Question 1

Segment reports are a feature of responsibility accounting systems and generally are not applicable to other reporting criteria.
R

Accepted Answer

Segment reports, while most commonly found to coincide with organizational responsibility, may readily be prepared for any portion of a company for which management would like to see performance data.

Question 2

In a segment report, the profit number immediately after subtracting segment direct fixed costs is called the segment contribution margin.

Accepted Answer

In a segment report, the profit number immediately after subtracting segment direct fixed costs is called the segment margin, not the segment contribution margin.

Question 3

In the short run, the best profitability number for deciding the impact of discontinuing a segment is segment margin.

Accepted Answer

In the short run, if a segment is discontinued, all of its revenues, variable costs, and direct segment costs should be avoidable.

Question 4

In the long run, the best profitability number for deciding the impact of discontinuing a segment is segment income after subtracting allocated common segment costs.

Accepted Answer

In the long run, if a segment is discontinued, all of its revenues, variable costs, and direct segment costs should be avoidable. In addition, allocated common segment costs should be able to be eliminated or used for the benefit of other segments.

Question 5

Transfer pricing is a system used only in assigning a price to a product or service transferred between two profit centers within a company.

Accepted Answer

A transfer price can be assigned for the transfer of a product or service between any two responsibility centers - cost, revenue, profit, or investment center.

Question 6

Ideally, the price established for a transfer of goods or services between two decentralized organizational units within a company would be one that would always motivate the managers of both units to act in a way that is in the best interest of the company as a whole.

Accepted Answer

This is the ideal type of transfer price; however, this ideal may have to be compromised to some extent in order to maintain a high level of autonomy for the managers of the decentralized organizational units.

Question 7

The return on investment can be obtained by multiplying return on equity times asset turnover.

Accepted Answer

The return on investment can be obtained by multiplying return on sales times investment turnover.

Question 8

Residual income is more similar to Economic Value Added than it is to return on investment.

Accepted Answer

Both the residual income and Economic Value Added measures represent profit less a charge for capital used by the organizational unit. Return on investment does not take into account the cost of capital used by the unit.

Question 9

The balanced scorecard approach for evaluating managerial performance is designed to overcome the limits of single measure performance systems, such as ROI or EVA, by evaluating performance on several key dimensions.

Accepted Answer

The balanced scorecard evaluates performance based on several key performance indicators.

Question 10

One of the greatest disadvantages of the balanced scorecard is that it is difficult to harmonize it with the corporate strategy.

Accepted Answer

In fact, one of the benefits of the balanced scorecard is that the key performance indicators can be selected based on their ability to evaluate achievement of corporate strategy.
Multiple Choice

Question 11

A segment report can be prepared:
A) Only for reporting units of an organization
B) Only for divisions of an organization
C) For any part of the business for which management believes the information would be useful
D) Only for strategic business segments of an organization

Accepted Answer

A segment report can be prepared for any portion of the company for which segment data can be generated, where or not it coincides with the managerial organization of the company.

Question 12

Segment reports are most often produced to coincide with:
A) Internal value chains
B) Managerial lines of responsibility
C) Capital budget centers
D) None of the above

Accepted Answer

Although segment reports can be prepared based on many different criteria, they are most often based on the managerial lines of responsibility.

Question 13

In a segment report for territories, the contribution margin less direct segment fixed costs is typically called the:
A) Segment margin
B) Product margin
C) Territory margin
D) Fixed costs

Accepted Answer

For a territorial segment, the segment margin is generally referred to as the territory margin.

Question 14

Which of the following statements about segment reporting is not true?
A) Segment reports are income statements that show operating results for portions of the business.
B) Product segment reports are designed to show the performance of product lines of a business.
C) Product segment reports are not really segment reports.
D) Statements A and B are correct.

Accepted Answer

Segment reports prepared for product lines are a frequent basis for preparing segment reports.

Question 15

Which of the sources listed below would a manager be least likely to consider in deciding whether or not to discontinue a given segment?
A) Direct segment costs
B) An evaluation of the importance of the segment to overall operations
C) The common costs allocated to the segment
D) Segment reports

Accepted Answer

Common segment cost will continue whether or not a segment is discontinued, so they are irrelevant to the decision.

Question 16

First Fleet Company is a two-division firm and has the following information available for this year:
 What is Division A's contribution margin?
A) $ 420,000
B) $ 450,000
C) $ 480,000
D) $(120,000)

Accepted Answer

Division A sales ($600,000) less Division A variable costs ($120,000) = $480,000

Question 17

First Fleet Company is a two-division firm and has the following information available for this year:
 What is Division B's division segment margin?
A) $280,000
B) $180,000
C) $220,000
D) $520,000

Accepted Answer

Division B sales ($900,000) less Division B variable costs ($180,000) less Division B direct fixed costs ($200,000) = $520,000

Question 18

Costs that would not be incurred if the segment were discontinued are called:
A) Avoidable common costs
B) Indirect segment costs
C) Variable segment costs
D) Both A and C

Accepted Answer

Avoidable common costs, as the term implies, are costs that will be avoided (not incurred) if the segment is discontinued. In addition, variable costs are eliminated if the segment is discontinued.

Question 19

Product X contribution margin minus Direct product fixed expenses, is termed:
A) Manufacturing margin
B) Operating income
C) Product margin
D) Gross margin

Accepted Answer

The segment margin for a product line segment is called the product margin.

Question 20

Assume the following information for a product line:
 What is the product line's segment income?
A) $775,000
B) $900,000
C) $815,000
D) $915,000

Accepted Answer

Segment income is all revenues less all costs direct or indirectly charged to it.
$1,100,000 - 100,000 - 75,000 - 60,000 - 50,000 = $815,000.

Quiz 11: Segment Reporting, Transfer Pricing, and Balanced Scorecard

Segment reports are a feature of responsibility accounting systems and generally are not applicable to other reporting criteria. R

In a segment report, the profit number immediately after subtracting segment direct fixed costs is called the segment contribution margin.

In the short run, the best profitability number for deciding the impact of discontinuing a segment is segment margin.

In the long run, the best profitability number for deciding the impact of discontinuing a segment is segment income after subtracting allocated common segment costs.

Transfer pricing is a system used only in assigning a price to a product or service transferred between two profit centers within a company.

Ideally, the price established for a transfer of goods or services between two decentralized organizational units within a company would be one that would always motivate the managers of both units to act in a way that is in the best interest of the company as a whole.

The return on investment can be obtained by multiplying return on equity times asset turnover.

Residual income is more similar to Economic Value Added than it is to return on investment.

The balanced scorecard approach for evaluating managerial performance is designed to overcome the limits of single measure performance systems, such as ROI or EVA, by evaluating performance on several key dimensions.

One of the greatest disadvantages of the balanced scorecard is that it is difficult to harmonize it with the corporate strategy.

A segment report can be prepared:

Segment reports are most often produced to coincide with:

In a segment report for territories, the contribution margin less direct segment fixed costs is typically called the:

Which of the following statements about segment reporting is not true?

Which of the sources listed below would a manager be least likely to consider in deciding whether or not to discontinue a given segment?

First Fleet Company is a two-division firm and has the following information available for this year: What is Division A's contribution margin?

First Fleet Company is a two-division firm and has the following information available for this year: What is Division B's division segment margin?

Costs that would not be incurred if the segment were discontinued are called:

Product X contribution margin minus Direct product fixed expenses, is termed:

Assume the following information for a product line: What is the product line's segment income?