Question 1

The performance of Steve,the manager of Center B,is evaluated the end of every month,by comparing the amount spent on manufacturing overhead with the budgets prepared at the beginning of the month.What type of responsibility center is Center B?

Accepted Answer

The evaluation of performance based on the comparison of actual manufacturing overhead with the budgeted amount indicates that Center B is responsible for controlling costs or expenses. Therefore, Center B is a cost center.

Question 2

The way in which the performance of a cost center is evaluated is similar to

Accepted Answer

The performance of a cost center is evaluated using standard costing, which involves comparing actual costs incurred against the standard costs set for that cost center. This evaluation helps in identifying any variances and taking corrective actions. Therefore, option B, which is standard costing, is the best choice for this question.

Question 3

A responsibility accounting system ensures that

Accepted Answer

A responsibility accounting system is designed to allocate responsibilities and accountabilities to various managers or departments within an organization. By doing so, it ensures that managers are only held responsible for items they have control over, thereby promoting fairness and accountability. It does not guarantee profitability, GAAP compliance or easy correlation between revenues and costs.

Question 4

Variable costing allows a manager to classify controllable costs as

Accepted Answer

Variable costing is a method of cost accounting that segregates all controllable costs into variable and fixed categories. This classification helps managers in making better decisions related to pricing, production, and inventory management. By separating variable costs such as direct materials, direct labor, and variable overhead costs, from fixed costs such as rent, salaries, and depreciation, managers can focus on improving the cost structure of their business. Therefore, choice A is the best option.

Question 5

A performance management and evaluation system is a set of procedures that account for and report on

Accepted Answer

A performance management and evaluation system takes into account not only quantitative measures of performance (such as financial performance), but also nonfinancial measures of performance (such as employee satisfaction and customer loyalty) that can impact overall organizational success. Therefore, option D is the best choice as it encompasses both financial and nonfinancial performance.

Question 6

Performance reports should include

Accepted Answer

Performance reports should include controllable costs, revenues, and resources for a specific responsibility center in order to evaluate the effectiveness of the center's management in utilizing its resources to achieve its goals. Non-controllable costs may mask the performance of the center and can be influenced by external factors beyond the responsibility center's control, thus limiting the usefulness of these data in evaluating the center's performance.

Question 7

A good example of a profit center would be

Accepted Answer

A profit center is a business unit that generates revenue and incurs expenses, and is therefore responsible for its own financial performance. Home Depot's stores are good examples of profit centers because they sell goods and services directly to customers, generate revenue through sales, and are responsible for their own operating expenses. In contrast, while the car manufacturer's assembly line and Avis Car Rental's national reservation center both generate revenue, they may be considered cost centers instead of profit centers because their revenue is earned through support functions rather than direct sales to customers. The manufacturer's human resources department is typically considered a cost center because it supports the company's overall operations rather than generating revenue directly.

Question 8

The manager of Center A of Harry International is responsible for generating cash inflows and incurring costs with the goal of generating returns for the company.The manager has no responsibility for assets.What type of responsibility center is Center A?

Accepted Answer

Center A is a profit center as the manager is responsible for generating cash inflows and incurring costs with the goal of generating returns for the company. Profit centers are responsible for both revenue and costs, and their performance is measured by the profit they generate.

Question 9

The manager of Center D designs,produces,and sells products to external parties.The manager makes both long-term and short-term decisions regarding resources.What type of responsibility center is Center D?

Accepted Answer

Center D is an investment center because it is responsible for making long-term and short-term decisions regarding resources, indicating that it has control over investments and assets. Profit centers are responsible for generating revenue and controlling expenses, revenue centers are responsible for generating revenue only, and cost centers are responsible for controlling costs but do not generate revenue.

Question 10

Standard costing would most often require which type of performance evaluation?

Accepted Answer

Standard costing is typically used with flexible budgeting, which allows for adjustments based on actual performance. Static budgeting would not be as effective as it does not allow for changes to be made after the budget is set. Variable costing is a method of cost accounting, and not directly related to performance evaluation.

Question 11

Which of the following is a performance measure?

Accepted Answer

The answer of Which of the following is a performance...

Question 12

A responsibility center in which the relationship between resources and products or services produced is not well defined is known as a(n)

Accepted Answer

A discretionary cost center is where the relationship between resources and products or services produced is not easily defined, making it challenging to directly link input costs to outputs. This is often seen in departments like research and development or marketing, where the output is not directly measurable in the short term.

Question 13

The format of a variable costing income statement is similar to a(n)

Accepted Answer

The format of a variable costing income statement focuses on separating fixed and variable costs and calculating the contribution margin. This format is very similar to a contribution margin income statement, which also calculates the contribution margin by subtracting variable costs from total revenues. Therefore, the correct answer is A) contribution margin income statement.

Question 14

The manager of Center E provides administrative activities for the other centers in the company.What type of responsibility center is Center E?

Accepted Answer

A discretionary cost center is involved in activities that do not directly generate revenue but support the operation of the business, such as administrative activities. Center E, which provides administrative activities for other centers, fits this description.

Question 15

The manager of Center C is only responsible for generating and processing online orders of a large retailer.What type of responsibility center is Center C?

Accepted Answer

Center C is responsible for generating and processing online orders, which is related to revenue generation. This makes it a revenue center, as its performance can be measured by the amount of revenue it generates for the company. It is not a profit center, since it is not responsible for any costs or expenses associated with the orders. It is also not an investment center or discretionary cost center as it does not involve any investment decisions or discretionary costs.

Question 16

In general,there are ________ types of responsibility centers.

Accepted Answer

In management accounting, there are generally five types of responsibility centers: Cost Center, Revenue Center, Profit Center, Investment Center, and Service Center. Each type focuses on different aspects of business operations and financial responsibility.

Question 17

Which of the following statements is true of performance measurement?

Accepted Answer

The answer of Which of the following statements is true...

Question 18

The use of quantitative tools to gauge an organization's performance in relation to a specific goal or an expected outcome is known as

Accepted Answer

The use of quantitative tools to measure an organization's performance in relation to a specific goal or expected outcome is referred to as performance measurement. It's accomplished by tracking key performance indicators (KPIs), a set of metrics that reflect an organization's progress in achieving its goals. KPIs are determined based on the organization's mission, strategic priorities, and operational goals, and they provide data-driven insights into an organization's performance.

Question 19

Many organizations utilize responsibility accounting

Accepted Answer

Responsibility accounting is used to assign responsibility for the costs and revenues of a particular department or function to a designated manager or individual. This assists in performance management and evaluation by holding individuals accountable for their performance and providing a basis for performance measurement.

Question 20

A manufacturing company's human resource department is most likely a

Accepted Answer

The answer of A manufacturing company's human resource department is...

Quiz 23: Flexible Budgets and Performance Analysis