Question 1

The part of a business a particular manager is held responsible for is called a:

Accepted Answer

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

Question 2

An investment center is a profit center where management can make related capital investment choices.

Accepted Answer

A) True 
 B)False

Question 3

The responsibility margin is the contribution margin less common fixed costs.

Accepted Answer

A) True 
 B)False

Question 4

Responsibility income statements
Identify and discuss briefly the two concepts generally used in assigning costs to responsibility centers of a business.

Accepted Answer

In assigning costs to parts of a busines

Question 5

Depreciation on the factory would be an example of a:

Accepted Answer

A)  Controllable fixed cost. 
B)  Period cost. 
C)  Responsibility cost. 
D)  Committed fixed cost. 
A)  Controllable fixed cost. 
B)  Period cost. 
C)  Responsibility cost. 
D)  Committed fixed cost.

Question 6

Contribution margin ratio: _____________%

Accepted Answer

The answer of Contribution margin ratio: _____________%...

Question 7

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each. These salaries should be classified as:

Accepted Answer

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

Question 8

A subtotal used in evaluating the performance of a responsibility center manager, as distinct from the performance of the center, is:

Accepted Answer

A)  Contribution margin, less traceable fixed costs. 
B)  Sales, less committed costs. 
C)  Contribution margin, plus fixed costs deferred into inventory. 
D)  Contribution margin, less controllable fixed costs. 
A)  Contribution margin, less traceable fixed costs. 
B)  Sales, less committed costs. 
C)  Contribution margin, plus fixed costs deferred into inventory. 
D)  Contribution margin, less controllable fixed costs.

Question 9

In a responsibility income statement, the term common fixed costs describes fixed costs that:

Accepted Answer

A)  Occur every month. 
B)  Jointly benefit several responsibility centers of the business. 
C)  Occur in virtually every responsibility center of the business (such as salaries). 
D)  Are easily traceable to specific profit centers. 
A)  Occur every month. 
B)  Jointly benefit several responsibility centers of the business. 
C)  Occur in virtually every responsibility center of the business (such as salaries). 
D)  Are easily traceable to specific profit centers.

Question 10

Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?

Accepted Answer

A)  The property taxes would not change even if one or more of the departments were eliminated. 
B)  Such an allocation violates GAAP. 
C)  The property taxes are not under the control of department managers. 
D)  The allocation may imply changes in efficiency that are unrelated to center performance. 
A)  The property taxes would not change even if one or more of the departments were eliminated. 
B)  Such an allocation violates GAAP. 
C)  The property taxes are not under the control of department managers. 
D)  The allocation may imply changes in efficiency that are unrelated to center performance.

Question 11

Common fixed costs jointly benefit several parts of the business and would not change significantly even if one of the parts of the business were discontinued.

Accepted Answer

A) True 
 B)False

Question 12

The responsibility margin for the uptown branch during the year is:

Accepted Answer

A)  $164,000. 
B)  $44,000. 
C)  $120,000. 
D)  $64,000. 
A)  $164,000. 
B)  $44,000. 
C)  $120,000. 
D)  $64,000.

Question 13

In deciding which responsibility centers can benefit most from short-term marketing efforts, such as advertising specific products, management should give greatest consideration to the relationship between a center's sales and:

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 14

Responsibility income statement-cost classification
Milton's, a large department store, prepares income statements by sales department. These statements follow the contribution margin approach, showing contribution margin and responsibility margin for each profit center as well as monthly income from operations for the store. Indicate the classification of each of the costs listed below by inserting the appropriate code letters in the space provided.
Costs
______ (a) The cost of merchandise sold in the Women's Sportswear Department.
______ (b) Advertising a sale in the Housewares Department (classify as a fixed cost).
______ (c) Depreciation on equipment used in the Automotive Service Department.
______ (d) Depreciation on the store's heating and air conditioning system.
_____ (e) Monthly salary of the manager of the Toy Department.
_____ (f) Sales taxes collected from customers and paid to local tax authorities.
_____ (g) Monthly salaries of store security guards.
 $$\begin{array}{l}
\text { Code Letters }\
\begin{array} { | l | l | l | l | } 
\hline \text { VC } & \text { = Variable costs } & \text { CF } & \text { = Common fixed costs } \
\hline \text { TF } & \text { = Traceable fixed costs } & \mathrm { X } & \text { = None of the above } \
\hline
\end{array}
\end{array}$$

Accepted Answer

(a) VC
(b)

Question 15

A common cost may become a traceable cost as it moves up to larger responsibility centers.

Accepted Answer

A) True 
 B)False

Question 16

An example of a revenue center is:

Accepted Answer

A)  The accounting department in a manufacturing company. 
B)  The maintenance department of a university. 
C)  The furniture department of a retail department store. 
D)  The human resources department in a hospital. 
A)  The accounting department in a manufacturing company. 
B)  The maintenance department of a university. 
C)  The furniture department of a retail department store. 
D)  The human resources department in a hospital.

Question 17

If a business activity qualifies as a profit center, it cannot also qualify as an investment center.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a valid reason for developing responsibility center information?

Accepted Answer

A)  Responsibility center information is useful in deciding how to allocate resources among segments of the business. 
B)  Separately measuring the revenue and expenses of each responsibility center is a necessary step in developing financial statements for the business entity viewed as a whole. 
C)  Responsibility center information is useful in evaluating the performance of segment managers. 
D)  Responsibility center information helps management to quickly identify sections of the business that are performing poorly. 
A)  Responsibility center information is useful in deciding how to allocate resources among segments of the business. 
B)  Separately measuring the revenue and expenses of each responsibility center is a necessary step in developing financial statements for the business entity viewed as a whole. 
C)  Responsibility center information is useful in evaluating the performance of segment managers. 
D)  Responsibility center information helps management to quickly identify sections of the business that are performing poorly.

Question 19

All of the following costs are traceable to specific sales departments except:

Accepted Answer

A)  Cost of goods sold. 
B)  Depreciation of equipment and fixtures used in the department. 
C)  Advertising a special sale in a particular department. 
D)  The salary of the store manager. 
A)  Cost of goods sold. 
B)  Depreciation of equipment and fixtures used in the department. 
C)  Advertising a special sale in a particular department. 
D)  The salary of the store manager.

Question 20

Company MHF operates subsidiaries in two countries. One of the subsidiaries consumes the output of the other in the production of a good for sale to the public. The company could increase cash flows by:

Accepted Answer

A)  Using a transfer price based on full cost. 
B)  Using a transfer price to transfer as much income as possible to the subsidiary located in the lower tax country. 
C)  Using a transfer price based on market value. 
D)  Using a transfer price to transfer as much income as possible to the subsidiary located in the higher tax country. 
A)  Using a transfer price based on full cost. 
B)  Using a transfer price to transfer as much income as possible to the subsidiary located in the lower tax country. 
C)  Using a transfer price based on market value. 
D)  Using a transfer price to transfer as much income as possible to the subsidiary located in the higher tax country.

Exam 22: Responsibility Accounting and Transfer Pricing

The part of a business a particular manager is held responsible for is called a:

An investment center is a profit center where management can make related capital investment choices.

The responsibility margin is the contribution margin less common fixed costs.

Responsibility income statements Identify and discuss briefly the two concepts generally used in assigning costs to responsibility centers of a business.

Depreciation on the factory would be an example of a:

Contribution margin ratio: _____________%

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each. These salaries should be classified as:

A subtotal used in evaluating the performance of a responsibility center manager, as distinct from the performance of the center, is:

In a responsibility income statement, the term common fixed costs describes fixed costs that:

Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?

Common fixed costs jointly benefit several parts of the business and would not change significantly even if one of the parts of the business were discontinued.

The responsibility margin for the uptown branch during the year is:

In deciding which responsibility centers can benefit most from short-term marketing efforts, such as advertising specific products, management should give greatest consideration to the relationship between a center's sales and:

A common cost may become a traceable cost as it moves up to larger responsibility centers.

An example of a revenue center is:

If a business activity qualifies as a profit center, it cannot also qualify as an investment center.

Which of the following is not a valid reason for developing responsibility center information?

All of the following costs are traceable to specific sales departments except:

Company MHF operates subsidiaries in two countries. One of the subsidiaries consumes the output of the other in the production of a good for sale to the public. The company could increase cash flows by:

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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