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Exam 9: Responsibility Accounting

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Question 31

Multiple Choice

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Which of the following statements regarding investment centers is incorrect?

A) A manager of an investment center is responsible for the investment of capital, but not revenues or expenses.
B) Investment centers are commonly found at the higher levels of an organization chart.
C) A manager of an investment center should be accountable for assets, liabilities, and earnings.
D) Return on investment and residual income are tools used to assess managers of an investment center.

E) All of the above
F) None of the above

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Question 32

Multiple Choice

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Which of the following is an advantage of using cost-based 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.

E) C) and D)
F) None of the above

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Question 33

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Select the incorrect statement concerning responsibility reports.

When preparing responsibility reports,an accountant should remember that the utility of information tends to decrease with the length of time required to prepare and disseminate the information.

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

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

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

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: a) Allocated utility costs for NCS division b) Costs to rent vacarnt lot for storage of new vehicles c) Parts reverue for the PAs division d) Parts shippirg/delivery costs e) Salary of the general manager 1) Salary of the parts department manager e) Salary of the PAs division manager 1) Salary of the UCS division manager i) Sales commission of UCS sales personnel i) Service revenue for the PAs division k) Training costs for mecharies in PAs division 1) Warranty repair costs Required: Identify the items that are likely considered to be controllable by the Parts and Service division.

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

Which of the following statements regarding cost centers is incorrect?

Which of the following statements is incorrect?

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

One of the divisions of Phoenix Corporation is the Motor Division.This division currently is designing a new energy-efficient motor that would require a specialized filter.An outside company has offered to provide the 40,000 filters needed each year at $12.50 each.Phoenix is considering setting up a separate division,the Filter Division,to make the filters.The variable cost per unit would be $4,and total fixed costs incurred by the Filter Division would be $240,000. Required: 1)If the Filter Division is established,Phoenix would need to determine the basis (market-based or other basis)to use in setting the transfer price.What basis would you recommend in this case? 2)What is the maximum transfer price that the Motor Division should be willing to pay for the filters? 3)What is the minimum transfer price that Filter Division should be willing to accept for the filters? 4)Should the transfer be made? What effect would the transfer have on the profits of Phoenix Corporation?

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

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

Which of the following is not an advantage of decentralization?

Which of the following statements about residual income is true?

Which of the following statements regarding responsibility accounting is not correct?

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: