Question 1

If sales volume decreased by 10% and traceable fixed costs decreased by 20% what would be the new contribution margin?

Accepted Answer

A)  75,600. 
B)  108,000. 
C)  79,200. 
D)  $80,000. 
A)  75,600. 
B)  108,000. 
C)  79,200. 
D)  $80,000. B

Question 2

A responsibility income statement shows the revenue and expenses of each cost center within a particular part of a business.

Accepted Answer

A) True 
 B)False  False

Question 3

Increase in responsibility margin that would be expected to result from a 10% increase in sales volume. $_____________

Accepted Answer

$23,100

Question 4

In preparing a responsibility income statement that shows contribution margin and responsibility margin, two concepts are involved in allocating costs to the various centers. These concepts are:

Accepted Answer

A)  Whether the costs are variable or fixed and whether they are material in dollar amount. 
B)  Whether the costs are traceable to the responsibility center and whether the responsibility center is organized as a profit center or an investment center. 
C)  Whether the costs are variable or fixed and whether they are directly traceable to the responsibility center. 
D)  Whether the costs are traceable to the responsibility center and whether they are material in dollar amount. 
A)  Whether the costs are variable or fixed and whether they are material in dollar amount. 
B)  Whether the costs are traceable to the responsibility center and whether the responsibility center is organized as a profit center or an investment center. 
C)  Whether the costs are variable or fixed and whether they are directly traceable to the responsibility center. 
D)  Whether the costs are traceable to the responsibility center and whether they are material in dollar amount.

Question 5

Cost centers are evaluated primarily on the basis of their ability to control costs and:

Accepted Answer

A)  Their return on assets. 
B)  Residual income. 
C)  The quantity and quality of the services they provide. 
D)  Their contribution margin ratio. 
A)  Their return on assets. 
B)  Residual income. 
C)  The quantity and quality of the services they provide. 
D)  Their contribution margin ratio.

Question 6

Old Jeans, Inc. has two divisions or profit centers, one makes regular fit jeans and the other makes relaxed fit jeans. The information for the two centers follows:
$$\begin{array} { | l | r | r | } 
\hline & \text { Regular fit } & \text { Relaxed fit } \
\hline \text { Sales } &  \$ 400,000 & \$ 175,000 \
\hline \text { Variable cost (as a \% of Sales) } & 40 \% & 50 \% \
\hline \text { Traceable fixed costs } &\$40,000&\$70,000\
\hline
\end{array}$$
There are also common fixed costs of $27,500.
Required:
Prepare a responsibility income statement by profit center and in total.

Accepted Answer

The answer of Old Jeans, Inc. has two divisions or...

Question 7

Performance margin is equal to controllable fixed costs minus the contribution margin.

Accepted Answer

A) True 
 B)False

Question 8

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation. Thomas should be evaluated as manager of:

Accepted Answer

A)  A cost center. 
B)  An investment center. 
C)  A profit center (other than an investment center). 
D)  Human resources under his supervision. 
A)  A cost center. 
B)  An investment center. 
C)  A profit center (other than an investment center). 
D)  Human resources under his supervision.

Question 9

Traceable fixed costs usually cannot be eliminated even if the center is closed.

Accepted Answer

A) True 
 B)False

Question 10

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is:

Accepted Answer

A)  Responsible for earning a specified amount of profit. 
B)  Responsible for all business operations in a specific region. 
C)  Under the control of a specified center manager. 
D)  Approximately the same size. 
A)  Responsible for earning a specified amount of profit. 
B)  Responsible for all business operations in a specific region. 
C)  Under the control of a specified center manager. 
D)  Approximately the same size.

Question 11

The responsibility margin is calculated by:

Accepted Answer

A)  Subtracting fixed costs traceable to a center from its contribution margin. 
B)  Subtracting common fixed costs from the contribution margin. 
C)  Subtracting variable costs from sales. 
D)  Subtracting common fixed costs from variable costs. 
A)  Subtracting fixed costs traceable to a center from its contribution margin. 
B)  Subtracting common fixed costs from the contribution margin. 
C)  Subtracting variable costs from sales. 
D)  Subtracting common fixed costs from variable costs.

Question 12

Responsibility margin is useful in evaluating the consequences of short-run marketing strategies, while contribution margin is more useful in evaluating long-term profitability.

Accepted Answer

A) True 
 B)False

Question 13

Assume the U.S. corporate income tax rate is 40 percent and the Mexican corporate income tax rate is 30 percent. Jacques International Apparel Company has subsidiaries in both the U.S. and Mexico. Jacques is trying to decide what transfer price to use for its famous French frock, which is being transferred from the U.S. subsidiary to the Mexican subsidiary. It could ship the frock at the market price of $75 or at cost plus 20 percent. The cost of the frock is $40. Which transfer price would minimize Jacques's tax burden?

