Question 1

All of the following costs are traceable to a specific factory except:
A) Depreciation on the company's fleet of tractor trailer trucks.
B) Direct materials.
C) Salaries of production supervisors.
D) Wages of production set-up laborers.

Accepted Answer

Depreciation on the company's fleet of tractor trailer trucks is not directly related to the production of goods in a specific factory, therefore it cannot be traced to a specific factory. Direct materials, salaries of production supervisors, and wages of production set-up laborers are all directly related to the production of goods in a specific factory and are traceable costs.

Question 2

The cost of heating and air conditioning the store should be:
A) Allocated among the sales departments based upon relative sales volume.
B) Allocated among the sales departments based upon their relative floor space.
C) Classified as a common fixed cost.
D) Omitted from the segmented income statements.

Accepted Answer

Classified as a common fixed cost.

Question 3

Responsibility margin is equal to:
A) Revenue, less contribution margin and traceable fixed costs.
B) Revenue, less variable costs.
C) Revenue, less variable costs and traceable fixed costs.
D) Revenue, less variable fixed costs, traceable fixed costs, and common costs.

Accepted Answer

Responsibility margin represents the amount of revenue that can be attributed to a specific department or individual, after deducting only the costs that are directly traceable to that department or individual. Therefore, responsibility margin is equal to revenue less variable costs and traceable fixed costs. Option A is incorrect because it also deducts the contribution margin, which is not a direct cost. Option B is incorrect because it does not deduct traceable fixed costs. Option D deducts both variable fixed costs and common costs, which are not directly traceable and should not be included in the calculation of responsibility margin.

Question 4

Of the following, which should be classified as a common fixed cost?
A) Depreciation on the Schenectady factory.
B) Salaries of the plant managers.
C) Salaries of the company's legal staff.
D) Property taxes on the Akron factory.

Accepted Answer

Salaries of the company's legal staff are considered common fixed costs because they are not directly attributable to any one plant but are shared across the entire company.

Question 5

In preparing a responsibility income statement that shows contribution margin and responsibility margin, two concepts are involved in allocating costs to the various centers. These concepts are:
A) Whether the costs are variable or fixed and whether they are material in dollar amount.
B) Whether the costs are traceable to the responsibility center and whether the responsibility center is organized as a profit center or an investment center.
C) Whether the costs are variable or fixed and whether they are directly traceable to the responsibility center.
D) Whether the costs are traceable to the responsibility center and whether they are material in dollar amount.

Accepted Answer

The two concepts involved in allocating costs to the various centers are whether the costs are variable or fixed and whether they are directly traceable to the responsibility center. This means that costs that are directly related to the activities of the center and that vary in proportion to the level of the center's activities are allocated to the center. Fixed costs that cannot be directly traced to the center are allocated based on some reasonable basis such as square footage, headcount, or machine hours. Materiality is not a factor in this allocation process.

Question 6

Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?
A) The property taxes would not change even if one or more of the departments were eliminated.
B) Such an allocation violates GAAP.
C) The property taxes are not under the control of department managers.
D) The allocation may imply changes in efficiency that are unrelated to center performance.

Accepted Answer

The recommendation violates GAAP (Generally Accepted Accounting Principles) which means that it is not in compliance with standard accounting practices. Therefore, it cannot be accepted as a valid allocation method.

Question 7

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each. These salaries should be classified as:
A) Common fixed cost.
B) Variable cost.
C) Committed fixed cost.
D) Controllable fixed cost.

Accepted Answer

The answer of The Akron factory employs two quality control...

Question 8

A responsibility income statement generally does not show the:
A) Contribution margin of each responsibility center.
B) Traceable fixed costs allocated to each responsibility center.
C) Segment margin of each responsibility center.
D) Net income of each responsibility center.

Accepted Answer

A responsibility income statement is used to analyze the profitability of different segments or responsibility centers within an organization. It typically shows the contribution margin and traceable fixed costs allocated to each responsibility center, as well as the segment margin, which represents the profit or loss of each center before common costs are allocated. However, the responsibility income statement does not show the net income of each responsibility center, as this information would be included in the overall income statement of the organization.

Question 9

The company's CEO must decide which of the three factories to expand in order to increase productive capacity. She should be most interested in the:
A) Sales of each factory.
B) Contribution margin at each factory.
C) Fixed costs traceable to each factory.
D) Responsibility margins of each factory.

Accepted Answer

The answer of The company's CEO must decide which of...

Question 10

All of the following costs are traceable to specific sales departments except:
A) Cost of goods sold.
B) Depreciation of equipment and fixtures used in the department.
C) Advertising a special sale in a particular department.
D) The salary of the store manager.

Accepted Answer

The salary of the store manager is not traceable to specific sales departments because it is a general expense that benefits the entire store, not just one department.

Question 11

Sloan Sporting Goods has stores in four geographic regions. Each region has at least 20 stores. In the company's responsibility accounting system, sales are recorded separately for each sales department within each store. The total sales for a particular region are determined by:
A) Combining the total sales of all stores in that region.
B) Using a separate revenue account to record the sales transaction for each region.
C) Taking a percentage of the company's total sales that is equal to the percentage of the company's stores located in that region.
D) Adding together the sales tickets for all sales transactions in the region.

Accepted Answer

The best choice is to combine the total sales of all stores in that region to determine the total sales for that region. This allows for accurate tracking of sales performance within each region and provides a clear picture of the overall sales performance of the company. Using separate revenue accounts for each region or taking a percentage of the company's total sales would not provide enough detail or accuracy in tracking sales within each region. Adding together the sales tickets for all sales transactions in the region would also not be practical as it would be time-consuming and difficult to track for a large number of stores.

Question 12

In a responsibility accounting system, the recording of revenue and costs begins with the:
A) Most profitable segments of the business.
B) Least profitable segments of the business.
C) Broadest areas of managerial responsibility.
D) Smallest areas of managerial responsibility.

Accepted Answer

In a responsibility accounting system, revenue and costs are recorded starting with the smallest areas of managerial responsibility, such as individual departments or cost centers, to ensure accountability and accurate performance evaluation.

Question 13

The responsibility margin is calculated by:
A) Subtracting fixed costs traceable to a center from its contribution margin.
B) Subtracting common fixed costs from the contribution margin.
C) Subtracting variable costs from sales.
D) Subtracting common fixed costs from variable costs.

Accepted Answer

The responsibility margin is calculated by subtracting fixed costs that are traceable to a center from its contribution margin. This helps in evaluating the performance of a profit or investment center by considering only the revenues and costs directly under the control of the center's manager.

Question 14

In a responsibility income statement, the term common fixed costs describes fixed costs that:
A) Occur every month.
B) Jointly benefit several responsibility centers of the business.
C) Occur in virtually every responsibility center of the business (such as salaries).
D) Are easily traceable to specific profit centers.

Accepted Answer

Common fixed costs are fixed costs that benefit more than one responsibility center of the business. These costs cannot be easily allocated to a specific profit center, and are not limited to occurring every month. Examples may include rent for a building used by multiple departments or salaries for executives who oversee multiple divisions.

Question 15

Depreciation of the fixtures and equipment used exclusively in a particular sales department should be classified as a:
A) Common fixed cost.
B) Variable cost.
C) Controllable fixed cost.
D) Committed fixed cost.

Accepted Answer

Depreciation of fixtures and equipment is a committed fixed cost because it is necessary for the department's operations and cannot be easily altered in the short term. This cost stays constant in the short-run regardless of changes in sales volume.

Question 16

The monthly salaries of the employees of the store's Accounting Department should be classified as a:
A) Common fixed cost.
B) Traceable fixed cost.
C) Committed fixed cost.
D) Controllable fixed cost.

Accepted Answer

The salaries of the employees of the Accounting Department are common fixed costs as they cannot be directly traced to any one sales department and are incurred regardless of the level of sales activity.

Question 17

The concept of contribution margin applies:
A) Only to investment centers.
B) Only to profit centers.
C) Only to cost centers.
D) To all types of responsibility centers.

Accepted Answer

The answer of The concept of contribution margin applies:
A) Only...

Question 18

The most common value used for transfer pricing is:
A) Total variable costs.
B) Total fixed and variable costs.
C) Market value less fixed costs.
D) Market value.

Accepted Answer

The most common value used for transfer pricing is market value. This is because it reflects the true economic value of the goods or services being transferred between related parties. Additionally, market value is typically the easiest value to determine and is less likely to be challenged by tax authorities.

Question 19

Depreciation on the factory would be an example of a:
A) Controllable fixed cost.
B) Period cost.
C) Responsibility cost.
D) Committed fixed cost.

Accepted Answer

Depreciation on the factory is a committed fixed cost because it is a long-term investment that cannot be easily adjusted or canceled.

Question 20

The contribution margin is calculated by:
A) Subtracting fixed costs from sales.
B) Subtracting variable costs from sales.
C) Subtracting fixed and variable costs from sales.
D) Subtracting common costs from sales.

Accepted Answer

Contribution margin is the amount of revenue remaining after subtracting the variable costs. It is used to determine the amount of revenue available to cover fixed costs and to generate a profit.

Quiz 22: Responsibility Accounting and Transfer Pricing

All of the following costs are traceable to a specific factory except:

The cost of heating and air conditioning the store should be:

Responsibility margin is equal to:

Of the following, which should be classified as a common fixed cost?

In preparing a responsibility income statement that shows contribution margin and responsibility margin, two concepts are involved in allocating costs to the various centers. These concepts are:

Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each. These salaries should be classified as:

A responsibility income statement generally does not show the:

The company's CEO must decide which of the three factories to expand in order to increase productive capacity. She should be most interested in the:

All of the following costs are traceable to specific sales departments except:

Sloan Sporting Goods has stores in four geographic regions. Each region has at least 20 stores. In the company's responsibility accounting system, sales are recorded separately for each sales department within each store. The total sales for a particular region are determined by:

In a responsibility accounting system, the recording of revenue and costs begins with the:

The responsibility margin is calculated by:

In a responsibility income statement, the term common fixed costs describes fixed costs that:

Depreciation of the fixtures and equipment used exclusively in a particular sales department should be classified as a:

The monthly salaries of the employees of the store's Accounting Department should be classified as a:

The concept of contribution margin applies:

The most common value used for transfer pricing is:

Depreciation on the factory would be an example of a:

The contribution margin is calculated by: