Question 1

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

Accepted Answer

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

Question 2

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?

Accepted Answer

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

Question 3

Indicate whether each of the following statements about transfer pricing is

Accepted Answer

When the selling division is currently o

Question 4

One of the divisions of Phoenix Corporation is the Motor Division.This division currently is designing a new,energy-efficient motor that would require a specialized filter.An outside company has offered to provide the 40,000 filters needed each year at $12.50 each.Phoenix is considering setting up a separate division,the Filter Division,to make the filters.The variable cost per unit would be $4,and total fixed costs incurred by the Filter Division would be $240,000.
Required:
1)If the Filter Division is established,Phoenix would need to determine the basis (market-based or other basis)to use in setting the transfer price.What basis would you recommend in this case?
2)What is the maximum transfer price that the Motor Division should be willing to pay for the filters?
3)What is the minimum transfer price that Filter Division should be willing to accept for the filters?
4)Should the transfer be made? What effect would the transfer have on the profits of Phoenix Corporation?

Accepted Answer

1)In this case,a negotiated transfer pri

Question 5

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.

Accepted Answer

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. 
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 6

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

Accepted Answer

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. 
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 7

Most large organizations establish responsibility centers (sections,departments,divisions,etc. )in order to delegate decision-making authority to the individuals who are best suited to make decisions in those particular centers.Consider the following responsibility centers:
Responsibility Center Description \(\begin{array}{|l|l|}
\hline \text { 1) } & \text { Louisville office of a regional CPA firm } \
\hline \text { 2) } & \text { Restaurant in a Nordstrom department store } \
\hline \text { 3) } & \text { Medical diagnostic equipment unit of General Electric } \
\hline \text { 4) } & \text { Maintenance department in a Toyota assembly plant } \
\hline 5) & \text { Cincinnati outlet of the Hampton Inn hotel chain } \
\hline \text { 6) } & \text { Home electronics division of Best Buy } \
\hline \text { 7) } & \text { Lawnmorver division of Honda } \
\hline \text { 8) } & \text { Finishing department of a company that makes wooden fencing } \
\hline 9) & \text { Engine assembly department of John Deere } \
\hline \text { 10) } & \text { Customer service department of United Airlines } \
\hline \text { 11) } & \text { Check processing department of Citibank } \
\hline \text { 12) } & \text { Casting department of a small steel mill } \
\hline \text { 13) } & \text { Jeep division of Chrysler Motors } \
\hline \text { 14) } & \text { Denver location of Barnes and Noble } \
\hline \text { 15) } & \text { Baltimore office of an investment banking firm } \
\hline
\end{array}\) Required:
1)Three commonly found responsibility centers are cost centers,profit centers,and investment centers.Describe each type of center.
2)Which type of center will each most likely be classified as: a cost center,profit center,or investment center?

Accepted Answer

Answers will vary
1)Cost centers incur e

Question 8

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?

Accepted Answer

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. 
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 9

Thanks to generous financial support from an anonymous donor,the Department of Accounting and Law at Northern University plans to create a center for accounting research.The Center,which will be an administrative unit of the department,will maintain a collection of accounting books and journals and electronic databases that will be used by faculty doing research.The search committee charged with recruiting a director for the center has requested an organization chart to show the lines of authority and responsibility among the various units of the university.The following units have been identified:
Center for Accounting Research (newly created)
College of Business Administration (COBA)
College of Education (COE)
College of Liberal Arts and Social Sciences (CLASS)
College of Science and Technology (COST)
Department of Accounting and Law (DAL)
Department of Finance and Economics (DFE)
Department of Management and Information Systems (DMIS)
Department of Marketing and Logistics (DML)
President of the University
Vice President for Academic Affairs (VPAA)
Vice President for Business Affairs (VPBA)
Vice President for Student Affairs (VPSA)
Required:
1)Cons

Accepted Answer

1)Organization chart: @#IMG-DLM& 2)Controllable co

Question 10

What are the different bases that can be used to establish transfer prices? Which would you generally recommend?

Accepted Answer

Answers will vary
Transfer price may be

Question 11

For Year 1,one division of Apex Company reported operating assets of $5,000,000 and operating income of $750,000.Apex has established a target return on investment (ROI)of 14% for the division.
Required:
1)Calculate the division's ROI for Year 1.Did it achieve the target set by the company?
2)Assuming that operating assets for Year 2 increase by 10%,by how much would operating income have to increase to reach the target of 14%?

Accepted Answer

1)ROI = $750,000 ÷ $5,000,000 = 15.0%.Ye

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

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?

Accepted Answer

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. 
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 15

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:

Accepted Answer

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

Question 16

Responsibility reports are prepared:

Accepted Answer

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. 
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

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?

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

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?

Accepted Answer

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. 
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 20

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

Accepted Answer

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

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

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?

Indicate whether each of the following statements about transfer pricing is

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.

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

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?

What are the different bases that can be used to establish transfer prices? Which would you generally recommend?

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

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

Joseph Company reported the following information for the current year: Sales \ 787,000 Average Operating Assets \ 375,000 Desired ROI 12\% Residual Income \ 11,250 The company's operating income was:

Responsibility reports are prepared:

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

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

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 would increase residual income? (Assume all other things are equal)

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?

Indicate whether each of the following statements about transfer pricing is

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.

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

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?

What are the different bases that can be used to establish transfer prices? Which would you generally recommend?

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

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

Joseph Company reported the following information for the current year: Sales \ 787,000 Average Operating Assets \ 375,000 Desired ROI 12\% Residual Income \ 11,250 The company's operating income was:

Responsibility reports are prepared:

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

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

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