Question 1

Effective decentralization is essential for which of the following management accounting practices in organizations?

Accepted Answer

Segment reporting involves the decentralization of decision-making and the delegation of responsibilities to individual business units or segments. Effective decentralization is essential to ensure that segment managers have the authority and flexibility to make decisions that are in the best interests of their segment and the organization as a whole, without undue interference or micromanagement from senior management. Break-even analysis, product costing, and activity-based costing can also benefit from decentralization, but they are not as directly dependent on it as segment reporting.

Question 2

Which of the following would be classified as an appraisal cost on a quality cost report?

Accepted Answer

Supervision of testing and inspection activities is a cost incurred to ensure that products meet quality standards, thus it falls under the category of appraisal costs on a quality cost report. The other options such as systems development, quality engineering, and quality training are all prevention costs as they are directed at preventing defects rather than identifying them.

Question 3

Which of the following would be classified as a prevention cost on a quality cost report?

Accepted Answer

Technical support provided to suppliers would be classified as a prevention cost because it aims to prevent quality issues from occurring in the first place, by helping suppliers to improve their own manufacturing processes.

Question 4

An increase in appraisal costs will usually result in an increase in which of the following?

Accepted Answer

An increase in appraisal costs typically leads to a decrease in internal failure costs because more resources are spent on detecting defects before products leave the manufacturing process, thus reducing the occurrence of failures that would have been more costly to fix once the product is in the hands of the customer or has been shipped.

Question 5

Consider the following three statements:
I.A profit centre has control over both cost and revenue.
II.An investment centre has control over invested funds,but not over costs and revenue.
III.A cost centre has no control over sales.
Which statement(s)is/are correct?

Accepted Answer

I is correct because a profit centre indeed has control over both costs and revenues, aiming to maximize profit. III is correct because a cost centre focuses on controlling costs and does not handle sales, thus having no control over revenue. II is incorrect because an investment centre has control over costs, revenues, and invested funds, aiming to optimize the return on investment.

Question 6

Which of the following best describes a segment of a business responsible for both revenues and costs?

Accepted Answer

A profit center is a segment of a business responsible for both generating revenue and incurring costs. This means that the performance of a profit center is measured by the profitability of its operations. Profit centers have decision-making autonomy and are responsible for determining their own pricing, marketing, and production strategies. They are also responsible for controlling their own costs and managing their own assets.

Question 7

Which of the following statements about the step-down method of allocating service department is correct?

Accepted Answer

The step-down method allocates service department costs to other service departments and production departments, but it does not fully account for interdepartmental services among service departments, as it allocates costs sequentially and not reciprocally.

Question 8

Which of the following would be classified as an appraisal cost on a quality cost report?

Accepted Answer

Test and inspection of in-process goods is a preventive measure to avoid quality problems and is therefore classified as an appraisal cost on a quality cost report. Returns and allowances arising from quality problems, downtime caused by quality problems, and cost of field servicing and handling complaints are all examples of failure costs.

Question 9

Which of the following would be classified as a prevention cost on a quality cost report?

Accepted Answer

Quality data gathering, analysis, and reporting is a prevention cost because it is a cost incurred to prevent defects or problems from occurring in the first place. It is aimed at identifying defects at an early stage and taking corrective actions to prevent them. Lost sales arising from a reputation for poor quality are an example of an external failure cost, final product testing and inspection is an example of an appraisal cost, and net cost of spoilage is an example of an internal failure cost.

Question 10

Which of the following statements about reciprocal service department costs is correct?

Accepted Answer

Reciprocal service department costs are allocated to producing departments under both the direct and step-down methods. The difference lies in the sequence of allocation, with the step-down method considering the costs of service departments that have already allocated costs to other service departments before allocating them to producing departments.

Question 11

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?

Accepted Answer

The lowest acceptable transfer price for the selling division is the market price charged to outside customers, less any costs saved by transferring internally. This ensures that the selling division is not losing out on potential profits from outside customers and is being fairly compensated for the product being transferred. The variable cost of producing a unit of product (A) does not take into account fixed costs and may not be sufficient to cover all expenses. The full absorption cost of producing a unit of product (B) includes fixed costs but may result in a price that is too high for the purchasing division. The amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use (D) may not accurately reflect the value of the internally transferred product.

Question 12

Which of the following would be classified as a prevention cost on a quality cost report?

Accepted Answer

Systems development is a cost incurred to prevent quality issues from occurring in the first place. Prevention costs are those costs incurred to prevent quality problems or other failures from occurring. Examples of prevention costs include employee training, equipment maintenance, quality planning, and process improvement initiatives, among others. The other choices listed (A, B, and D) are considered appraisal costs or internal and external failure costs.

Question 13

Parker Company has two service departments-cafeteria and engineering-and two operating departments.The number of employees in each department is given below:
$\begin{array}{|l|r|}
\hline \text { Cafeteria } & 10 \
\hline \text { Engineering } & 40 \
\hline \text { Operating Department 1 } & 500 \
\hline \text { Operating Department 2 } & 200 \
\hline
\end{array}$
The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments.If these costs are budgeted at $69,375,what would be the amount of cost allocated to Engineering under the direct method?

Accepted Answer

Under the direct method, service department costs are allocated only to operating departments, not to other service departments. Therefore, no costs are allocated to Engineering.

Question 14

The performance of the manager of Division A is evaluated by residual income.Which of the following would improve the manager's performance?

Accepted Answer

Residual income is calculated as the operating income minus the product of the minimum required return and the average operating assets. A decrease in average operating assets, while keeping other factors constant, would increase the residual income, thus improving the manager's performance.

Question 15

Which of the following statements about quality costs is correct?

Accepted Answer

Quality costs are not limited to the manufacturing process and are not solely related to appraisal activities. Quality costs include prevention costs, appraisal costs, and internal and external failure costs, and they occur across departmental lines. However, these costs are often not accumulated and reported to management, which can hinder efforts to improve quality and reduce costs.

Question 16

Boa Corp.uses the direct method to allocate service department overhead costs to operating departments.Information for the month of June follows:
$\begin{array}{|l|r|r|} 
\hline& \begin{array}{r}
\text { Service } \
\text { Maintenance }
\end{array} & \text { Departments Utilities } \
\hline \text { Departmental cost incurred } & \$ 20,000 & \$ 10,000 \
\hline \text { Service provided to departments: } & & \
\hline \text { Maintenance } & & 10 \% \
\hline \text { Utilities } & 20 \% & \
\hline \text { Operating - A } & 40 \% & 30 \%  \
\hline \text { Operating - B } & 40 \% &60 \% \
\hline
\end{array}$
What would be the amount of maintenance department costs allocated to Operating Department A for June?

Accepted Answer

The answer of  Boa Corp.uses the direct method to...

Question 17

What allocation method recognizes that service departments often provide each other with interdepartmental services,and it is therefore considered to be the most accurate method for allocating service department costs to operating departments?

Accepted Answer

The reciprocal method recognizes that service departments provide each other with interdepartmental services and considers such services when allocating service department costs to operating departments. This makes it the most accurate method for allocating service department costs to operating departments compared to the direct method or the step-down method. The allocation by cost behaviour method is not relevant to the allocation of service department costs to operating departments.

Question 18

Grant Company has several service departments that provide services to each other as well as to operating departments within the company.Which method would be least accurate in allocating the company's service department costs?

Accepted Answer

The direct method is the least accurate method for allocating service department costs because it allocates all service costs directly to the operating department without considering the services provided by other service departments. This can lead to inaccurate allocations and cross-subsidization. The best choice is either the step-down or reciprocal method, which take into account the services provided by other service departments and result in more accurate cost allocations.

Question 19

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions.What major disadvantage of this method should the company consider before deciding to institute it?

Accepted Answer

Residual income does not account for the size of divisions, which means larger divisions might naturally have higher residual incomes, making it difficult to compare performance across divisions of different sizes.

Question 20

Suppose a manager's performance is to be evaluated by residual income.Which of the following will NOT result in an increase in the residual income figure for this manager,assuming other factors remain constant?

Accepted Answer

An increase in the minimum required rate of return would actually decrease the residual income figure, as it increases the cost of capital and reduces the amount of residual income available to the manager. A, C, and D would all increase the residual income figure by increasing the net operating income or reducing the amount of operating assets required to generate that income.

Quiz 11: Reporting for Control

Effective decentralization is essential for which of the following management accounting practices in organizations?

Which of the following would be classified as an appraisal cost on a quality cost report?

Which of the following would be classified as a prevention cost on a quality cost report?

An increase in appraisal costs will usually result in an increase in which of the following?

Consider the following three statements: I.A profit centre has control over both cost and revenue. II.An investment centre has control over invested funds,but not over costs and revenue. III.A cost centre has no control over sales. Which statement(s) is/are correct?

Which of the following best describes a segment of a business responsible for both revenues and costs?

Which of the following statements about the step-down method of allocating service department is correct?

Which of the following would be classified as an appraisal cost on a quality cost report?

Which of the following would be classified as a prevention cost on a quality cost report?

Which of the following statements about reciprocal service department costs is correct?

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?

Which of the following would be classified as a prevention cost on a quality cost report?

The performance of the manager of Division A is evaluated by residual income.Which of the following would improve the manager's performance?

Which of the following statements about quality costs is correct?

What allocation method recognizes that service departments often provide each other with interdepartmental services,and it is therefore considered to be the most accurate method for allocating service department costs to operating departments?

Grant Company has several service departments that provide services to each other as well as to operating departments within the company.Which method would be least accurate in allocating the company's service department costs?

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions.What major disadvantage of this method should the company consider before deciding to institute it?

Suppose a manager's performance is to be evaluated by residual income.Which of the following will NOT result in an increase in the residual income figure for this manager,assuming other factors remain constant?