Question 1

The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting.

Accepted Answer

A) True 
 B)False

Question 2

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:

Accepted Answer

A)  total operating expenses are $755,000 
B)  total manufacturing expenses are $755,000 
C)  direct materials, direct labor, and factory overhead total $755,000 
D)  total service department charges are $755,000 
A)  total operating expenses are $755,000 
B)  total manufacturing expenses are $755,000 
C)  direct materials, direct labor, and factory overhead total $755,000 
D)  total service department charges are $755,000

Question 3

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

Accepted Answer

A) True 
 B)False

Question 4

Two divisions of Central Company (Divisions X and Y) have the same profit margins. Division X's investment turnover is larger than that of Division Y (1.2 to 1.0). Income from operations for Division X is $55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment than Division Y by:

Accepted Answer

A)  using income from operations as a performance measure 
B)  comparing the profit margins 
C)  applying a negotiated price measure 
D)  using its assets more efficiently in generating sales 
A)  using income from operations as a performance measure 
B)  comparing the profit margins 
C)  applying a negotiated price measure 
D)  using its assets more efficiently in generating sales

Question 5

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.

Accepted Answer

A) True 
 B)False

Question 6

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Accepted Answer

A) True 
 B)False

Question 7

The DuPont formula uses financial and nonfinancial information to measure the performance of a business.

Accepted Answer

A) True 
 B)False

Question 8

A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called:

Accepted Answer

A)  profit margin 
B)  indirect expenses 
C)  investment turnover 
D)  cost 
A)  profit margin 
B)  indirect expenses 
C)  investment turnover 
D)  cost

Question 9

ABC Corporation has three service departments with the following costs and activity base:  ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
 What will the income of the Macro Division be after all service department allocations?

Accepted Answer

A)  $780,000 
B)  $375,000 
C)  $575,000 
D)  $435,000 
A)  $780,000 
B)  $375,000 
C)  $575,000 
D)  $435,000

Question 10

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

Accepted Answer

A) True 
 B)False

Question 11

If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.

Accepted Answer

A) True 
 B)False

Question 12

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

Accepted Answer

A) True 
 B)False

Question 13

It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

Accepted Answer

A) True 
 B)False

Question 14

The sales, income from operations, and invested assets for each division of Wren Company are as follows:
   Management has established a minimum rate of return for invested assets of 8%.

Accepted Answer

The answer of The sales, income from operations, and invested...

Question 15

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2.
   Allocate service department expenses proportional to the sales of each district.

Accepted Answer

% of Sales Allocation:
District 1 = $300

Question 16

Office salaries expense for a department store is an indirect expense.

Accepted Answer

A) True 
 B)False

Question 17

The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

Accepted Answer

A) True 
 B)False

Question 18

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not one of the common types of responsibility centers?

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

Question 20

ABC Corporation has three service departments with the following costs and activity base:   ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
  What will the income of the Micro Division be after all service department allocations?

Accepted Answer

A)  $305,000 
B)  $650,000 
C)  $345,000 
D)  $610,000 
A)  $305,000 
B)  $650,000 
C)  $345,000 
D)  $610,000

Exam 23: Performance Evaluation for Decentralized Operations

The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting.

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

The DuPont formula uses financial and nonfinancial information to measure the performance of a business.

A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called:

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What will the income of the Macro Division be after all service department allocations?

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

The sales, income from operations, and invested assets for each division of Wren Company are as follows: Management has established a minimum rate of return for invested assets of 8%.

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2. Allocate service department expenses proportional to the sales of each district.

Office salaries expense for a department store is an indirect expense.

The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Which of the following is not one of the common types of responsibility centers?

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What will the income of the Micro Division be after all service department allocations?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Differential Analysis and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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