Accepted Answer

A)  $75. 
B)  $48. 
C)  $90. 
D)  $75-$40 = $35. 
A)  $75. 
B)  $48. 
C)  $90. 
D)  $75-$40 = $35.

Question 14

Which of the following costs is traceable to an individual sales department in a department store such as Sears?

Accepted Answer

A)  Salary of the store manager. 
B)  Depreciation on the store building. 
C)  Salaries of store security guards. 
D)  The corporate plane. 
A)  Salary of the store manager. 
B)  Depreciation on the store building. 
C)  Salaries of store security guards. 
D)  The corporate plane.

Question 15

Responsibility margin is equal to:

Accepted Answer

A)  Revenue, less contribution margin and traceable fixed costs. 
B)  Revenue, less variable costs. 
C)  Revenue, less variable costs and traceable fixed costs. 
D)  Revenue, less variable fixed costs, traceable fixed costs, and common costs. 
A)  Revenue, less contribution margin and traceable fixed costs. 
B)  Revenue, less variable costs. 
C)  Revenue, less variable costs and traceable fixed costs. 
D)  Revenue, less variable fixed costs, traceable fixed costs, and common costs.

Question 16

One of the unique services provided by San Francisco's St. Francis Hotel is cleaning and polishing coins (pocket change) for the guests. From the standpoint of hotel management, this "money laundry" should be viewed as:

Accepted Answer

A)  A contribution center. 
B)  A cost center. 
C)  An investment center. 
D)  A profit center (other than an investment center). 
A)  A contribution center. 
B)  A cost center. 
C)  An investment center. 
D)  A profit center (other than an investment center).

Question 17

The margin of the local branch is:

Accepted Answer

A)  $5,500,000. 
B)  $1,926,000. 
C)  $2,246,000. 
D)  $2,400,000. 
A)  $5,500,000. 
B)  $1,926,000. 
C)  $2,246,000. 
D)  $2,400,000.

Question 18

Evaluation of responsibility centers
Shown below are the current-year data for two investment centers of Chelsea Trading, Inc. The total assets utilized by each of these investment centers during the year amount to $1,500,000:
  
(a) Compute the following measures for each investment center:
$$\begin{array} { | c | c | c | c | } 
\hline & & \text { Contribution } & \
\hline & \text { Contribution } & \text { Margin } & \text { Responsibility } \
\hline \text { Center } & \text { Margin } & \text { Ratio } & \text { Margin } \
\hline ( 1 ) & \$ & \% & \$ \
\hline ( 2 ) & \$ & \% & \$ \
\hline
\end{array}$$
(b) Assume that a $3,000 monthly expenditure for advertising could increase the monthly sales of either investment center by $20,000. Which center should the company advertise to receive the maximum benefit from its advertising expenditure? Center ________. Explain your Reasoning:

Accepted Answer

(a)
@#IMG-DLM&
(b) Center 2. Since Center 2 has th

Question 19

The contribution margin ratio is:

Accepted Answer

A)  40%. 
B)  50%. 
C)  55%. 
D)  25%. 
A)  40%. 
B)  50%. 
C)  55%. 
D)  25%.

Question 20

In deciding how the store will benefit most from increasing the sales of selected departments, the store manager should be most interested in the:

Accepted Answer

A)  Total sales of each department. 
B)  Contribution margin ratios of each department. 
C)  Fixed costs traceable to each department. 
D)  Responsibility margins of each department. 
A)  Total sales of each department. 
B)  Contribution margin ratios of each department. 
C)  Fixed costs traceable to each department. 
D)  Responsibility margins of each department.

Exam 22: Responsibility Accounting and Transfer Pricing

If sales volume decreased by 10% and traceable fixed costs decreased by 20% what would be the new contribution margin?

A responsibility income statement shows the revenue and expenses of each cost center within a particular part of a business.

Increase in responsibility margin that would be expected to result from a 10% increase in sales volume. $_____________

In preparing a responsibility income statement that shows contribution margin and responsibility margin, two concepts are involved in allocating costs to the various centers. These concepts are:

Cost centers are evaluated primarily on the basis of their ability to control costs and:

Performance margin is equal to controllable fixed costs minus the contribution margin.

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation. Thomas should be evaluated as manager of:

Traceable fixed costs usually cannot be eliminated even if the center is closed.

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is:

The responsibility margin is calculated by:

Responsibility margin is useful in evaluating the consequences of short-run marketing strategies, while contribution margin is more useful in evaluating long-term profitability.

Which of the following costs is traceable to an individual sales department in a department store such as Sears?

Responsibility margin is equal to:

One of the unique services provided by San Francisco's St. Francis Hotel is cleaning and polishing coins (pocket change) for the guests. From the standpoint of hotel management, this "money laundry" should be viewed as:

The margin of the local branch is:

The contribution margin ratio is:

In deciding how the store will benefit most from increasing the sales of selected departments, the store manager should be most interested in the:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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