Question 1

Which of the following statements regarding profit centers is correct?

Accepted Answer

A) A manager of a profit center has more responsibility than a manager of an investment center. 
B) A manager of profit center is evaluated only on his/her ability to control costs. 
C) A manager of a profit center is evaluated on his/her ability to control costs and generate revenues. 
D) A manager of a profit center is responsible for assets, liabilities, and earnings. 
A) A manager of a profit center has more responsibility than a manager of an investment center. 
B) A manager of profit center is evaluated only on his/her ability to control costs. 
C) A manager of a profit center is evaluated on his/her ability to control costs and generate revenues. 
D) A manager of a profit center is responsible for assets, liabilities, and earnings. C

Question 2

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. D

Question 3

If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%.

Accepted Answer

A) True 
 B)False  True

Question 4

Patterson Company has three divisions that all report to the Vice President of Manufacturing. Each division has two departments. The Vice President of Manufacturing should receive detailed responsibility reports on all six of the departments.

Accepted Answer

A) True 
 B)False

Question 5

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

Answers will vary
Operating assets could

Question 6

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
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?
 \(\begin{array}{|l|l|}
\hline \text { 1) } & \text { Louisville office of a regional CPA firm } \
\hline 2) & \text { Restaurant in a Nordstrom department store } \
\hline 3) & \text { Medical diagnostic equipment unit of General Electric } \
\hline 4) & \text { Maintenance department in a Toyota assembly plant } \
\hline 5) & \text { Cincinnati outlet of the Hampton Inn hotel chain } \
\hline 6) & \text { Home electronics division of Best Buy } \\hline 7) & \text { Lawnmover division of Honda } \
\hline 8) & \text { Finishing department of a company that makes wooden fencing } \
\hline 9) & \text { Engine assembly department of John Deere } \
\hline 10) & \text { Customer service department of United Airlines } \
\hline 11) & \text { Check processing department of Citibank } \\hline 12) & \text { Casting department of a small steel mill } \
\hline 13) & \text { Jeep division of Chrysler Motors } \
\hline 14) & \text { Denver location of Barnes and Noble } \
\hline 15) & \text { Baltimore office of an investment banking firm } \
\hline
\end{array}\)

Accepted Answer

Answers will vary
1) Cost centers incur

Question 7

Liam manages a division that is part of a large, decentralized business. He has a substantial degree of control over the division's costs, revenues, and investment in assets. Based on this information, the division would be classified as a profit center.

Accepted Answer

A) True 
 B)False

Question 8

Explain how the management by exception doctrine relates to responsibility accounting.

Accepted Answer

Answers will vary
In a responsibility ac

Question 9

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. 
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.

Question 10

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 11

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 12

All of the following are characteristics that are required for effective responsibility accounting except:

Accepted Answer

A) motivation. 
B) accountability. 
C) centralization. 
D) none of these. 
A) motivation. 
B) accountability. 
C) centralization. 
D) none of these.

Question 13

Huang Company reported the following information for the current year: The company's return on investment was:
$$\begin{array} { | l | l r | } 
\hline \text { Sales } & \$ & 400,000 \
\hline \text { Average Operating Assets } & \$ & 250,000 \
\hline \text { Margin } & & 10 \% \
\hline
\end{array}$$

Accepted Answer

A) 10%. 
B) 6.25%. 
C) 16%. 
D) Cannot be ascertained from the information provided. 
A) 10%. 
B) 6.25%. 
C) 16%. 
D) Cannot be ascertained from the information provided.

Question 14

Which of the following is a characteristic that is needed for decentralization to work well in an organization?

Accepted Answer

A) Clear lines of authority 
B) Responsibility 
C) Good communication 
D) All of these are correct answers. 
A) Clear lines of authority 
B) Responsibility 
C) Good communication 
D) All of these are correct answers.

Question 15

In a responsibility reporting system, the reports of a particular manager contain summary information about the revenue and cost items directly under his or her control and detailed data on the activities of the responsibility centers that fall under his or her chain of authority.

Accepted Answer

A) True 
 B)False

Question 16

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 17

The most desirable way to set a transfer price is to base it on either variable cost or total cost.

Accepted Answer

A) True 
 B)False

Question 18

Organization charts are drawn in a hierarchical fashion with low level managers shown at the bottom of the chart, middle level managers in the middle of the chart, and senior level managers shown at the top of the chart.

Accepted Answer

A) True 
 B)False

Question 19

Howard Company provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was:
$$\begin{array} { | l | l r | } 
\hline \text { Desired ROI } & & 12 \% \
\hline \text { Net Income } & \$ & 150,000 \
\hline \text { Residual Income } & \$ & 30,000 \
\hline
\end{array}$$

Accepted Answer

A) $250,000. 
B) $1,000,000. 
C) $1,500,000. 
D) $1,250,000. 
A) $250,000. 
B) $1,000,000. 
C) $1,500,000. 
D) $1,250,000.

Question 20

In a potential transfer price situation, if the supplying division is operating at capacity in making sales to outside customers, it should be required to accept a transfer price that would lower its overall profitability because doing so will increase total firm profitability.

Accepted Answer

A) True 
 B)False

Which of the following statements regarding profit centers is correct?

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

If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%.

Patterson Company has three divisions that all report to the Vice President of Manufacturing. Each division has two departments. The Vice President of Manufacturing should receive detailed responsibility reports on all six of the departments.

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

Liam manages a division that is part of a large, decentralized business. He has a substantial degree of control over the division's costs, revenues, and investment in assets. Based on this information, the division would be classified as a profit center.

Explain how the management by exception doctrine relates to responsibility accounting.

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:

Responsibility reports are prepared:

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

All of the following are characteristics that are required for effective responsibility accounting except:

Huang Company reported the following information for the current year: The company's return on investment was: Sales \ 400,000 Average Operating Assets \ 250,000 Margin 10\%

Which of the following is a characteristic that is needed for decentralization to work well in an organization?

In a responsibility reporting system, the reports of a particular manager contain summary information about the revenue and cost items directly under his or her control and detailed data on the activities of the responsibility centers that fall under his or her chain of authority.

The most desirable way to set a transfer price is to base it on either variable cost or total cost.

Organization charts are drawn in a hierarchical fashion with low level managers shown at the bottom of the chart, middle level managers in the middle of the chart, and senior level managers shown at the top of the chart.

Howard Company provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was: Desired ROI 12\% Net Income \ 150,000 Residual Income \ 30,000

In a potential transfer price situation, if the supplying division is operating at capacity in making sales to outside customers, it should be required to accept a transfer price that would lower its overall profitability because doing so will increase total firm profitability.

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 statements regarding profit centers is correct?

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

If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%.

Patterson Company has three divisions that all report to the Vice President of Manufacturing. Each division has two departments. The Vice President of Manufacturing should receive detailed responsibility reports on all six of the departments.

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

Liam manages a division that is part of a large, decentralized business. He has a substantial degree of control over the division's costs, revenues, and investment in assets. Based on this information, the division would be classified as a profit center.

Explain how the management by exception doctrine relates to responsibility accounting.

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:

Responsibility reports are prepared:

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

All of the following are characteristics that are required for effective responsibility accounting except:

Huang Company reported the following information for the current year: The company's return on investment was: Sales \ 400,000 Average Operating Assets \ 250,000 Margin 10\%

Which of the following is a characteristic that is needed for decentralization to work well in an organization?

In a responsibility reporting system, the reports of a particular manager contain summary information about the revenue and cost items directly under his or her control and detailed data on the activities of the responsibility centers that fall under his or her chain of authority.

The most desirable way to set a transfer price is to base it on either variable cost or total cost.

Organization charts are drawn in a hierarchical fashion with low level managers shown at the bottom of the chart, middle level managers in the middle of the chart, and senior level managers shown at the top of the chart.

Howard Company provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was: Desired ROI 12\% Net Income \ 150,000 Residual Income \ 30,000

In a potential transfer price situation, if the supplying division is operating at capacity in making sales to outside customers, it should be required to accept a transfer price that would lower its overall profitability because doing so will increase total firm profitability.

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