Question 1

A responsibility accounting system measures the performance of each of the following centers except:

Accepted Answer

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

Question 2

The concept of contribution margin applies:

Accepted Answer

A)  Only to investment centers. 
B)  Only to profit centers. 
C)  Only to cost centers. 
D)  To all types of responsibility centers. 
A)  Only to investment centers. 
B)  Only to profit centers. 
C)  Only to cost centers. 
D)  To all types of responsibility centers.

Question 3

San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group. Westin should evaluate the St. Francis as:

Accepted Answer

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

Question 4

The contribution margin at Kenny's uptown branch during the current year is:

Accepted Answer

A)  $9,000. 
B)  $84,000. 
C)  $120,000. 
D)  $56,000. 
A)  $9,000. 
B)  $84,000. 
C)  $120,000. 
D)  $56,000.

Question 5

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse, New York. Carrier should evaluate its Syracuse plant as:

Accepted Answer

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

Question 6

Responsibility income statement-preparation
Gameland Village is segmented into two sales departments: software and video games. During April, these two departments reported the following operating results:
  
In addition, fixed costs common to both departments amounted to $42,000.
Complete the following segmented income statement for Gameland Village. Follow the contribution margin approach, and show percentages as well as dollar amounts. Conclude your income statement with the company's income from operations.
GAMELAND VILLAGE
Income Statement Segmented by Product Lines
For the Month Ended April 30, 20__

Accepted Answer

The answer of Responsibility income statement-preparation
Gameland Village is segmented into...

Question 7

Disneyland charges visitors for admission to the park but not for individual rides or attractions. "Splash Mountain" is one of the rides in Disneyland. The Walt Disney Company should evaluate "Splash Mountain" as:

Accepted Answer

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

Question 8

An investment center:

Accepted Answer

A)  Is a profit center for which management is able to objectively measure the cost of the assets used in the center's operations. 
B)  Is a cost center for which management is able to identify the original amount invested. 
C)  May be either a cost center or a profit center. 
D)  Is a subunit of the organization that provides services to other centers within the organization. 
A)  Is a profit center for which management is able to objectively measure the cost of the assets used in the center's operations. 
B)  Is a cost center for which management is able to identify the original amount invested. 
C)  May be either a cost center or a profit center. 
D)  Is a subunit of the organization that provides services to other centers within the organization.

Question 9

The Sports Arena location of Burgerheaven reports monthly sales of $140,000, variable costs of $63,000, and traceable fixed costs of $54,000. The contribution margin ratio of this business unit is:

Accepted Answer

A)  70%. 
B)  45%. 
C)  55%. 
D)  30%. 
A)  70%. 
B)  45%. 
C)  55%. 
D)  30%.

Question 10

Refer to the above information. The contribution margin of the local branch is:

Accepted Answer

A)  $5,500,000 
B)  $2,400,000. 
C)  $2,246,000. 
D)  $3,254,000. 
A)  $5,500,000 
B)  $2,400,000. 
C)  $2,246,000. 
D)  $3,254,000.

Question 11

Revenue, less variable costs, less traceable fixed costs, is called the contribution margin.

Accepted Answer

A) True 
 B)False

Question 12

A cost that is directly traceable to a particular center must be a variable cost.

Accepted Answer

A) True 
 B)False

Question 13

Business units
(a) Define what is meant by each of the following: profit center, investment center, and cost center. Your answer should make clear the distinction between each of these types of centers.
(b) Briefly describe the criteria used to evaluate each of the three types of centers listed in part a.

Accepted Answer

(a) A profit center generates revenue as

Question 14

The monthly salaries of the employees of the store's Accounting Department should be classified as a:

Accepted Answer

A)  Common fixed cost. 
B)  Traceable fixed cost. 
C)  Committed fixed cost. 
D)  Controllable fixed cost. 
A)  Common fixed cost. 
B)  Traceable fixed cost. 
C)  Committed fixed cost. 
D)  Controllable fixed cost.

Question 15

From a long-term perspective, when evaluating the contribution of a particular profit center to the overall profitability of the company, management should be most interested in the center's:

Accepted Answer

A)  Traceable fixed costs. 
B)  Income from operations. 
C)  Contribution margin. 
D)  Responsibility margin. 
A)  Traceable fixed costs. 
B)  Income from operations. 
C)  Contribution margin. 
D)  Responsibility margin.

Question 16

All costs become traceable at some level of the organization.

Accepted Answer

A) True 
 B)False

Question 17

If a company wanted to evaluate the manager's ability to control costs, the company would probably look at the:

Accepted Answer

A)  Performance margin. 
B)  Responsibility margin. 
C)  Contribution margin. 
D)  None of the above. 
A)  Performance margin. 
B)  Responsibility margin. 
C)  Contribution margin. 
D)  None of the above.

Question 18

Accounting terminology
Listed below are seven technical accounting terms introduced or emphasized in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.
______ (a) Costs that jointly benefit several responsibility centers of the business and that do not vary significantly with changes in sales volume.
______ (b) The amount charged by a responsibility center for the goods it sells to another responsibility center.
______ (c) A common measure of investment center performance.
______ (d) A responsibility center of a business that may be evaluated by the return earned on assets.
______ (e) The subtotal in a responsibility income statement that is most useful in evaluating the short-term effects of various marketing strategies on profitability.
 $$\begin{array} { | l | l | } 
\hline \text { Cost Center } & \text { Contribution Margin } \
\hline \text { Residual Income } & \text { Committed Costs } \
\hline \text { Profit Center } & \text { Common Fixed Costs } \
\hline & \text { Transfer Price } \
\hline
\end{array}$$

Accepted Answer

(a) Common fixed costs
(b) Tra

Question 19

Division X supplies partially completed units of product to division Y. The divisions' negotiated price is $30 plus 20% per unit. Assuming Division X completed and transferred 5,000 units to division Y, the total transfer price on this transaction is:

Accepted Answer

A)  $180,000. 
B)  $120,000. 
C)  $50,000. 
D)  $5,000. 
A)  $180,000. 
B)  $120,000. 
C)  $50,000. 
D)  $5,000.

Question 20

The bookstore of a university would be considered:

Accepted Answer

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

Exam 22: Responsibility Accounting and Transfer Pricing

A responsibility accounting system measures the performance of each of the following centers except:

The concept of contribution margin applies:

San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group. Westin should evaluate the St. Francis as:

The contribution margin at Kenny's uptown branch during the current year is:

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse, New York. Carrier should evaluate its Syracuse plant as:

Disneyland charges visitors for admission to the park but not for individual rides or attractions. "Splash Mountain" is one of the rides in Disneyland. The Walt Disney Company should evaluate "Splash Mountain" as:

An investment center:

The Sports Arena location of Burgerheaven reports monthly sales of $140,000, variable costs of $63,000, and traceable fixed costs of $54,000. The contribution margin ratio of this business unit is:

Refer to the above information. The contribution margin of the local branch is:

Revenue, less variable costs, less traceable fixed costs, is called the contribution margin.

A cost that is directly traceable to a particular center must be a variable cost.

The monthly salaries of the employees of the store's Accounting Department should be classified as a:

From a long-term perspective, when evaluating the contribution of a particular profit center to the overall profitability of the company, management should be most interested in the center's:

All costs become traceable at some level of the organization.

If a company wanted to evaluate the manager's ability to control costs, the company would probably look at the:

Division X supplies partially completed units of product to division Y. The divisions' negotiated price is $30 plus 20% per unit. Assuming Division X completed and transferred 5,000 units to division Y, the total transfer price on this transaction is:

The bookstore of a university would be considered:

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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