Exam 22: Decentralization and Performance Measurement

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Match the following definitions with the appropriate terms
A department or unit that incurs costs without directly generating revenues.
Direct expenses
A center in which a manager is responsible for using the center's assets to generate income for the center.
Responsibility accounting system
Costs that are incurred for the joint benefit of more than one department and cannot be readily traced to only one department.
Profit center
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A department or unit that incurs costs without directly generating revenues.
Direct expenses
A center in which a manager is responsible for using the center's assets to generate income for the center.
Responsibility accounting system
Costs that are incurred for the joint benefit of more than one department and cannot be readily traced to only one department.
Profit center
Costs readily traced to a specific department because they are incurred for the sole benefit of that department.
Controllable costs
Costs incurred to produce two or more products at the same time.
Indirect expenses
Costs that a manager can strongly influence or control.
Cost center
A department that incurs costs and generates revenues.
Joint cost
Assigns managers the responsibility for costs and expenses under their control.
Investment center
(Matching)
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Costs that the manager has the power to determine or at least strongly influence are called:

(Multiple Choice)
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Return on total assets for a cost center is a useful measure to evaluate the cost center manager.

(True/False)
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Generally,it does not matter how cost allocations are designed and explained,because most employees do not care whether the allocations appear to be fair or not.

(True/False)
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Return on investment for a given investment center can be split into two components: profit margin and investment turnover.

(True/False)
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A company's electronics division had sales of $25 billion,net income of $4 billion,and average invested assets of $5 billion.What is this division's return on investment?

(Multiple Choice)
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What is the purpose of a departmental accounting system?

(Essay)
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Profit margin measures how efficiently an investment center generates sales from its invested assets.

(True/False)
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Match the appropriate shared cost categories with the appropriate allocation bases (a)through (e): (a) Square footage of floor space. (b) Number of employees in department. (c) Sales in department. (d) Time spent/used in department. (e) Number of items processed. (f) Not an allocated cost. __________ (1) Office expense __________ (2) Utilities expense __________ (3) Payroll processing costs __________ (4) Cleaning costs __________ (5) Rent __________ (6) Advertising __________ (7) Depreciation on departmental equipment __________ (8) Data processing costs

(Essay)
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Define joint costs and explain how joint costs can be allocated.

(Essay)
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Responsibility performance reports usually compare actual costs to the budgeted costs amounts.

(True/False)
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In a responsibility accounting system:

(Multiple Choice)
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A cost center does not directly generate revenues.

(True/False)
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A difficult problem in calculating the total costs and expenses of a department is:

(Multiple Choice)
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