Question 1

To evaluate the financial performance of an investment center,a business needs key performance indicators that measure ________.

Accepted Answer

A)  manufacturing efficiency and product defect rate 
B)  operating income and the use of the center's assets 
C)  customer satisfaction and market share 
D)  generation of sales revenues and control of operating expenses

Question 2

Raphael,Inc.has a division that manufactures a component that sells for $170 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the minimum transfer price if the division is operating below its capacity?

Accepted Answer

A)  $170 
B)  $50 
C)  $74 
D)  $24

Question 3

Brisbane,Inc.,a leading manufacturer of car spare parts,divided its manufacturing process into two Departments - Production and Packing.The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate the amount of manufacturing overhead costs allocated to Part 1.
 $$\begin{array} { | l | l | l | } 
\hline & \text { Production } & \text { Packing } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Part 1 } & 10,000 & 30,000 \
\hline \text { Part 2 } & 25,000 & 10,000 \
\hline & \underline { 35,000 } & 40,000 \
\hline
\end{array}$$

Accepted Answer

The answer of Brisbane,Inc.,a leading manufacturer of car spare parts,divided...

Question 4

When using financial performance measures,which of the following statements is incorrect?

Accepted Answer

A)  Most companies use a weighted-average to determine the amount of average inventory. 
B)  Average total assets are used for both ROI and RI computations. 
C)  The limitations of financial performance measures reinforce the importance of the balanced scorecard. 
D)  In general, calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.

Question 5

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its external customers.

Accepted Answer

A) True 
 B)False

Question 6

Cardec,Inc.,a leading manufacturer of car spare parts,divided its manufacturing process into two Departments - Production and Packing.The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate departmental predetermined overhead allocation rates.
 $$\begin{array} { | l | l | l | } 
\hline & \text { Production } & \text { Packing } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Part 1 } & 10,000 & 30,000 \
\hline \text { Part 2 } & 25,000 & 10,000 \
\hline & \underline { 35,000 } & 40,000 \
\hline
\end{array}$$

Accepted Answer

The answer of Cardec,Inc.,a leading manufacturer of car spare parts,divided...

Question 7

Which of the following is the correct formula for calculating residual income?

Accepted Answer

A)  Weighted average cost of capital - Net operating profit after tax 
B)  Operating income - Minimum acceptable operating income 
C)  Historical cost of assets - Accumulated depreciation 
D)  Operating income / Average assets

Question 8

State the strategy for each of the perspectives of the balanced scorecard.
 $$\begin{array} { | l | l | } 
\hline \begin{array} { c } 
\text { Balanced scorecard } \
\text { perspective }
\end{array} &\text {Stategy}  \
\hline \text { Financial } & \
\
\hline \text { Customer } & \
\
\hline \text { Internal business } & \
\
\hline \text { Learning and } \
\text { growth }\
\
\hline
\end{array}$$

Accepted Answer

The answer of State the strategy for each of the...

Question 9

The limitations of financial performance measures ________.

Accepted Answer

A)  lead management to use a time horizon of more than five years 
B)  make it difficult for companies to create goal congruence 
C)  lead management to use the gross book value of assets 
D)  can be overcome by taking a broader view of performance

Question 10

Regardless of the type of responsibility center,responsibility reports should focus on information,not blame.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.

Accepted Answer

A) True 
 B)False

Question 13

The production manager is responsible for ________.

Accepted Answer

A)  all product costs 
B)  decisions to acquire new equipment 
C)  his or her own salary 
D)  efficiently and effectively producing quality products

Question 14

A company's "climate for action" is a corporate culture ________.

Accepted Answer

A)  that encourages communication, change, and growth 
B)  that is focused on strong, top-down command and control 
C)  that is aimed exclusively at period earnings 
D)  that discourages physical activity, sports, and recreation to improve employee health and morale

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A profit center responsibility report ________.

Accepted Answer

A)  should not include costs for which the profit center manager is not accountable 
B)  does not include revenues since that information only appears on the revenue center responsibility report 
C)  includes traceable fixed expenses 
D)  is the same as a performance report

Question 17

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

Accepted Answer

A) True 
 B)False

Question 18

Dynamic Corporation provides the following financial information: $$\begin{array} { | l | r | } 
\hline \text { Minimum acceptable operating income } & \$ 556,600 \
\hline \text { Average total assets } & \$ 2,600,000 \
\hline \text { Operating income } & \$ 712,000 \
\hline \text { Return on investment } & 27 \% \
\hline \text { Net sales } & \$ 900,000 \
\hline
\end{array}$$ Calculate the residual income of Dynamic Corporation.

Accepted Answer

A)  $2,043,400 
B)  $343,400 
C)  $155,400 
D)  $4,255,569

Question 19

When a division is operating at capacity,the transfer price should be ________.

Accepted Answer

A)  based on opportunity cost 
B)  a market-based transfer price 
C)  a cost-based transfer price 
D)  the total manufacturing cost

Question 20

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

Exam 24: Cost Allocation and Responsibility Accounting

To evaluate the financial performance of an investment center,a business needs key performance indicators that measure ________.

Raphael,Inc.has a division that manufactures a component that sells for $170 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the minimum transfer price if the division is operating below its capacity?

When using financial performance measures,which of the following statements is incorrect?

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its external customers.

Which of the following is the correct formula for calculating residual income?

The limitations of financial performance measures ________.

Regardless of the type of responsibility center,responsibility reports should focus on information,not blame.

The term goal congruence refers to the ________.

Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.

The production manager is responsible for ________.

A company's "climate for action" is a corporate culture ________.

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

A profit center responsibility report ________.

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

When a division is operating at capacity,the transfer price should be ________.

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