Question 1

Management of Children Are Precious (CAP), an operator of day-care facilities, wants the company's profit to be subdivided by center. The firm's accountant has provided the following data:  CAP's advertising, which is handled by the home office, is not reflected in the preceding figures and amounted to $60,000.
Assume that management used the allocation base that is most influenced by advertising effort and consistent with sound managerial accounting practices. How much advertising would be allocated to the Irvine center?

Accepted Answer

A)  $17,838. 
B)  $19,800. 
C)  $20,000. 
D)  $20,400. 
E)  $21,000.

Question 2

When managers of subunits throughout an organization strive to achieve the goals set by top management, the result is:

Accepted Answer

A)  goal congruence. 
B)  planning and control. 
C)  responsibility accounting. 
D)  delegation of decision making. 
E)  strategic control.

Question 3

Which of the following balanced-scorecard perspectives is influenced by a company's vision and strategy?

Accepted Answer

A)  Financial. 
B)  Customer. 
C)  Internal operations. 
D)  Learning and growth. 
E)  All of the other answers are correct.

Question 4

The typical balanced scorecard is best described as containing:

Accepted Answer

A)  financial performance measures. 
B)  nonfinancial performance measures. 
C)  neither financial nor nonfinancial performance measures. 
D)  both financial and nonfinancial performance measures. 
E)  either financial or nonfinancial performance measures but not both.

Question 5

The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions: $\begin{array}{cccc} 
&& \text { Los } & \text { Bay } & \text { Central } \
&\text { Restin, } & \text { Angeles } & \text { Area } & \text { Valley } \
&\text { Inc. } & \text { Division } & \text { Division } & \text { Division }\\hline
\text { Revenues } & \$ 750,000 & \$ 200,000 & \$ 235,000 & \$ 325,000 \
\text { Variable operating expenses } & 410,000 & 110,000 & 120,000 & 180,000 \
\text { Controllable fixed expenses } & 210,000 & 65,000 & 75,000 & 70,000 \
\text { Noncontrollable fixed expenses } & 60,000 & 15,000 & 20,000 & 25,000
\end{array}$ In addition, the company incurred common fixed costs of $18,000.
Bay Area's segment profit margin is:

Accepted Answer

A)  $14,000. 
B)  $18,000. 
C)  $20,000. 
D)  $40,000. 
E)  $115,000.

Question 6

The following selected data relate to the Idaho Division of Far West Enterprises (FWE): $$\begin{array} { l r } 
\text { Sales revenue } & \$ 4,580,000 \
\text { Uncontrollable fixed costs traceable to the division } & 1,360,000 \
\text { Allocated corporate overhead } & 590,000 \
\text { Controllable fixed costs traceable to the division } & 1,120,000 \
\text { Variable costs } & 40 \% \text { of revenue }
\end{array}$$ 
Required: 
A. Compute the following for the Idaho Division:
1. Segment contribution margin.
2. Controllable profit margin.
3. Segment profit margin.
B. Which of the three preceding measures should be used when evaluating the Idaho Division as an investment of FWE's resources? Why?
C. Assume that management made the decision to prepare a segmented income statement that reflected Idaho's five operating departments. Would all $1,120,000 of the controllable fixed costs be easily traced to the departments? Briefly explain.
D. Which of the five-dollar amounts presented in the body of the problem would be used in computing the income before taxes of Far West Enterprises?

Accepted Answer

The answer of The following selected data relate to the...

Question 7

Which of the following is an appropriate base to distribute the cost of building depreciation to responsibility centers?

Accepted Answer

A)  Number of employees in the responsibility centers. 
B)  Budgeted sales dollars of the responsibility centers. 
C)  Square feet occupied by the responsibility centers. 
D)  Budgeted net income of the responsibility centers. 
E)  Total budgeted direct operating costs of the responsibility centers.

Question 8

The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions: $\begin{array}{cccc} 
&& \text { Los } & \text { Bay } & \text { Central } \
&\text { Restin, } & \text { Angeles } & \text { Area } & \text { Valley } \
&\text { Inc. } & \text { Division } & \text { Division } & \text { Division }\\hline
\text { Revenues } & \$ 750,000 & \$ 200,000 & \$ 235,000 & \$ 325,000 \
\text { Variable operating expenses } & 410,000 & 110,000 & 120,000 & 180,000 \
\text { Controllable fixed expenses } & 210,000 & 65,000 & 75,000 & 70,000 \
\text { Noncontrollable fixed expenses } & 60,000 & 15,000 & 20,000 & 25,000
\end{array}$ In addition, the company incurred common fixed costs of $18,000.
Assuming use of a responsibility accounting system, which of the following amounts should be used to evaluate the performance of the Los Angeles division manager?

Accepted Answer

A)  $4,000. 
B)  $8,000. 
C)  $10,000. 
D)  $25,000. 
E)  $90,000.

Question 9

Guernsey Retail has three stores in Wisconsin. Which of the following costs would likely be excluded when computing the profit margin controllable by store no. 3's manager?

Accepted Answer

A)  Hourly labor costs incurred by personnel at store no. 3. 
B)  Property taxes attributable to store no. 3. 
C)  The salary of Guernsey's president. 
D)  The salary of store no. 3's manager. 
E)  All answers except hourly labor costs incurred by personnel at store no. 3 are correct.

Question 10

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a:

Accepted Answer

A)  cost center. 
B)  revenue center. 
C)  profit center. 
D)  investment center. 
E)  contribution center.

Question 11

Responsibility accounting systems strive to:

Accepted Answer

A)  place blame on guilty individuals. 
B)  provide information to managers. 
C)  hold managers accountable for both controllable and noncontrollable costs. 
D)  identify unfavorable variances. 
E)  provide information so that managers can make decisions that are in the best interest of their individual centers rather than in the best interests of the firm as a whole.

Question 12

Kirsten, Inc. operates a chain of 80 retail stores throughout the Northwest that specializes in the sale of sports equipment. The following costs relate to store no. 19 in Seattle, Washington:
1. Salary of store manager: $58,000
2. Allocated corporate overhead: $55,000
3. Cost of goods sold: $2,560,000
4. Landscaping and grounds costs (yearly contract): $6,800
5. Hourly wages of sales clerks: $343,000
6. Local advertising (negotiated by store manager): $76,000
7. Property taxes: $25,800
8. Sales commissions: $221,000
Required:
Which of the preceding costs would be used in computing:
A. Store no. 19's segment contribution margin?
B. Store no. 19's controllable profit margin?
C. Store no. 19's segment profit margin?
D. The net income of Kasten, Inc.?

Accepted Answer

The answer of Kirsten, Inc. operates a chain of 80...

Question 13

Consider the following statements about performance reports:
I. Performance reports provide feedback to managers and allow them to better control operations.
II. Many performance reports have budget, actual, and variance data.
III. Performance reports are often structured around a firm's organizational hierarchy-that is, data relating to lower-level units (e.g., departments) are combined and flow into higher-level units (e.g., stores).
Which of the above statements is (are) true?

Accepted Answer

A)  I only. 
B)  I and II. 
C)  I and III. 
D)  II and III. 
E)  I, II, and III.

Question 14

Bluegrass, Inc., which is headquartered in Atlanta, operates a chain of 225 clothing stores throughout the United States. Consider the costs that appear in the following table, many of which pertain to the company's sole operation in Jacksonville, Florida:  
Specify store maintenance as a fixed costs. Adopt the following language." Jacksonville's store maintenance costs as agreed upon in yearly maintenance contract negotiated by Jacksonville's manager."
Required:
Analyze each of the costs and determine whether the cost affects Jacksonville's segment contribution margin, controllable profit margin, and segment profit margin, and/or the net income of Bluegrass, Inc. Place an "X" in the appropriate cell(s).

Accepted Answer

The answer of Bluegrass, Inc., which is headquartered in Atlanta,...

Question 15

Kel-Leigh Corporation, with operations throughout the country, will soon allocate corporate overhead to the firm's various responsibility centers. Which of the following is definitely not a cost object in this situation?

Accepted Answer

A)  The maintenance department. 
B)  Product no. 675. 
C)  Kelly Corporation. 
D)  The Midwest division. 
E)  The telemarketing center.

Question 16

Controllable costs, as used in a responsibility accounting system, consist of:

Accepted Answer

A)  only fixed costs. 
B)  only direct materials and direct labor. 
C)  those costs that a manager can influence in the time period under review. 
D)  those costs about which a manager has some knowledge. 
E)  those costs that are influenced by parties external to the organization.

Question 17

Wirefree, Inc. provides a variety of telecommunications services to residential and commercial customers from its massive campus-like headquarters in suburban Orlando. For a number of years the firm's maintenance group has been organized as a cost center, rendering services free of charge to the company's user departments (sales, billing, accounting, marketing, research, and so forth).
Requests for maintenance have grown considerably, and demand is approaching the point where quality and timeliness of services provided are becoming an issue. As a result, management is studying whether the maintenance operation should be converted from a cost center to a profit center, with users to be billed for services performed.
Required:
A. Differentiate between a cost center and a profit center. How is each of these centers evaluated?
B. What will likely happen to the number of user service requests if the company makes the switch to a profit-center form of organization? Why?
C. Assume that a user department has requested a particular service, one that is time consuming and costly to perform. The maintenance group's actual cost incurred in providing this service is $17,800, and the user has agreed to pay $20,800 if the switch to a profit center is made. If this case is fairly typical within the firm, which of the two forms of organization (cost center or profit center) will result in a more responsive, service-oriented maintenance group for Wirefree? Why?

Accepted Answer

The answer of Wirefree, Inc. provides a variety of telecommunications...

Question 18

The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions: $\begin{array}{cccc} 
&& \text { Los } & \text { Bay } & \text { Central } \
&\text { Restin, } & \text { Angeles } & \text { Area } & \text { Valley } \
&\text { Inc. } & \text { Division } & \text { Division } & \text { Division }\\hline
\text { Revenues } & \$ 750,000 & \$ 200,000 & \$ 235,000 & \$ 325,000 \
\text { Variable operating expenses } & 410,000 & 110,000 & 120,000 & 180,000 \
\text { Controllable fixed expenses } & 210,000 & 65,000 & 75,000 & 70,000 \
\text { Noncontrollable fixed expenses } & 60,000 & 15,000 & 20,000 & 25,000
\end{array}$ In addition, the company incurred common fixed costs of $18,000.
The profit margin controllable by the Central Valley segment manager is:

Accepted Answer

A)  $32,000. 
B)  $44,000. 
C)  $50,000. 
D)  $75,000. 
E)  $145,000.

Question 19

Decentralized firms can delegate authority by structuring an organization into responsibility centers. Which of the following organizational segments is most like a totally independent, standalone business where managers are expected to "make it on their own"?

Accepted Answer

A)  Cost center. 
B)  Revenue center. 
C)  Profit center. 
D)  Investment center. 
E)  Contribution center.

Question 20

An increasingly popular approach that integrates financial and customer performance measures with measures in the areas of internal operations and learning and growth is known as:

Accepted Answer

A)  the integrated performance measurement tool (IPMT). 
B)  the balanced scorecard. 
C)  gain sharing. 
D)  cycle efficiency. 
E)  overall quality assessment (OQ
A) .

Exam 12: Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard