Question 1

Decentralized ﬁrms can delegate authority by structuring an organization into responsibility centers.Which of the following organizational segments is most like a totally independent, standalone business where managers are expected to "make it on their own"?

Accepted Answer

An investment center is most like a standalone business because its managers have control over revenues, costs, and investments in assets, and they are responsible for generating returns on those investments, similar to running an independent business.

Question 2

Tranquil Beaches owns six hotels in Hawaii, collectively known as the Hawaiian Division.The various hotels, including the Surf & Sun, have operating departments (such as Maintenance, Housekeeping, and Food and Beverage) that are evaluated as either cost centers or proﬁt centers.The Food and Beverage Department, for example, is a proﬁt center, with activities divided into three segments: Banquets and Catering, Restaurants, and Kitchen.If Tranquil Beaches uses a performance-reporting system that is based on responsibility accounting, which of the following disclosures is likely to occur?

Accepted Answer

The performance-reporting system based on responsibility accounting would likely show the profit of the Surf & Sun hotel on the Hawaiian Division's performance report. This is because the hotels are evaluated collectively as a division, and the profit of each individual hotel would be attributed to the division as a whole. The detailed operating costs of the Kitchen Department would not be shown on the Hawaiian Division's performance report, as it is only one segment of the Food and Beverage Department. The profit of the Food and Beverage Department would not be shown on the Kitchen Department's performance report, as it is the department responsible for generating the profit. The profit of the Surf & Sun hotel would not be shown on Tranquil Beaches' performance report, as this report would likely show the performance of the company as a whole rather than individual hotels. Finally, the profit of the Surf & Sun hotel would not be shown on the Food and Beverage Department's performance report, as this report would only encompass the activities of that department.

Question 3

If the head of a hotel's food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a (n):

Accepted Answer

If the head of a hotel's food and beverage operation is held accountable for both revenues and costs, it would be considered a profit center. This is because they are responsible for generating revenue and also managing the costs associated with the operation, with the ultimate goal of earning a profit.

Question 4

A responsibility center in which the manager is held accountable for the proﬁtable use of assets and capital is commonly known as a (n):

Accepted Answer

An investment center is a responsibility center where the manager is accountable for the profits and the efficient use of assets and capital.

Question 5

Management of Wee Ones (WO), an operator of day-care facilities, wants the company's proﬁt to be subdivided by center.The ﬁrm's accountant has provided the following data:  WO's advertising, which is handled by the home oﬃce, is not reﬂected in the preceding ﬁgures and amounted to $60,000. Assume that management used the allocation base that is most inﬂuenced by advertising effort and consistent with sound managerial accounting practices.How much advertising would be allocated to the Irvine center?

Accepted Answer

To allocate advertising costs to each center, we first need to identify an appropriate allocation base. Since advertising effort is likely to be most closely related to the number of enrolled children at each center, we will use the number of enrolled children as the allocation base.

To allocate advertising to the Irvine center, we need to determine what percentage of total enrolled children are at the Irvine center. The total number of enrolled children across all centers is 1,200, and the Irvine center has 200 enrolled children, so their percentage of total enrollment is:

(200 enrolled children) / (1,200 total enrolled children) = 16.67%

Now that we know the Irvine center represents 16.67% of total enrollment, we can allocate advertising costs accordingly:

(16.67% * $60,000) = $10,002

However, the question asks for the advertising amount allocated to the Irvine center, not the total advertising cost allocated to all centers. Therefore, we need to subtract the cost of advertising allocated to the other centers to get the amount allocated to Irvine:

($21,000 - $10,800 - $60) = $10,140

Therefore, the answer is E) $21,000.

Question 6

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a:

Accepted Answer

The answer of The Telemarketing Department of a residential remodeling...

Question 7

Consider the following statements about performance reports: I.Performance reports provide feedback to managers and allow them to better control operations. II.Many performance reports have budget, actual, and variance data. III.Performance reports are often structured around a ﬁrm's organizational hierarchy-that is, data relating to lower-level units (e.g., departments) are combined and ﬂow into higher-level units (e.g., stores). Which of the above statements is (are) true?

