit,and investment centers?

Accepted Answer

A) generating revenues 
B) generating profits 
C) managing the invested capital 
D) controlling costs 
A) generating revenues 
B) generating profits 
C) managing the invested capital 
D) controlling costs

Question 13

Residual income indicates how ________.

Accepted Answer

A) efficiently a division uses its average assets to generate sales and thereby profits 
B) much operating income the division earns on every dollar of sales 
C) much return a division generates on average assets 
D) much extra operating income a division generates above the minimum acceptable level 
A) efficiently a division uses its average assets to generate sales and thereby profits 
B) much operating income the division earns on every dollar of sales 
C) much return a division generates on average assets 
D) much extra operating income a division generates above the minimum acceptable level

Question 14

Flexible budgets use budgeted (or standard)costs at the actual level of activity.

Accepted Answer

A) True 
 B)False

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

Which of the following is an advantage of decentralization?

Accepted Answer

A) Managers' motivation and retention can be increased by empowering segment managers to make decisions. 
B) Certain costs of activities may be duplicated. 
C) Customer response time is generally decreased. 
D) Top management can concentrate on decisions that relate to day-to-day operations of segments. 
A) Managers' motivation and retention can be increased by empowering segment managers to make decisions. 
B) Certain costs of activities may be duplicated. 
C) Customer response time is generally decreased. 
D) Top management can concentrate on decisions that relate to day-to-day operations of segments.

Question 17

Which of the following is the correct formula for calculating return on investment?

Accepted Answer

A) Net profit / Sales 
B) Gross profit / Sales 
C) Operating income / Average total assets 
D) Earnings available to stockholders / Number of outstanding shares of stock 
A) Net profit / Sales 
B) Gross profit / Sales 
C) Operating income / Average total assets 
D) Earnings available to stockholders / Number of outstanding shares of stock

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Regarding controllable costs,which of the following statements is incorrect?

Accepted Answer

A) The production manager cannot make the decision to replace older equipment. 
B) All costs are ultimately controllable at the upper levels of management. 
C) The production manager is not responsible for avoiding waste of direct materials. 
D) The production manager must be able to control all costs of his or her department. 
A) The production manager cannot make the decision to replace older equipment. 
B) All costs are ultimately controllable at the upper levels of management. 
C) The production manager is not responsible for avoiding waste of direct materials. 
D) The production manager must be able to control all costs of his or her department.

Question 20

List the four types of responsibility centers.For each center,state the responsibility of the manager.
 $$\begin{array} { | c | l | } 
\hline \begin{array} { c } 
\text { Type of } \
\text { responsibility center }
\end{array} & \text { Responsibility of the manager } \
\hline & \
\hline & \
\hline & \
\hline & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline {

Exam 24: Responsibility Accounting and Performance Evaluation

Which of the following best describes the manager of a profit center?

The manager of which of the following centers has the authority to open new stores or close existing ones?

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

The term goal congruence refers to the ________.

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

Holmes,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 the component is $20.What is the transfer price if the division is operating at full capacity?

Which of the following is the correct formula for the profit margin ratio?

A profit center performance report includes both revenues and expenses.

Raphael,Inc.has a division that manufactures a component that sells for $190 and has a variable cost of $35.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $22.What is the minimum transfer price if the division is operating below its capacity?

Return on investment measures the profitability of an investment center but not the efficiency in using its assets.

Which of the following is a responsibility that is common to the managers of cost,profit,and investment centers?

Residual income indicates how ________.

Flexible budgets use budgeted (or standard)costs at the actual level of activity.

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

Which of the following is an advantage of decentralization?

Which of the following is the correct formula for calculating return on investment?

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

Regarding controllable costs,which of the following statements is incorrect?

List the four types of responsibility centers.For each center,state the responsibility of the manager. Type of responsibility center Responsibility of the manager

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, and Quality Management Systems

Cost-Volume-Profit Analysis

Variable Costing

Master Budgets

Flexible Budgets and Standard Cost Systems

Short-Term Business Decisions

Capital Investment Decisions

Accounting Information Systems

Filters