Responsibility Accounting and Performance Measures Paper 9

1

The following selected information is from the financial statements of Bishop Corporation for the last fiscal year.
Current assets $ 500,000
Fixed assets 250,000
Current liabilities 100,000
Long-term debt 300,000
Stockholders’ equity 350,000
Operating profit 1,000,000
Income taxes 400,000
Net income 600,000
Bishop has a cost of capital of 10%. Balance sheet amounts remained constant throughout the year. The company’s residual income for last year was






2

Cogwin Corporation, a manufacturer of value-priced clothing, measures the performance of its divisions based upon return on investment. If investment is defined as the book value of all assets recorded on a division’s balance sheet, Cogwin will have the most difficulty in comparing divisions that vary significantly in






3

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






4

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






5

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






6

Common costs are






7

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






8

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






9

Which one of the following allocation approaches will ensure that the production departments do not underestimate their planned usage of service at the start of the budget period as well as make the service departments cost efficient?






10

Vincent Hospital has installed a new computer system. The system was designed and constructed based on the anticipated number of hours of usage required by the various hospital departments according to projections made by the departmental managers. Virtually all of the operating costs of the system are fixed. What would be the most systematic and rational manner in which to allocate the new computer system costs to the various hospital departments?






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