Question 1

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.

Accepted Answer

A) True 
 B)False

Question 2

In a decentralized firm, a responsibility report should be prepared for investment center managers, but are not useful for profit center managers.

Accepted Answer

A) True 
 B)False

Question 3

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Terra Company has set a target return on investment (ROI) of 15% for both divisions. Based on ROI, which division appears to have performed better?
$$\begin{array} { | l | l  | l r | } 
\hline &  { \text { Retail Division } } &  { \text { Wholesale Division } } \
\hline \text { Operating income } & \$  2,500,000 & \$  6,000,000 \
\hline \text { Operating assets } & \$  16,000,000 & \$  36,000,000 \
\hline
\end{array}$$

Accepted Answer

A) Retail division. 
B) Wholesale division. 
C) Both divisions have the same results. 
D) The answer cannot be determined using the information provided. 
A) Retail division. 
B) Wholesale division. 
C) Both divisions have the same results. 
D) The answer cannot be determined using the information provided.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

In the current year, the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements is correct?

Accepted Answer

A) The New Products division yielded ROI that was lower than the target ROI. 
B) Residual income for the New Products division was $832,000. 
C) The New Products division yielded no residual income. 
D) All of these are correct. 
A) The New Products division yielded ROI that was lower than the target ROI. 
B) Residual income for the New Products division was $832,000. 
C) The New Products division yielded no residual income. 
D) All of these are correct.

Question 6

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:
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 7

Which of the following should not be included in the investment base used to compute residual income?

Accepted Answer

A) Accounts receivable 
B) Inventory 
C) Cash 
D) Land held for future use 
A) Accounts receivable 
B) Inventory 
C) Cash 
D) Land held for future use

Question 8

Frank and Brooke manage separate departments at Vantage Corporation. Frank's department is in charge of production of products, while Brooke's is responsible for sales of products. One of the company's objectives is to minimize its investment in inventory. Whose set of responsibility reports should include the cost of storing goods awaiting sale?

Accepted Answer

Answers will vary
In responsibility acco

Question 9

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. 
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.

Question 10

How might return on investment be used in making resource allocation decisions within an organization?

Accepted Answer

Answers will vary
Return on investment m

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Terra Company has set a target return on investment (ROI) of 15% for both divisions
Which of the following statements is accurate?
$$\begin{array} { | l | l  | l r | } 
\hline &  { \text { Retail Division } } &  { \text { Wholesale Division } } \
\hline \text { Operating income } & \$  2,500,000 & \$  6,000,000 \
\hline \text { Operating assets } & \$  16,000,000 & \$  36,000,000 \
\hline
\end{array}$$

Accepted Answer

A) Residual income for the wholesale sales division was $100,000 
B) Residual income for the wholesale sales division was $600,000 
C) Residual income for the retail sales division was $600,000 
D) None of these. 
A) Residual income for the wholesale sales division was $100,000 
B) Residual income for the wholesale sales division was $600,000 
C) Residual income for the retail sales division was $600,000 
D) None of these.

Question 13

Management recently instituted a new training program for upper level managers. They budgeted the cost of the new program at $1,000 per employee trained but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a:

Accepted Answer

A) Period cost. 
B) Loss. 
C) Variance. 
D) Controllable cost. 
A) Period cost. 
B) Loss. 
C) Variance. 
D) Controllable cost.

Question 14

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

Accepted Answer

Answers will vary
Most companies do not

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

A cost-based transfer price should be based on standard unit costs, not actual costs.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a characteristic of an effective responsibility accounting system?

Accepted Answer

A) Reports that show the areas that need corrective action 
B) Reports that show revenue and/or expense items under a manager's control 
C) Reports that show budgeted and actual amounts of controllable revenue and expense items 
D) Reports that set goals for long-term strategic performance 
A) Reports that show the areas that need corrective action 
B) Reports that show revenue and/or expense items under a manager's control 
C) Reports that show budgeted and actual amounts of controllable revenue and expense items 
D) Reports that set goals for long-term strategic performance

Question 18

Mitchell Company has two divisions, Division A and Division
B. Division A makes a product that Division B could use in making one of its products. Why do the managers of both divisions care about the amount of the transfer price?

Accepted Answer

Answers will vary
The transfer price wil

Question 19

Retail Sales and Wholesale Sales are the only divisions of Terra Company. The following information was gathered for the two divisions for the current year: The company has $1,200,000 in operating assets that are not assigned to either of the divisions and $500,000 in corporate expenses that are not reflected in the information above. Based on this information, what is the ROI for the company as a whole?
$$\begin{array} { | l | l  | l r | } 
\hline &  { \text { Retail Division } } &  { \text { Wholesale Division } } \
\hline \text { Operating income } & \$  2,500,000 & \$  6,000,000 \
\hline \text { Operating assets } & \$  16,000,000 & \$  36,000,000 \
\hline
\end{array}$$

Accepted Answer

A) 17.7% 
B) 16.9% 
C) 15.0% 
D) The answer cannot be determined using the information provided. 
A) 17.7% 
B) 16.9% 
C) 15.0% 
D) The answer cannot be determined using the information provided.

Question 20

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.

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.

In a decentralized firm, a responsibility report should be prepared for investment center managers, but are not useful for profit center managers.

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

In the current year, the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements is correct?

Which of the following should not be included in the investment base used to compute residual income?

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

How might return on investment be used in making resource allocation decisions within an organization?

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

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

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

A cost-based transfer price should be based on standard unit costs, not actual costs.

Which of the following is not a characteristic of an effective responsibility accounting system?

Mitchell Company has two divisions, Division A and Division B. Division A makes a product that Division B could use in making one of its products. Why do the managers of both divisions care about the amount of the transfer price?

Which of the following statements regarding cost centers is incorrect?

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

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.

In a decentralized firm, a responsibility report should be prepared for investment center managers, but are not useful for profit center managers.

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

In the current year, the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements is correct?

Which of the following should not be included in the investment base used to compute residual income?

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

How might return on investment be used in making resource allocation decisions within an organization?

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

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

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

A cost-based transfer price should be based on standard unit costs, not actual costs.

Which of the following is not a characteristic of an effective responsibility accounting system?

Mitchell Company has two divisions, Division A and Division B. Division A makes a product that Division B could use in making one of its products. Why do the managers of both divisions care about the amount of the transfer price?

Which of the following statements regarding cost centers is incorrect?

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