Accepted Answer

All three statements are true: Performance reports provide feedback and control (I), often include budget, actual, and variance data (II), and are structured around organizational hierarchy (III).

Question 8

The Asian Division of a multinational manufacturing organization would likely be classiﬁed as a:

Accepted Answer

An investment center is responsible for generating revenue as well as managing the assets allocated to it. The Asian Division of a multinational manufacturing organization would typically be responsible for making decisions about investing in capital projects, acquiring new companies, and determining the allocation of resources. This requires a significant degree of autonomy and accountability, which is why it would be classified as an investment center.

Question 9

A cost object is:

Accepted Answer

A cost object is the responsibility center, product, or service to which cost is to be assigned. It is the specific item or activity for which a cost is incurred and is used to determine the cost of producing or providing a product or service. Examples of cost objects may include a particular product line, a specific department, or a specific customer.

Question 10

Performance reports help managers:

Accepted Answer

Performance reports help managers to use management by exception and effectively control operations by focusing on areas that deviate from the expected standards or results. They also help managers to pinpoint trouble spots by identifying areas where the organization is not performing up to the desired level. Therefore, the best choice is E, which includes both options. A, B, and C are not correct because they do not directly address the benefits of performance reports for managers.

Question 11

An allocation base for a cost pool should ideally be:

Accepted Answer

An allocation base for a cost pool should be a cost driver that has a cause-and-effect relationship with the cost being allocated. Cost driver is a factor that causes a particular cost, such as machine hours, number of units produced, or miles driven. By using cost drivers, the costs can be allocated more accurately to the cost objects. Therefore, option D is the best choice.

Question 12

Which of the following is an appropriate base to distribute the cost of building depreciation to responsibility centers?

Accepted Answer

The square feet occupied by the responsibility centers is the most appropriate base to distribute the cost of building depreciation. This is because the depreciation of a building is based on the wear and tear of the physical space, which can be best measured by the amount of space occupied by each responsibility center. The number of employees, budgeted sales dollars, budgeted net income, or total budgeted direct operating costs may not be directly related to the amount of physical space used, and therefore, would not be appropriate bases for distributing building depreciation costs.

Question 13

A cost pool is:

Accepted Answer

A cost pool is a collection of costs to be assigned. It is a grouping of individual costs that are related in some way, and it is used as the basis for allocating costs to cost objects (such as products, services, or departments). A cost pool could include direct costs, indirect costs, or both, and it is typically identified based on the activities that incur the costs.

Question 14

A revenue center manager:

Accepted Answer

The answer of A revenue center manager:
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Question 15

Which of the following would have a low likelihood of being organized as a proﬁt center?

Accepted Answer

Profit centers are typically revenue-generating units. The billing department and the mayor's office do not generate revenue directly, making them unlikely to be organized as profit centers.

Question 16

A proﬁt center manager:

Accepted Answer

The answer of A proﬁt center manager:
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Question 17

Which of the following statements is incorrect regarding an investment center?

Accepted Answer

An investment center manager does have the ability to produce revenue, as they are responsible for managing the operations and resources of a separate unit of a larger organization with the goal of generating profits.

Question 18

Management of Wee Ones (WO), an operator of day-care facilities, wants the company's proﬁt to be subdivided by center.The ﬁrm's accountant has provided the following data:  WO's advertising, which is handled by the home oﬃce, is not reﬂected in the preceding ﬁgures and amounted to $60,000. If advertising expense were allocated to centers based on actual center proﬁtability, the amount of advertising expense allocated to the Irvine center would be closest to:

Accepted Answer

The answer of Management of Wee Ones (WO), an operator...

Question 19

Compton Corporation, with operations throughout the country, will soon allocate corporate overhead to the ﬁrm's various responsibility centers. Which of the following is deﬁnitely not a cost object in this situation?

Accepted Answer

Compton Corporation cannot be considered a cost object as it is the entire entity that is responsible for allocating overhead, not a specific department, product, or division within the corporation.

Question 20

Cost pools should be charged to responsibility centers by using:

Accepted Answer

Budgeted amounts of allocation bases are used to ensure that the behavior of one responsibility center does not influence the allocations to others, maintaining fairness and consistency in cost allocation.

Quiz 12: Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard