Question 1

An investment center:
A)Is a profit center for which management is able to objectively measure the cost of the assets used in the center's operations.
B)Is a cost center for which management is able to identify the original amount invested.
C)May be either a cost center or a profit center.
D)Is a subunit of the organization that provides services to other centers within the organization.

Accepted Answer

An investment center is a profit center where management can objectively measure the cost of the assets used in the center's operations. This implies that the center is responsible for earning revenue and managing the assets or investments that the organization has made in it, which can be objectively evaluated by management.

Question 2

The bookstore of a university would be considered:
A)A cost center.
B)A profit center.
C)An investment center.
D)A revenue center.

Accepted Answer

A profit center is responsible for generating revenue and profits for the organization. As a bookstore, it is expected to generate profits from the sales of books, school supplies, and other merchandise. Therefore, a university bookstore is considered a profit center.

Question 3

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse,New York.Carrier should evaluate its Syracuse plant as:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)A committed center.

Accepted Answer

The Syracuse plant should be evaluated as an investment center because it produces a product and generates revenue. As an investment center, it can be evaluated based on its profits and return on investment.

Question 4

The transfer price is the dollar amount used in recording sales to primary customers.

Accepted Answer

The transfer price is the dollar amount used in recording sales between different divisions or segments within the same company, not to primary customers.

Question 5

When an external market exists for a transferred product or service,most companies use either negotiated transfer prices or cost-plus transfer prices.

Accepted Answer

The answer of When an external market exists for a...

Question 6

A responsibility accounting system measures the performance of each of the following centers except:
A)Profit center.
B)Investment center.
C)Control center.
D)Cost center.

Accepted Answer

A responsibility accounting system measures the performance of profit centers, investment centers, and cost centers. Control centers are internal departments responsible for monitoring and ensuring the integrity of financial and operational data, but they do not generate revenue or incur costs directly. Therefore, they are not included in a responsibility accounting system.

Question 7

The primary difference between profit centers and cost centers is that:
A)Profit centers generate revenue.
B)Cost centers incur costs.
C)Profit centers are evaluated using return on investment criteria.
D)Profit centers provide services to other centers in the organization.

Accepted Answer

Profit centers generate revenue, while cost centers incur costs. Profit centers are evaluated based on their ability to generate profits for the organization, often using return on investment criteria. Cost centers, on the other hand, are evaluated based on their ability to control costs and provide necessary services or support to other areas of the organization.

Question 8

One of the unique services provided by San Francisco's St.Francis Hotel is cleaning and polishing coins (pocket change)for the guests.From the standpoint of hotel management,this "money laundry" should be viewed as:
A)A contribution center.
B)A cost center.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

This service is a cost center because it incurs costs to the hotel without directly generating revenue or profits. It's a complimentary service aimed at enhancing guest satisfaction rather than a source of income.

Question 9

An example of a profit center is:
A)The accounting department in a manufacturing company.
B)The maintenance department of a university.
C)The furniture department of a retail department store.
D)The human resources department in a hospital.

Accepted Answer

The furniture department of a retail department store is a profit center because its main purpose is to generate sales and profit through the sale of furniture products. The accounting department, maintenance department, and human resources department are all cost centers, which provide support to functional areas but do not generate revenue directly.

Question 10

The part of a business a particular manager is held responsible for is called a:
A)Cost center.
B)Profit center.
C)Investment center.
D)Responsibility center.

Accepted Answer

Responsibility center is the part of a business that a particular manager is held responsible for. Cost center and profit center are types of responsibility centers, while investment center is a broader category that includes both cost and profit centers.

Question 11

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation.Thomas should be evaluated as manager of:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)Human resources under his supervision.

Accepted Answer

As the manager of materials movement, John Thomas is responsible for controlling costs associated with the movement of materials, which makes his area a cost center. This is because his primary responsibility is to manage and minimize costs without direct responsibility for generating revenue or investment decisions.

Question 12

Disneyland is one of several theme parks owned by The Walt Disney Company.Disneyland should be evaluated as:
A)An investment center.
B)A cost center.
C)An entertainment center.
D)A profit center (other than an investment center).

Accepted Answer

Disneyland is a profit center because it generates revenue and incurs costs, and its performance is evaluated based on its profitability.

Question 13

Which of the following is not a valid reason for developing responsibility center information?
A)Responsibility center information is useful in deciding how to allocate resources among segments of the business.
B)Separately measuring the revenue and expenses of each responsibility center is a necessary step in developing financial statements for the business entity viewed as a whole.
C)Responsibility center information is useful in evaluating the performance of segment managers.
D)Responsibility center information helps management to quickly identify sections of the business that are performing poorly.

Accepted Answer

Separately measuring the revenue and expenses of each responsibility center is not a valid reason for developing responsibility center information, as it is not a necessary step in developing financial statements for the business entity viewed as a whole. Financial statements can be prepared without separately measuring revenue and expenses for each responsibility center.

Question 14

Disneyland charges visitors for admission to the park but not for individual rides or attractions."Splash Mountain" is one of the rides in Disneyland.The Walt Disney Company should evaluate "Splash Mountain" as:
A)A revenue center.
B)A cost center.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

"Splash Mountain" does not generate revenue directly since Disneyland charges a general admission fee rather than for individual rides. It is considered a cost center because it incurs costs for operation and maintenance, and its performance can be evaluated based on how efficiently it manages those costs.

Question 15

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 management responsibility.
D)Smallest areas of management responsibility.

Accepted Answer

In a responsibility accounting system, the recording of revenue and costs begins with the smallest areas of management responsibility, allowing for detailed tracking and accountability at the most granular level.

Question 16

Cost centers are evaluated primarily on the basis of their ability to control costs and:
A)Their return on assets.
B)Residual income.
C)The quantity and quality of the services they provide.
D)Their contribution margin ratio.

Accepted Answer

Cost centers are evaluated primarily on their ability to control costs while still providing high-quality services. The focus is not on generating income or maximizing profits, but rather on efficiently managing resources to provide value to the organization. Therefore, option C - the quantity and quality of the services they provide, is the best choice. A, B, and D are incorrect as they focus on financial performance measures that are not applicable to cost centers.

Question 17

San Francisco's famous St.Francis Hotel is owned by Westin Hotel and Resort Group.Westin should evaluate the St.Francis as:
A)A cost center.
B)A historical landmark.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

As the St. Francis Hotel is a part of Westin Hotel and Resort Group's portfolio of properties, it should be evaluated as an investment center, meaning that its financial performance and potential for future growth should be closely monitored and analyzed. This will help Westin make informed decisions about allocating resources and investing in the property to maximize returns.

Question 18

The human resources department of a large company would be considered:
A)A cost center.
B)A profit center.
C)An investment center.
D)A revenue center.

Accepted Answer

The human resources department is typically considered a cost center because it incurs expenses related to employee salaries, benefits, and training. Its activities focus on managing and supporting employees, which do not directly generate revenue for the company.

Question 19

Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating Products divisions.The management of the Syracuse plant should evaluate the Heating Products division as:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)A revenue center.

Accepted Answer

The Heating Products division is a profit center because it is responsible for generating profits.

Question 20

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is:
A)Responsible for earning a specified amount of profit.
B)Responsible for all business operations in a specific region.
C)Under the control of a specified center manager.
D)Approximately the same size.

Accepted Answer

Responsibility centers are defined so that each center has a manager or a leader who is responsible for the activities and performance of that center. This allows for accountability and control within different parts of an organization.

Quiz 22: Responsibility Accounting and Transfer Pricing

An investment center:

The bookstore of a university would be considered:

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse,New York.Carrier should evaluate its Syracuse plant as:

The transfer price is the dollar amount used in recording sales to primary customers.

When an external market exists for a transferred product or service,most companies use either negotiated transfer prices or cost-plus transfer prices.

A responsibility accounting system measures the performance of each of the following centers except:

The primary difference between profit centers and cost centers is that:

One of the unique services provided by San Francisco's St.Francis Hotel is cleaning and polishing coins (pocket change) for the guests.From the standpoint of hotel management,this "money laundry" should be viewed as:

An example of a profit center is:

The part of a business a particular manager is held responsible for is called a:

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation.Thomas should be evaluated as manager of:

Disneyland is one of several theme parks owned by The Walt Disney Company.Disneyland should be evaluated as:

Which of the following is not a valid reason for developing responsibility center information?

Disneyland charges visitors for admission to the park but not for individual rides or attractions."Splash Mountain" is one of the rides in Disneyland.The Walt Disney Company should evaluate "Splash Mountain" as:

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

Cost centers are evaluated primarily on the basis of their ability to control costs and:

San Francisco's famous St.Francis Hotel is owned by Westin Hotel and Resort Group.Westin should evaluate the St.Francis as:

The human resources department of a large company would be considered:

Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating Products divisions.The management of the Syracuse plant should evaluate the Heating Products division as:

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is: