Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

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?

Accepted Answer

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

Question 4

Which of the following statements regarding investment centers is incorrect?

Accepted Answer

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. 
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 5

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

Accepted Answer

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. 
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 6

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

Accepted Answer

Answers will vary
Most companies do not

Question 7

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

Accepted Answer

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. 
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.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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?

Accepted Answer

Answers will vary
In responsibility acco

Question 10

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:

Accepted Answer

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. 
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 11

Which of the following statements about residual income is

Accepted Answer

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. 
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 12

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:

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

An investment center of Lannigan Company reported operating income of $330,000 on total operating assets of $2,600,000 during the current year.The company has established a target ROI of 13% for the investment center.Last year,the investment center's ROI was 12.2%.
Required:
Calculate the return on investment for the investment center for the current year.Compare its performance with both the performance from the previous year and the target ROI.

Accepted Answer

Return on investment = $330,00

Question 15

Indicate whether each of the following statements is

Accepted Answer

Use of residual income to evaluate manag

Question 16

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

Accepted Answer

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. 
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 17

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

Accepted Answer

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

Question 18

Indicate whether each of the following statements is

Accepted Answer

Return on investment often is used to ev

Question 19

Belfield Corporation includes two divisions,Motor Division and Lawnmower Division.The Motor Division makes specialized motors,including one that could be used by the Lawnmower Division.Costs for the motor are: variable costs,$16;fixed costs,$20.The Motor Division has capacity to make 20,000 of the motors,and it is operating at capacity.It sells the motors to other companies for $52 each.If a sale was made to the Lawnmower Division,variable costs would be reduced by $4 per motor on those units.The Lawnmower Division needs 8,000 motors per year,and it has been purchasing them from another company for $45 each.
Required:
1)If a transfer were to occur between Motor Division and Lawnmower Division,what is the maximum that Lawnmower Division should be willing to pay for the motors?
2)If a transfer were to occur between Motor Division and Lawnmower Division,what is the minimum price that Motor Division should be willing to accept?
3)Do you recommend that a transfer occur between Motor Division and Lawnmower Division? If the transfer did occur,what would be the effect on the overall profits of Belfield Corporation?

Accepted Answer

1)The maximum that Lawnmower Division sh

Question 20

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:

Accepted Answer

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

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

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

Which of the following statements regarding investment centers is incorrect?

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

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

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

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.

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:

Which of the following statements about residual income is

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:

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

Indicate whether each of the following statements is

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

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

Indicate whether each of the following statements is

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:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 9: Responsibility Accounting

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

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

Which of the following statements regarding investment centers is incorrect?

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

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

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

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.

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:

Which of the following statements about residual income is

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:

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

Indicate whether each of the following statements is

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

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

Indicate whether each of the following statements is

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:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters