Deck 9: Responsibility Accounting

Question 1

The research and development department of Apple Computers would likely be organized as:

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

Answer 1

B
Feedback: Cost centers,such as Apple's research and development department,are segments that incur costs but do not generate revenues.

Question 2

Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system?

A) Sales - Cost of Goods Sold = Gross Margin;Gross Margin - Operating Expenses = Net Income
B) Sales - Manufacturing Costs = Manufacturing Margin;Manufacturing Margin - Selling and Administrative Costs = Net Income
C) Sales - Variable Costs = Contribution Margin;Contribution Margin - Fixed Costs = Net Income
D) None of these.

Answer 2

C
Feedback: To facilitate decision making,these income statements are normally prepared using the contribution margin format.

Question 3

A major benefit of a decentralized organization is that:

A) Managers are more motivated to improve productivity.
B) Upper level managers are more involved in routine decisions.
C) It avoids the necessity for a managerial accounting system.
D) It avoids decision making by less experienced lower level managers.

Answer 3

A

Question 4

Which of the following is not a characteristic of an effective responsibility accounting system?

A) Reports that show the areas that need corrective action
B) Reports that show revenue and/or expense items under a manager's control
C) Reports that show budgeted and actual amounts of controllable revenue and expense items
D) Reports that set goals for long-term strategic performance

Question 5

A responsibility report provided to a manager typically includes:

A) A list of all the items under the manager's control.
B) The budgeted amount for each item on the report.
C) The differences between the budgeted and actual amounts for each item on the report.
D) All of these are correct answers.

Question 6

Which of the following is a not an advantage of decentralization?

A) Lower level managers are trained for increased responsibilities.
B) Managers are motivated to improve productivity.
C) Upper-level managers are able to concentrate on routine decisions..
D) All of these are advantages of decentralization.

Question 7

The practice of delegating authority and responsibility is referred to as:

A) Centralization of authority.
B) Standard costing.
C) Management by exception.
D) Decentralization.

Question 8

Which of the following statements regarding responsibility accounting is not correct?

A) It calls for the preparation of reports containing detailed information regarding the performance of a responsibility center.
B) It is most effective in a decentralized business structure where many managers exert control over various segments of a company's operations.
C) It calls for the preparation of responsibility reports listing the budgeted and actual revenue and/or expense items over which the manager has control.
D) It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.

Question 9

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

A) An investment center.
B) An asset center.
C) A cost center.
D) A profit center.

Question 10

Thanks to his firm's decentralization and use of responsibility accounting,Matt has more time to review a proposed new joint venture with one of the firm's business partners.What advantage of decentralization does this illustrate?

A) Encourages upper level management to concentrate on strategic decisions
B) Trains lower level managers to accept higher responsibilities
C) Improves performance evaluation
D) Motivates managers to improve productivity

Question 11

Contribution margin would be the most important variable in evaluating the performance of:

A) A cost center.
B) A production center.
C) An investment center.
D) A profit center.

Question 12

Management recently instituted a new training program for upper level managers.They budgeted the cost of the new program at $1,000 per employee trained but actual costs were $1,250 per employee trained.The difference between the budgeted cost for training and the actual cost of training is called a:

A) Period cost.
B) Loss.
C) Variance.
D) Controllable cost.

Question 13

Packrall Company makes computer chips.Curtis is manager of the company's maintenance department.Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment,Curtis has been authorized to contract to perform maintenance for outside customers.In this company,the maintenance department is likely organized as:

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

Question 14

Prentiss Company is decentralized with three divisions.While all three division managers have responsibility for costs,only the Division Three manager has responsibility for generating revenues.Select the correct statement from the following.

A) Prentiss Company is not large enough to benefit from preparing responsibility reports.
B) Responsibility reports should be prepared for Division Three only.
C) Responsibility reports should be prepared for all three divisions.
D) Responsibility reports should be prepared for Divisions One and Two only.

Question 15

The manager of the production department for Romulus Manufacturing has responsibility for all stages of the production process and does not have time to review all the operational details of his department.He has found it to be more productive to focus on the significant deviations from budget.This kind of management is called:

A) Management by exception.
B) Crisis management.
C) Controllable management.
D) Decentralized management.

Question 16

Responsibility reports are prepared:

A) for each manager who controls a responsibility center.
B) only at the end of the accounting period.
C) to identify and punish managers who fail to control their costs.
D) for senior level managers only.

Question 17

Marcy is plant manager for Diversified Industries.She and the managers of four other plants report to the vice president in charge of manufacturing operations.Three department managers report to Marcy.Select the incorrect statement regarding the preparation of responsibility reports.

A) Marcy's responsibility report should include a detailed account of the individual items for which she is personally responsible.
B) The vice president's responsibility report would contain information for Marcy's plant rolled together with that of the other four plants.
C) Marcy's administrative costs should be included on the reports of her three department managers.
D) Marcy's responsibility report should contain only summary information about the operations of the three departments in her chain of command.

Question 18

Which of the following is not typically found in a decentralized organization?

A) Cost center
B) Decision center
C) Investment center
D) Profit center

Question 19

A tool that is often used to depict the lines of authority and responsibility within a firm is:

A) A variance report.
B) An organization chart.
C) A master budget.
D) A responsibility report.

Question 20

Select the incorrect statement concerning responsibility reports.

A) The reports should be stated in simple terms.
B) The reports should show clearly the budgeted and actual amounts of controllable revenues and expenses.
C) At the corporate level,responsibility reports generally include year-to-date contribution format income statements.
D) The reports become more specific for higher levels within the organization.

Question 21

Joseph Company has an investment in assets of $450,000,operating income that is 10% of sales,and an ROI of 18%.From this information the amount of operating income would be:

A) $81,000.
B) $45,000.
C) $2,500,000.
D) Impossible to determine from the information given.

Question 22

The Perez Company had a 12.5% return on a $100,000 investment in new equipment.The investment resulted in increased sales,and the resultant increase in income amounted to 5% of sales.The turnover (asset utilization)was:

A) 1.
B) 17.5.
C) 2.5.
D) 7.5.

Question 23

Ormand Organic Grocery has invested in a yogurt stand for its store.The investment cost the company $100,000.Variable materials,preparation,and marketing costs are expected to be $0.60 per unit and fixed costs are estimated at $6,000 a year.If actual sales were 20,000 servings,what would the ROI be using the sales price of $1.80?

A) 30.0%
B) 22.0%
C) 18.0%
D) 24.0%

Question 24

Jacob is a department manager who recently instituted a new recognition program for his employees.He budgeted the cost of the new program at $10 per employee,but actual costs were $15 per employee.The cost associated with the recognition program would be considered which of the following kinds of cost?

A) Controllable cost
B) Opportunity cost
C) Fixed cost
D) Product cost

Question 25

The Cineplex Movie Theater has invested in a snack bar for its store,where individual pizzas would be prepared and sold.The investment cost the company $45,000.The company expects a sales volume for the new product to be 12,000 pizzas a year.Variable materials,preparation,and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year.Based on a desired 12% ROI,what should Cineplex charge as the selling price per pizza?

A) $3.00
B) $2.75
C) $5.20
D) $3.20

Question 26

Select the incorrect statement concerning the application of the controllability concept to responsibility accounting.

A) As a practical matter,control of costs or revenues may be shared rather than absolute.
B) The concept of control is crucial to an effective responsibility accounting system.
C) Managers lose motivation when they are held accountable for actions that are beyond their scope of control.
D) Each manager should be evaluated on the costs but not the revenues that are under his or her control.

Question 27

When using residual income as a project-screening tool,management should accept a project if the residual income is:

A) positive.
B) negative.
C) equals the ROI.
D) greater than net income.

Question 28

Huang Company reported the following information for the current year: $\begin{array}{|l|lr|}\hline \text { Sales } & \$ & 400,000 \\\hline \text { Average Operating Assets } & \$ & 250,000 \\\hline \text { Margin } & & 10 \% \\\hline\end{array}$ The company's return on investment was:

A) 10%.
B) 6.25%.
C) 16%.
D) Cannot be ascertained from the information provided.

Question 29

Joseph Company reported the following information for the current year: $\begin{array}{|l|r|}\hline \text { Sales } & \$ 787,000 \\\hline \text { Average Operating Assets } & \$ 375,000 \\\hline \text { Desired ROI } & 12 \% \\\hline \text { Residual Income } & \$ 11,250 \\\hline\end{array}$ The company's operating income was:

A) $94,440.
B) $56,250.
C) $45,000.
D) $33,750.

Question 30

To avoid suboptimization,many companies prefer to evaluate their investment centers using:

A) Residual income instead of return on investment.
B) Return on investment instead of residual income.
C) Gross margin instead of contribution margin.
D) Sales instead of income.

Question 31

Which of the following statements about return on investment (ROI)is

A) ROI equals margin divided by investment turnover.
B) ROI is used to measure the performance of investment centers.
C) Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
D) Companies may minimize motivational problems by using original cost instead of book value in the denominator of the ROI formula.

Question 32

Campbell Candy Corporation desires a 16% return on investment (ROI)on all operations.The following information was available for the company for the current year: $\begin{array}{|l|lr|}\hline \text { Sales } & \$ & 250,000 \\\hline \text { Operating Income } & \$ & 70,000 \\\hline \text { Turnover } & & 0.6 \\\hline\end{array}$ What is the corporation's ROI?

A) 16.8%
B) 28%
C) 32%
D) Impossible to determine from the information given.

Question 33

Payne Company reported the following information for the current year: $\begin{array}{|l|lr|}\hline \text { Sales } & \$ & 1,600,000 \\\hline \text { Average Operating Assets } & \$ & 500,000 \\\hline \text { Desired ROI } & & 14 \% \\\hline \text { Net Income } & \$ & 85,000 \\\hline\end{array}$ The company's residual income was:

A) $(15,000).
B) $14,000.
C) $15,000.
D) $24,000.

Question 34

Howard Company provided the following selected information about its consumer products division for the current year: $\begin{array}{|l|lr|}\hline \text { Desired ROI } & & 12 \% \\\hline \text { Net Income } & \$ & 150,000 \\\hline \text { Residual Income } & \$ & 30,000 \\\hline\end{array}$ Based on this information,the division's investment amount was:

A) $250,000.
B) $1,000,000.
C) $1,500,000.
D) $1,250,000.

Question 35

Fairpoint Products provided the following selected information about its consumer products division for the current year: $\begin{array}{|l|rr|}\hline \text { Desired ROI } & & 8 \% \\\hline \text { Net Income } & \$ & 100,000 \\\hline \text { Residual Income } & \$ & 60,000 \\\hline\end{array}$ Based on this information,the division's investment amount was:

A) $500,000.
B) $1,250,000.
C) $750,000.
D) $2,000,000.

Question 36

Which of the following would increase residual income? (Assume all other things are equal)

A) Decrease in investment
B) Decrease in operating income
C) Increase in the desired return on investment
D) None of these.

Question 37

Stephanie's responsibility report includes the salary and benefits of her secretary.Although Stephanie prepares a performance evaluation for the secretary each year,Stephanie's superior determines how much the secretary will be paid.This example is an illustration of the fact that:

A) Responsibility reporting systems are not perfect.
B) Managers sometimes are held responsible for items over which they have only limited control.
C) Control may be shared.
D) All of these are correct answers.

Question 38

The Family Restaurant chain had a 12% return on a $60,000 investment in new ovens.The investment resulted in increased sales and an increase in income that was 3% of the increase in sales.The increase in sales was:

A) $7,200.
B) $15,000.
C) $180,000.
D) $240,000.

Question 39

Brookings Company evaluates its managers on the basis of return on investment.Division Three has a return on investment (ROI)of 15% while the company as a whole has an ROI of only 10%.Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return?

A) ROI
B) Residual income
C) Both ROI and residual income will motivate the manager to accept the project.
D) Neither ROI nor residual income will motivate the manager to accept the project.

Question 40

Willis Company made a $200,000 investment in new machinery.Assuming the company's margin is 4%,what income will be earned if the investment generates $600,000 in additional sales?

A) $80,000.
B) $24,000.
C) $400,000.
D) None of these.

Question 41

Hu Corporation has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{|l|lr|}\hline \text { Unit selling price } & \$ & 200 \\\hline \text { Unit variable costs } & \$ & 120 \\\hline \text { Unit fixed costs } & \$ & 40 \\\hline\end{array}$ Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $180 to purchase the product from an outside source.If Division A sells internally it can save $5 per unit in variable costs.Assuming Division A is operating at capacity,what price should it charge Division B if the transfer is to be made?

A) $115
B) $195
C) $125
D) $200

Question 42

The process of evaluating the performance of individual managers is known as:

A) Responsibility accounting.
B) Management by exception.
C) Responsibility management.
D) Performance management.

Question 43

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ Terra Company has set a target return on investment (ROI)of 15% for both divisions.Based on ROI,which division appears to have performed better?

A) Retail division.
B) Wholesale division.
C) Both divisions have the same results.
D) The answer cannot be determined using the information provided.

Question 44

Which of the following is a characteristic that is needed for decentralization to work well in an organization?

A) Clear lines of authority
B) Responsibility
C) Good communication
D) All of these are correct answers.

Question 45

The preferred method for setting transfer prices generally is some form of:

A) Price based on negotiation.
B) Price based on industry cost averages.
C) Price based on historical costs.
D) Price based on market forces.

Question 46

Retail Sales and Wholesale Sales are the only divisions of Terra Company.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ The company has $1,200,000 in operating assets that are not assigned to either of the divisions and $500,000 in corporate expenses that are not reflected in the information above.Based on this information,what is the ROI for the company as a whole?

A) 17.7%
B) 16.9%
C) 15.0%
D) The answer cannot be determined using the information provided.

Question 47

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{|l|lr|}\hline \text { Revenues } & \$ & 800,000 \\\hline \text { Operating expenses } & \$ & 720,000 \\\hline \text { Operating income } & \$ & 144,000 \\\hline \text { Operating assets } & \$ & 1,200,000 \\\hline\end{array}$ Anton Company has set a target return on investment (ROI)of 11% for the Electronics Division.The Electronic Division's turnover (asset utilization)is:

A) 0.1125.
B) 0.12.
C) 0.667.
D) 0.18.

Question 48

The New Products Division,of Testar Company,had operating income of $8,000,000 and operating assets of $44,800,000 during the current year.The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Assuming that the new product is put into production,calculate the division's ROI.

A) 17.6%
B) 17.9%
C) 16.5%
D) The answer cannot be determined using the information provided.

Question 49

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{|l|lr|}\hline \text { Revenues } & \$ & 800,000 \\\hline \text { Operating expenses } & \$ & 720,000 \\\hline \text { Operating income } & \$ & 144,000 \\\hline \text { Operating assets } & \$ & 1,200,000 \\\hline\end{array}$ Anton Company has set a target return on investment (ROI)of 11% for the Electronics Division.The Electronic Division's return on investment is:

A) 11.25%.
B) 12%.
C) 66.7%.
D) 18%.

Question 50

The New Products Division,of Testar Company,has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Which of the following statements is accurate?

A) The new product is acceptable because it will yield an ROI that is higher than the target ROI and will yield residual income of $40,000.
B) The new product will yield residual income of $45,000.
C) The new product will decrease the company wide ROI.
D) The new product is unacceptable because it will yield an ROI that is lower than the target ROI.

Question 51

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{|l|lr|}\hline \text { Revenues } & \$ & 800,000 \\\hline \text { Operating expenses } & \$ & 720,000 \\\hline \text { Operating income } & \$ & 144,000 \\\hline \text { Operating assets } & \$ & 1,200,000 \\\hline\end{array}$ Anton Company has set a target return on investment (ROI)of 11% for the Electronics Division.The Electronic Division's margin is:

A) 11.25%.
B) 12%.
C) 66.7%.
D) 18%.

Question 52

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ Assuming that these are the only divisions of Terra Company,what is the ROI for the company as a whole?

A) 15.7%
B) 16.3%
C) 16.6%
D) 32.3%

Question 53

If a company is unable to use market-based transfer prices,the next best alternative is to use a price:

A) Based on negotiation.
B) Based on variable cost.
C) Based on standard cost.
D) Set by senior management.

Question 54

Which of the following may be used to establish transfer prices?

A) Standard cost of a product
B) A negotiated price
C) Market price
D) All of these are correct answers.

Question 55

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ Terra Company has set a target return on investment (ROI)of 15% for both divisions Which of the following statements is accurate?

A) Residual income for the wholesale sales division was $100,000
B) Residual income for the wholesale sales division was $600,000
C) Residual income for the retail sales division was $600,000
D) None of these.

Question 56

All of the following are characteristics that are required for effective responsibility accounting except:

A) motivation.
B) accountability.
C) centralization.
D) none of these.

Question 57

Estes Company has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{|l|lr|}\hline \text { Unit selling price } & \$ & 350 \\\hline \text { Unit variable costs } & \$ & 200 \\\hline \text { Unit fived costs } & \$ & 70 \\\hline\end{array}$ Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $300 to purchase the product from an outside source.If Division A sells internally it can save $10 per unit in variable costs.Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B,which of the following is the lowest price Division A should consider for the transfer?

A) $300
B) $190
C) $260
D) $250

Question 58

The New Products Division,of Testar Company,had operating income of $8,000,000 and operating assets of $44,800,000 during the current year.The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Assuming that the new product is put into production,calculate the residual income for the division.

A) $832,000
B) $872,000
C) $528,000
D) $672,000

Question 59

In the current year,the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Which of the following statements is correct?

A) The New Products division yielded ROI that was lower than the target ROI.
B) Residual income for the New Products division was $832,000.
C) The New Products division yielded no residual income.
D) All of these are correct.

Question 60

Which of the following should not be included in the investment base used to compute residual income?

A) Accounts receivable
B) Inventory
C) Cash
D) Land held for future use

Question 61

Describe the concept of decentralization as applied to large business organizations.Why do large organizations practice decentralization?

Question 62

The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as:

A) suboptimization.
B) strategic planning.
C) lowballing.
D) goal alignment.

Question 63

Delegating authority and responsibility throughout an organization is known as:

A) centralization.
B) decentralization.
C) management by exception.
D) suboptimization.

Question 64

The preferred method for establishing transfer prices for transactions between divisions of the same firm is to base the transfer price on some form of competitive market price.

Question 65

Which of the following statements is incorrect?

A) Turnover is calculated by dividing sales by average operating assets.
B) Margin is a measure of the profits generated from sales.
C) Return on investment can be improved by increasing sales,decreasing expenses,or increasing the asset base.
D) If return on investment increases when sales increase,that change usually is due at least in part to the effect of fixed costs (operating leverage).

Question 66

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

A) Cost center.
B) Sales center.
C) Profit center.
D) Investment center.

Question 67

Which of the following statements regarding cost centers is incorrect?

A) Cost centers are units within a business that incur expense,but do not have responsibility for generating revenue.
B) Cost centers tend to be found at upper levels on a company's organization chart.
C) A manager of a cost center has less responsibility than a manager in an investment center.
D) Cost center managers are evaluated on their ability to control costs and keep within budget.

Question 68

Which of the following statements about residual income is

A) Residual income = Operating Income - Sales
B) Residual income = Operating Income - Operating Assets
C) Residual income is the amount of income in excess of a target or desired return on investment
D) None of these.

Question 69

The manager of Pearless Company's Toy Division is not satisfied with the level of return on investment that the division achieved this year.What can be done to improve return on investment?

A) Decrease the investment in assets
B) Increase operating expenses
C) Increase sales
D) Decrease the investment in assets and/or increase sales.

Question 70

Which of the following statements regarding investment centers is incorrect?

A) A manager of an investment center is responsible for the investment of capital,but not revenues or expenses.
B) Investment centers are commonly found at the higher levels of an organization chart.
C) A manager of an investment center should be accountable for assets,liabilities,earnings.
D) Return on investment and residual income are tools used to assess managers of an investment center.

Question 71

Vanessa Grant is responsible for controlling expenses,but is not responsible for generating revenues.Vanessa Grant is a manager of a(n):

A) Cost center.
B) Profit center.
C) Investment center.
D) Liability center.

Question 72

A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

A) Management center.
B) Performance center.
C) Accounting center.
D) Responsibility center.

Question 73

Which of the following statements regarding a balanced scorecard is correct?

A) A balanced scorecard includes several different performance measures that can be used to assess how well a business is accomplishing their mission.
B) A balanced scorecard includes financial performance measures such as ROI.
C) A balanced scorecard includes non-financial measures such as defect rates or on-time deliveries.
D) All of these are correct answers.

Question 74

A decentralized company should try to minimize autonomy among the managers of its divisions and departments.

Question 75

Frank and Brooke manage separate departments at Vantage Corporation.Frank's department is in charge of production of products,while Brooke's is responsible for sales of products.One of the company's objectives is to minimize its investment in inventory.Whose set of responsibility reports should include the cost of storing goods awaiting sale?

Question 76

Which of the following statements regarding profit centers is correct?

A) A manager of a profit center has more responsibility than a manager of an investment center.
B) A manager of profit center is evaluated only on his/her ability to control costs.
C) A manager of a profit center is evaluated on his/her ability to control costs and generate revenues.
D) A manager of a profit center is responsible for assets,liabilities,and earnings.

Question 77

The concept says that managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

A) Management by exception concept.
B) Controllability concept.
C) Responsibility concept.
D) None of these.

Question 78

When a market-based transfer price is not possible,a transfer price imposed by upper management should preserve a sense of fairness among the divisions of the company affected by the transfer.

Question 79

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

Question 80

The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000.Budgeted expenses were $600,000 while actual expenses were $550,000.Based on this information,the responsibility report for the manager of this profit center would show:

A) A favorable revenue variance.
B) A favorable cost variance.
C) Both a favorable revenue variance and a favorable cost variance.
D) None of these.