Responsibility Accounting and Performance Measures MCQs

Fairmount, Inc., uses an accounting system that charges costs to the manager who has been delegated the authority to make the decisions incurring the ...

Responsibility accounting
Functional accounting
Reciprocal allocation.
Transfer price accounting.

The basic purpose of a responsibility accounting system is

Budgeting.
Motivation.
Authority.
Variance analysis.

In responsibility accounting, a centerâ€™s performance is measured by controllable costs. Controllable costs arebest described as including

Direct material and direct labor only.
Only those costs that the manager can influence in the current time period.
Only discretionary costs.
Those costs about which the manager is knowledgeable and informed.

A segment of an organization is referred to as a service center if it has

Responsibility for developing markets and selling the output of the organization.
Responsibility for combining the raw materials, direct labor, and other factors of production into a final output.
Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply.
Authority to provide specialized support to other units within the organization.

The least complex segment or area of responsibility for which costs are allocated is a(n)

Profit center.
Investment center.
Contribution center.
Cost center.

Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n)

Profit center.
Revenue center.
Division.
Operating unit.

Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibil...

Revenue center.
Profit center.
Cost center.
Investment center.

A successful responsibility accounting reporting system is dependent upon

The correct allocation of controllable variable costs.
Identification of the management level at which all costs are controllable.
The proper delegation of responsibility and authority.
A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and must be eliminated from the responsibility report.

Sherman Company uses a performance reporting system that reflects the company’s decentralization of decision making. The departmental performance re...

Contribution accounting.
Cost-benefit accounting
Flexible budgeting.
Responsibility accounting.

Micro Manufacturers uses an accounting system that charges costs to the manager who has been delegated the authority to make the decisions incurring t...

Functional accounting
Contribution accounting.
Reciprocal allocation.
Profitability accounting.

In a highly decentralized organization, the best option for measuring the performance of subunits is the establishment of

Marketing centers.
Product centers.
Revenue centers.
Cost centers.

A segment of an organization is referred to as a profit center if it has

Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply.
Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply and significant control over the amount of invested capital.
Authority to make decisions over the most significant costs of operations including the power to choose the sources of supply.
Authority to provide specialized support to other units within the organization.

A segment of an organization is referred to as an investment center if it has

The Stonebrook Company uses a performance reporting system that reflects the company’s decentralization of decision making. The departmental perform...

Transfer-pricing accounting.
Flexible budgeting.
Responsibility accounting.
Activity-based budgeting.

Digital Tech uses an accounting system that charges costs to the manager who has the authority to make decisions incurring the costs. For example, if ...

Responsibility accounting.
Functional accounting.
Transfer-pricing accounting
Contribution accounting.

If a manufacturing company uses responsibility accounting, which one of the following items is least likely to appear in a performance report for a ma...

Supervisory salaries.
Materials.
Repairs and maintenance.
Equipment depreciation.

Which of the following is not true of responsibility accounting?

Managers should only be held accountable for factors over which they have significant influence
The focus of cost center managers will normally be more narrow than that of profit center managers.
Every factor that affects a firm’s financial performance ultimately is controllable by someone, even if that someone is the person at the top of the firm.
When a responsibility account system exists, operations of the business are organized into separate areas controlled by individual managers.

A company plans to implement a bonus plan based on segment performance. In addition, the company plans to convert to a responsibility accounting syste...

Corporate administrative costs.
Personnel costs.
Fixed computer facility costs.
Variable computer operational costs.

In a responsibility accounting system, managers are accountable for

Variable costs but not for fixed costs.
Product costs but not for period costs.
Incremental costs.
Costs over which they have significant influence.

Which of the following types of responsibility centers include controllable revenues in their performance reports? Cost Centers Investment Centers ...

Yes Yes Yes
Yes No No
No Yes Yes
No No No

Periodic internal reports used for performance evaluation purposes and based on a responsibility accounting system should not include

Allocated fixed overhead.
A distinction between controllable and non controllable costs.
An organization chart.
Variances between actual and budgeted controllable costs.

Which one of the following best identifies a profit center?

The Information Technology Department of a large consumer products company.
A large toy company.
The Production Operations Department of a small job-order machine shop company.
A new car sales division for a large local auto agency.

Characteristics of a responsibility accounting system include all of the following except that

Responsibility for performance according to budget must be linked to the appropriate authority.
The system should encourage employee involvement and participation
Cost centers are responsible for revenues as well as common costs.
Each level of management is responsible for its department’s operations and employees.

Responsibility costs motivate managers of responsibility centers to act in the organization’s interest. The attribute that would be least persuasive...

Are limited to staff services, such as consulting or internal audit.
Can be influenced by actions of the center’s manager.
Are helpful in measuring support used by the responsibility center.
Are used in product pricing.

Making segment disclosures is an advantage to a company because it

Facilitates evaluation of company management by providing data on particular segments.
Eliminates the interdependence of segments.
Masks the effect of inter segment transfers.
Provides competitors with comparative information on the company’s performance.

Sara Bellows, manager of the telecommunication sales team, has the following department budget. Billings -- long distance $350,000 Billings -- phon...

Cost center.
Revenue center.
Profit center.
Investment center.

An organization employs a system of internal reporting that furnishes departmental managers with revenue and cost information on only those items that...

Contribution margin reporting.
Segment reporting.
Absorption cost accounting.
Responsibility accounting.

Jonathan Roger is the marketing manager for a local recreational sports complex. Roger’s role in the marketing department is to advertise events, me...

Investment center.
Cost center.
Profit center.
Revenue center.

A manager who is accountable for both income statement and balance sheet items is responsible for a(n)

Cost center
Investment center.
Profit center.
Revenue center.

A cosmetics company is expanding its marketing presence by placing stores within a national department store chain. The cosmetics company hires its ow...

Cost center.
Revenue center.
Profit center.
Investment center.

The segment margin of the Wire Division of Lerner Corporation should not include

Net sales of the Wire Division.
Fixed selling expenses of the Wire Division.
Variable selling expenses of the Wire Division.
The Wire Division’s fair share of the salary of Lerner Corporation’s president.

When using a contribution margin format for internal reporting purposes, the major distinction between segment manager performance and segment perform...

Unallocated fixed costs.
Direct variable costs of producing the product.
Direct fixed costs controllable by the segment manager.
Direct fixed costs controllable by others.

Which of the following techniques would be best for evaluating the management performance of a department that is operated as a cost center?

Return on assets ratio.
Return on investment ratio.
Payback method.
Variance analysis.

Harris Co.â€™s income statement for profit center No. 12 for August includes Contribution margin $84,000 Managerâ€™s salary 24,000 Depreciat...

$84,000
$68,400
$60,000
$44,400

Ordinarily, the most appropriate basis on which to evaluate the performance of a division manager is the division’s

Contribution margin.
Net revenue minus controllable division costs.
Gross profit.
Net income minus the division’s fixed costs.

A firm prepared a segmented income statement that included the following data for its suburban marketing segment: Fixed costs controllable by the su...

$370,000
$10,000
$520,000
$120,000

David Burke is manager of claims processing for Continental Health Care System. His performance is evaluated using various measures agreed upon in ad...

Processing cost per claim.
Average processing time per claim.
Percentage of claims processed accurately the first time.
Total dollar amount of claims processed per month.

Paul Cooper, shipping manager for DFG Distributors, is responsible for managing the staff and all related transportation equipment to fill orders for...

Labor cost per order; transportation cost per order; number of orders completed per day.
The percentage of orders filled on time; the percentage of orders filled accurately; average cost to fill and deliver an order.
Customer satisfaction; elapsed time to complete an order; percentage of orders filled accurately.
Orders completed per employee per day; employee injuries per hour worked; number of vehicle accidents per year.

P.C. Programs, Inc., produces software for individual users and small businesses. Rita Morgan manages the customer hotline department for the firm an...

Average time to provide an answer or solution to a customer.
Number of calls to the hotline for each new release of software.
Average time a customer is on hold.
Number of customer complaints due to incorrect responses given to customers.

Which one of the following should be used for evaluating the performance of the Repair and Maintenance Department that repairs production equipment in...

The variance between the firm’s budgeted and actual net income.
The total factory overhead variances.
The fixed overhead volume variances.
The response time and degree of satisfaction among the production departments.

Albert Hathaway recently joined Brannen University as the chief information officer of the University Computing Services Department. His assigned task...

Actual rate times actual hours of computer usage.
Actual rate times budgeted hours of computer usage.
Budgeted rate times actual hours of computer usage.
Budgeted rate times budgeted hours of computer usage.

Which of the following is a characteristic of a contribution income statement?

Fixed and variable expenses are combined as one line.
Fixed expenses are listed separately from variable expenses.
Fixed and variable manufacturing costs are combined as one line item, but fixed operating expenses are shown separately from variable operating expenses.
Fixed and variable operating expenses are combined as one line item, but fixed manufacturing expenses are shown separately from variable manufacturing expenses

The imputed interest rate used in the residual income approach to performance evaluation can best be described as the

Average lending rate for the year being evaluated.
Historical weighted-average cost of capital for the company.
Target return on investment set by the companyâ€™s management.
Average return on investments for the company over the last several years

A firm earning a profit can increase its return on investment by

Increasing sales revenue and operating expenses by the same dollar amount.
Decreasing sales revenues and operating expenses by the same percentage.
Increasing investment and operating expenses by the same dollar amount.
Increasing sales revenues and operating expenses by the same percentage.

Which one of the following statements pertaining to the return on investment (ROI) as a performance measurement is false?

When the average age of assets differs substantially across segments of a business, the use of ROI may not be appropriate.
ROI relies on financial measures that are capable of being independently verified, while other forms of performance measures are subject to manipulation.
The use of ROI may lead managers to reject capital investment projects that can be justified by using discounted cash flow models.
The use of ROI can make it undesirable for a skillful manager to take on troubleshooting assignments such as those involving turning around unprofitable divisions.

Listed below is selected financial information for the Western Division of the Hinzel Company for last year. Amount .....................................

34.78%
22.54%
19.79%
16.67%

One approach to measuring divisional performance is return on investment. Return on investment is expressed as operating income

Divided by the current year’s capital expenditures plus cost of capital.
Minus imputed interest charged for invested capital.
Divided by fixed assets.
Divided by total assets.

Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the ma...

Increase Decrease Increase
Decrease Decrease Decrease
Increase Increase Increase
Increase Decrease Decrease

In evaluating an investment center, top management should concentrate on

Dollar sales.
Net income.
Profit percentages.
Return on investment.

Which one of the following will not improve return on investment if other factors are constant?

Decreasing expenses or assets.
Increasing selling prices.
Increasing sales volume while holding fixed expenses constant.
None of the answers is correct.

To properly motivate divisional management, the divisional ROIs should be

Equal.
Greater in the less profitable divisions to motivate those divisions to achieve higher ROIs.
Lower in more profitable divisions in which motivation is necessary.
Different based upon strategic goals of the firm.

Which one of the following items would most likely not be incorporated into the calculation of a division’s investment base when using the residual ...

Fixed assets employed in division operations.
Land being held by the division as a site for a new plant.
Division inventories when division management exercises control over the inventory levels
Division accounts payable when division management exercises control over the amount of short-term credit used.

The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as

Return on investment.
Residual income.
Operating income
Return on assets.

The imputed interest rate used in the residual income approach for performance measurement and evaluation can best be characterized as the

Historical weighted average cost of capital for the company.
Marginal after-tax cost of new equity capital.
Average return on investment that has been earned by the company over a particular period.
Target return on investment set by management.

James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is review...

$9,000,000
$10,800,000
$25,150,000
$25,690,000

The basic objective of the residual income approach to performance measurement and evaluation is to have a division maximize its

Return on investment rate.
Imputed interest rate charge.
Cash flows.
Income in excess of a desired minimum return.

After investing in a new project, a company discovered that its residual income remained unchanged. Which one of the following must be true about the ...

The net present value of the new project must have been negative.
The return on investment of the new project must have been less than the firm’s cost of capital.
The return on investment of the new project must have been equal to the firm’s cost of capital
The net present value of the new project must have been positive.

When comparing the residual income of several investment centers, the validity of comparisons may be destroyed by

Peculiarities of each investment center.
Consistent use of an imputed interest rate.
Common amounts of invested capital for each investment center.
None of the answers is correct.

The following information relates to Cinder Co.’s Northeast Division: Sales $600,000 Variable costs 360,000 Traceable fixed costs 60,000 Average...

$170,400
$180,000
$189,600
$230,400

KHD Industries is a multidivisional firm that evaluates its managers based on the return on investment (ROI) earned by their divisions. The evaluatio...

A, B, C, and D.
B, C, and D only.
C and D only.
D only.

The following is an excerpt from a corporation’s most recent financial statements. Current assets $ 120,000 Total operating assets 1,750,000 Current...

$155,000
$126,800
$123,600
$113,800

A company is considering the addition of a new product line. The new product line is expected to generate a return higher than the cost of capital but...

Increase.
Remain unchanged.
Decrease.
Become higher than the firm’s return on investment.

Ramirez, Inc., opens a new retail store every 2 years and currently operates in 24 different locations. Ramirez uses return on investment (ROI) to eva...

Book value
Current value.
Historical cost.
Historical cost adjusted for inflation.

The headquarters of a national restaurant chain is trying to better understand the profitability of the Savannah location. Savannah’s total assets a...

23.7%
19.0%
15.8%
13.6%

A company uses return on investment (ROI) to evaluate year-end divisional performance. Which one of the following inventory practices would most reduc...

One division uses a perpetual inventory system, and the other division uses a periodic inventory system.
One division uses the net method to record purchases, and the other division uses the gross method to record purchases.
One division uses LIFO, and the other division uses FIFO.
One division places goods for sale on consignment, and the other division does not.

A company uses return on investment (ROI) to measure the performance of its business units. The company manufactures and distributes consumer goods. ...

Increase.
Decrease.
Not change
Have an unpredictable change.

Teen Style, a merchandising company, is considering a $1,000,000 upgrade to its retail and warehousing facilities that will allow the company to hand...

$800,000
$500,000
$75,000
$50,000

A corporation has set a goal to increase its return on investment (ROI). To facilitate this goal, the corporation has set up an incentive program tha...

Cause division managers to compete for the corporation’s investment funds.
Cause the corporation to select high-risk investments.
Cause the corporation to pay out incentives if goals are achieved
Result in managers rejecting profitable projects.

Which statement below best represents a benefit of residual income (RI) as a performance measure?

RI blends all ingredients of profitability into one percentage that is easily comparable.
RI is more likely to promote goal congruence in a low-profit location versus return on investment.
Managers can increase their RI by decreasing the internal rate of return.
Managers maximize an absolute amount and invest as long as the required return is earned.

REB Service Co. is a computer service center. For the month, REB had the following operating statistics:Sales $450,000 Operating income 25,000 Net pro...

Return on investment of 4%.
Residual income of $(5,000).
Return on investment of 1.6%.
Residual income of $(22,000).

Charlie’s Service Co. is a service center. For the year just ended, Charlie’s had the following operating statistics: Sales $750,000 Operating inc...

Return on investment of 3.33%.
Residual income of $(5,000).
Return on investment of 6%.
Residual income of $(20,000).

Managerial performance can be measured in many different ways, including return on investment (ROI) and residual income. A good reason for using resid...

Residual income can be computed without regard to identifying an investment base.
Goal congruence is more likely to be promoted by using residual income.
Residual income is well understood and often used in the financial press.
ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage.

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because

The problems associated with measuring the asset base are eliminated.
Desirable investment decisions will not be neglected by high-return divisions.
Only the gross book value of assets needs to be calculated.
The arguments about the implicit cost of interest are eliminated.

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of Fact Pattern:8% for any project to be undertaken by her ...

Accept Reject
Reject Accept
Accept Accept
Reject Reject

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of Fact Pattern:8% for any project to be undertaken by her ...

Accept Reject
Reject Accept
Accept Accept
Reject Reject

To ensure that a divisional vice president places appropriate focus on both the short- and the long-term objectives of the division, the best approach...

Return on investment (ROI), which permits easy and quick comparisons to other similar divisions.
Residual income since it will eliminate the rejection of capital investments that have a return less than ROI but greater than the cost of capital.
Division segment margin or profit margin.
Financial and nonfinancial measures, including the evaluation of quality, customer satisfaction, and market performance.

Brennan Company evaluates the company’s managers using management by objectives (MBO). All of the following are considered appropriate goals for mea...

Budgeted operating income.
A targeted share of the market.
Earnings per share projections.
A reduction in the organizational structure (fewer employees doing a given amount of work).

For several years, Northern Division of Marino Company has maintained a positive residual income. Northern is currently considering investing in a new...

The expected rate of return on the new project is higher than the division’s current return on investment, but lower than the firm’s cost of capital.
The firm’s cost of capital is higher than the expected rate of return on the new project, but lower than the division’s current return on investment.
The division’s current return on investment is higher than the expected rate of return on the new project, but lower than the firm’s cost of capital.
The expected rate of return on the new project is higher than the firm’s cost of capital, but lower than the division’s current return on investment.

Oakmont Company has two divisions, Household Appliances and Construction Equipment. The manager of the Household Appliances Division is evaluated on t...

Both managers would have incentive to undertake the project.
Neither manager would have incentive to undertake the project.
The manager of the Household Appliances Division would have incentive to undertake the project, while the manager of the Construction Equipment Division would not have incentive to undertake the project.
The manager of the Construction Equipment Division would have incentive to undertake the project, while the manager of the Household Appliances Division would not have incentive to undertake the project.

A company is concerned that its divisional managers are not making decisions that are in the best interests of the overall corporation. In order to pr...

Flexible budget variances.
Operating income
Controllable costs.
Residual income.

The following selected information is from the financial statements of Bishop Corporation for the last fiscal year. Current assets $ 500,000 Fixed...

$525,000
$575,000
$925,000
$975,000

Cogwin Corporation, a manufacturer of value-priced clothing, measures the performance of its divisions based upon return on investment. If investment...

Age.
Geographic location.
Managerial style.
Sales volume.

When using return on investment (ROI) in local currency to evaluate divisional performance, valuing assets at net book value would result in the highe...

International divisions in countries with high inflation.
International divisions in countries with high deflation.
Retail divisions purchasing goods from manufacturing divisions at fixed prices
Retail divisions purchasing goods from manufacturing divisions at negotiated prices.

Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods?

To allocate depreciation of forklifts used by workers at its central warehouse, Shahlimar Electronics uses predetermined amounts calculated on the basis of the long-term average use of the services provided.
Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performances.
Rainier Industrial does not allow its service departments to pass on their cost overruns to the production departments.
Tashkent Auto’s MIS is operated out of headquarters and serves its various divisions. Tashkent’s allocation of the MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs.

Managers are most likely to accept allocations of common costs based on

Cause and effect
Ability to bear.
Fairness.
Benefits received.

Common costs are

Direct costs.
Current costs.
Controllable costs.
Indirect costs.

A large corporation allocates the costs of its headquarters staff to its decentralized divisions. The best reason for this allocation is to

More accurately measure divisional operating results.
Improve divisional management’s morale.
Remind divisional managers that common costs exist.
Discourage any use of central support services.

Most firms allocate corporate and other support costs to divisions and departments for all of the following reasons except to

Remind profit center managers that earnings must be adequate to cover some share of the indirect costs.
Stimulate profit-center managers to put pressure on central managers to control service costs.
Create competition between divisions and departments, and their managers.
Fix accountability and evaluate profit centers.

Which one of the following allocation approaches will ensure that the production departments do not underestimate their planned usage of service at th...

The use of actual rates and actual hours for both fixed and variable costs.
Budgeted rates and standard hours allowed for output attained for variable costs and budgeted rates and capacity available for fixed costs.
The use of rates and quantities based on long-term historical averages for both variable and fixed costs
The use of a budgeted lump-sum amount based on estimates provided by the production departments for both variable and fixed costs.

Vincent Hospital has installed a new computer system. The system was designed and constructed based on the anticipated number of hours of usage requir...

To each department equally.
By the anticipated number of hours of usage.
By actual usage by each department.
By the revenue generated in each department.

Bonnert’s Finance Department has purchased a new color copier system for $10,000 that will help with required reporting. Bonnert’s IT Department ...

Incremental cost method and allocate $10,000 to the Finance Department
Stand-alone cost method and allocate $5,000 to each department.
Constant gross profit method and allocate $5,000 to each department.
Net realizable value method and allocate $10,000 to the Finance Department.

An appropriate transfer price between two divisions of The Stark Company can be determined from the following data: Fabricating Division: Market p...

Between $20 and $50.
Between $50 and $70.
Any amount less than $50.
$50 is the only acceptable price.

A limitation of transfer prices based on actual cost is that they

Charge inefficiencies to the department that is transferring the goods.
Can lead to suboptimal decisions for the company as a whole
Must be adjusted by some markup
Lack clarity and administrative convenience.

A proposed transfer price may be based upon the full-cost price. Full-cost price is the price

On the open market.
Representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
Usually set by an absorption-costing calculation.
Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup

Division Z of a company produces a component that it currently sells to outside customers for $20 per unit. At its current level of production, which ...

$12 per unit.
$18 per unit
$20 per unit.
$22 per unit.

Division A of a company is currently operating at 50% capacity. It produces a single product and sells all its production to outside customers for $13...

$7.00 per unit.
$9.60 per unit.
$12.00 per unit.
$13.00 per unit.

Which of the following is not true about international transfer prices for a multinational firm?

Allows firms to attempt to minimize worldwide taxes.
Allows the firm to evaluate each division.
Provides each division with a profit-making orientation.
Allows firms to correctly price products in each country in which it operates.

A variable-cost-plus price transfer is

The price on the open market.
The price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
The price set by charging for variable costs plus an additional markup, but less than full (absorption) cost.
The price usually set by an absorption costing calculation.

Which one of the following is an incorrect description of transfer pricing?

It measures the value of goods or services furnished by a profit center to other responsibility centers within a company.
If a market price exists, this price may be used as a transfer price.
It measures exchanges between a company and external customers
If no market price exists, the transfer price may be based on cost.

With respect to a firm’s transfer pricing policy, an advantage of using a dual pricing arrangement is that it

Provides an incentive for the supplying subunit to control costs.
Exposes the supplying subunit to the discipline of market prices.
Promotes goal congruence between the supplying and buying subunits of the firm. .
Simplifies tax calculations when the buying and supplying subunits are taxed in different jurisdictions.

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Responsibility Accounting and Performance Measures MCQs