Question 1

Which of the following is an advantage of using cost-based transfer prices?

Accepted Answer

A)  Such prices are an objective measure and easy to compute. 
B)  Such prices motivate the buying division to control cost. 
C)  Such prices provide a sense of fairness. 
D)  Such prices will usually exceed the market-based or negotiated transfer prices. 
A)  Such prices are an objective measure and easy to compute. 
B)  Such prices motivate the buying division to control cost. 
C)  Such prices provide a sense of fairness. 
D)  Such prices will usually exceed the market-based or negotiated transfer prices.

Question 2

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 3

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 answers are correct. 
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 answers are correct.

Question 4

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:

Accepted Answer

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 answers are correct. 
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 answers are correct.

Question 5

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 6

When preparing responsibility reports,an accountant should remember that the utility of information tends to decrease with the length of time required to prepare and disseminate the information.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not an advantage of decentralization?

Accepted Answer

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. 
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 8

Select the incorrect statement concerning responsibility reports.

Accepted Answer

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. 
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 9

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

Accepted Answer

A) True 
 B)False

Question 10

Car City is divided into three divisions: new car sales (NCS),used car sales (UCS),and parts and service (PAS).Each division is supervised by a division manager.The three division managers report to the general manager.Each division is subdivided into different departments managed by a department manager.For example,the PAS division has a parts department manager and a service department manager,and NCS has a department manager for auto sales and a department manager for truck sales.The following items were contained in the company's most recent responsibility report: a) Allocated utility costs for NCS division
b) Costs to rent vacarnt lot for storage of new vehicles
c) Parts reverue for the PAs division
d) Parts shippirg/delivery costs
e) Salary of the general manager
1) Salary of the parts department manager
e) Salary of the PAs division manager
1) Salary of the UCS division manager
i) Sales commission of UCS sales personnel
i) Service revenue for the PAs division
k) Training costs for mecharies in PAs division
1) Warranty repair costs Required:
Identify the items that are likely considered to be controllable by the Parts and Service division.

Accepted Answer

The answer of Car City is divided into three divisions:...

Question 11

What methods are used to measure operating assets for calculating return on investment? Which of these approaches would you recommend? Explain your choice.

Accepted Answer

Operating assets could be measured at b

Question 12

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

Accepted Answer

A) True 
 B)False

Question 13

The general formula for return on investment is revenue divided by investment in assets.

Accepted Answer

A) True 
 B)False

Question 14

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, and 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, and earnings. 
D)  Return on investment and residual income are tools used to assess managers of an investment center.

Question 15

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

Accepted Answer

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

Question 16

Which of the following statements regarding cost centers is incorrect?

Accepted Answer

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. 
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 17

Which of the following statements about residual income is true?

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 answers are correct. 
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 answers are correct.

Question 18

In a responsibility report,a cost center's actual costs should be compared to its flexible budget.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is incorrect?

Accepted Answer

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). 
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 20

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.

Which of the following is an advantage of using cost-based transfer prices?

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

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:

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

When preparing responsibility reports,an accountant should remember that the utility of information tends to decrease with the length of time required to prepare and disseminate the information.

Which of the following is not an advantage of decentralization?

Select the incorrect statement concerning responsibility reports.

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

What methods are used to measure operating assets for calculating return on investment? Which of these approaches would you recommend? Explain your choice.

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

The general formula for return on investment is revenue divided by investment in assets.

Which of the following statements regarding investment centers is incorrect?

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

Which of the following statements regarding cost centers is incorrect?

Which of the following statements about residual income is true?

In a responsibility report,a cost center's actual costs should be compared to its flexible budget.

Which of the following statements is incorrect?

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

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 is an advantage of using cost-based transfer prices?

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

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:

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

When preparing responsibility reports,an accountant should remember that the utility of information tends to decrease with the length of time required to prepare and disseminate the information.

Which of the following is not an advantage of decentralization?

Select the incorrect statement concerning responsibility reports.

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

What methods are used to measure operating assets for calculating return on investment? Which of these approaches would you recommend? Explain your choice.

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

The general formula for return on investment is revenue divided by investment in assets.

Which of the following statements regarding investment centers is incorrect?

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

Which of the following statements regarding cost centers is incorrect?

Which of the following statements about residual income is true?

In a responsibility report,a cost center's actual costs should be compared to its flexible budget.

Which of the following statements is incorrect?

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

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