Question 1

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)Variable costs 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 2

[The following information applies to the questions displayed below.]
Patterson's Department Store prepares monthly income statements by sales departments.These income statements are organized to show contribution margin,performance margin,and responsibility margin for each sales department,as well as operating income for the store as a whole.
-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

The answer of [The following information applies to the questions...

Question 3

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 4

Many companies view performance margin as a more useful tool than responsibility margin for evaluating segment managers.This is because:
A)Managers have no control over traceable fixed costs.
B)Performance margin is not affected by the size of the department.
C)Performance margin indicates the change in operating income that would result from closing the department.
D)Performance margin includes only those revenue and costs under the manager's direct control.

Accepted Answer

Performance margin includes only revenue and costs that are directly under the control of the manager, making it a better tool for evaluating their performance. Responsibility margin includes both traceable and common fixed costs, which are not directly under the control of the manager. Therefore, option A is incorrect. The size of the department may still affect performance margin, so option B is also incorrect. While performance margin does indicate the change in operating income if the department were closed, this is not necessarily why it is viewed as a more useful tool. Therefore, option C is also incorrect.

Question 5

The most common value used for transfer pricing is:
A)Total fixed 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 value reflects the fair price that one division or subsidiary of a company would pay another division or subsidiary for goods or services that are being transferred between them. Using market value as the transfer price ensures that both parties are treated fairly and the transaction reflects the true economic value of the goods or services being exchanged.

Question 6

If a company wanted to evaluate the manager's ability to control costs,the company would probably look at the:
A)Performance margin.
B)Responsibility margin.
C)Contribution margin.
D)Segment margin.

Accepted Answer

The answer of If a company wanted to evaluate the...

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

Accounting terminology
Listed below are seven technical accounting terms introduced or emphasized in this chapter:
  Each of the following statements may (or may not)describe one of these technical terms.In the space provided beside each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms.
________ (a)Costs that jointly benefit several responsibility centers of the business and that do not vary significantly with changes in sales volume.
________ (b)The amount charged by a responsibility center for the goods it sells to another responsibility center.
________ (c)Used to evaluate the performance of a manager based solely on revenue and costs under the manager's control.
________ (d)A responsibility center of a business that may be evaluated by the return earned on assets.
________ (e)The subtotal in a responsibility income statement that is most useful in evaluating the short-term effects of various marketing strategies on profitability.

Accepted Answer

The answer of Accounting terminology
Listed below are seven technical accounting...

Question 9

Preparation of responsibility income statements
Hal-Marts' Inc.has two sales departments: equipment and clothing.During February,these two departments reported the following operating results:
  In addition,fixed costs common to both departments amounted to $54,400.
Complete the following responsibility income statement for Hal-Marts,Inc.Follow the contribution margin approach,and show percentages as well as dollar amounts.Conclude your income statement with the company's income from operations.(Round your percentage computations to nearest whole percent)
HAL-MARTS,INC
Income Statement by Product Lines
For the Month Ended February 28,20__

Accepted Answer

The answer of Preparation of responsibility income statements
Hal-Marts' Inc.has two...

Question 10

Division X supplies partially completed units of product to division Y.The divisions negotiated a price of $30 plus 20% per unit.Assuming Division X completed and transferred 5,000 units to division Y,the total transfer price on this transaction is:
A)$180,000.
B)$120,000.
C)$150,000.
D)$5,000.

Accepted Answer

The transfer price per unit is $30 plus 20% of $30, which is $30 + $6 = $36. For 5,000 units, the total transfer price is 5,000 units * $36/unit = $180,000.

Question 11

In deciding how the store will benefit most from increasing the sales of selected departments,the store manager should be most interested in the:
A)Total sales of each department.
B)Contribution margin ratios of each department.
C)Fixed costs traceable to each department.
D)Responsibility margins of each department.

Accepted Answer

The contribution margin ratio, which is the difference between a department's sales revenue and variable costs divided by sales revenue, is a measure of how much each department contributes to covering the store's fixed costs and generating profit. By understanding the contribution margin ratio of each department, the store manager can make informed decisions about which departments to focus on increasing sales in order to maximize overall profitability.

Question 12

In the short run,the greatest increase in profitability will result from increasing sales in those profit centers with the:
A)Highest performance margins.
B)Lowest traceable fixed costs.
C)Highest contribution margin ratios.
D)Highest responsibility margins.

Accepted Answer

In the short run, increasing sales in profit centers with the highest contribution margin ratios will result in the greatest increase in profitability. This is because contribution margin is the difference between sales and variable costs, meaning that a higher contribution margin ratio indicates that a greater proportion of each dollar of sales goes towards covering fixed costs and generating profit. Therefore, increasing sales in profit centers with high contribution margin ratios will have a greater impact on overall profitability.

Question 13

Business units
(a)Define what is meant by each of the following: profit center,investment center,and cost center.Your answer should make clear the distinction between each of these types of centers.
(b)Briefly describe the criteria used to evaluate each of the three types of centers listed in part a.

Accepted Answer

The answer of Business units
(a)Define what is meant by each...

Question 14

The dollar amount used by one division which supplies a good or a service to another division within a company is called a:
A)Market price.
B)Transfer price.
C)Fair price.
D)Agreed-upon price.

Accepted Answer

The dollar amount used by one division which supplies a good or a service to another division within a company is called a transfer price. This price is agreed upon by the two divisions and is often used for internal accounting purposes. It may or may not be the same as the market price or fair price, but it is an agreed-upon price between the two divisions.

Question 15

[The following information applies to the questions displayed below.]
Patterson's Department Store prepares monthly income statements by sales departments.These income statements are organized to show contribution margin,performance margin,and responsibility margin for each sales department,as well as operating income for the store as a whole.
-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 16

Company MHF operates subsidiaries in two countries.One of the subsidiaries consumes the output of the other in the production of a good for sale to the public.The company could increase cash flows by:
A)Using a transfer price based on full cost.
B)Using a transfer price to transfer as much income as possible to the subsidiary located in the lower tax country.
C)Using a transfer price based on market value.
D)Using a transfer price to transfer as much income as possible to the subsidiary located in the higher tax country.

Accepted Answer

Transfer pricing strategies that shift income to lower tax jurisdictions can help multinational companies reduce their overall tax burden, thereby increasing cash flows. By setting a transfer price that moves as much income as possible to the subsidiary in the lower tax country, the company can lower its total tax expense.

Question 17

Division managers at Colonial Company are paid a bonus based on the responsibility margin of their respective responsibility centers.Division A sells goods to Division B and to outside customers.The manager of Division B would most likely prefer that transfer prices be based on:
A)The market value of the goods purchased from Division A.
B)The market value of the goods purchased from Division A plus a fixed percentage.
C)The cost of the goods purchased from Division A.
D)The cost of the goods purchased from Division A plus a fixed percentage.

Accepted Answer

The manager of Division B would most likely prefer that transfer prices be based on the cost of the goods purchased from Division A. This preference is because basing transfer prices on cost minimizes the transfer price, potentially increasing Division B's responsibility margin, which is beneficial for the manager's bonus.

Question 18

Division X supplies partially completed units of product to division Y.The divisions negotiated a price of $30 per unit.Assuming Division X completed and transferred 3,000 units to division Y,the total transfer price on this transaction is:
A)$30,000.
B)$60,000.
C)$90,000.
D)$3,000.

Accepted Answer

The total transfer price is calculated by multiplying the price per unit ($30) by the number of units transferred (3,000), which equals $90,000.

Question 19

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 specifically related to the operations of a single factory and therefore cannot be traced back to a specific factory. The other options are all costs that can be attributed to a specific factory.

Question 20

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 company's income statements.

Accepted Answer

Classified as a common fixed cost.

Quiz 22: Responsibility Accounting and Transfer Pricing

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:

Many companies view performance margin as a more useful tool than responsibility margin for evaluating segment managers.This is because:

The most common value used for transfer pricing is:

If a company wanted to evaluate the manager's ability to control costs,the company would probably look at the:

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

Division X supplies partially completed units of product to division Y.The divisions negotiated a price of $30 plus 20% per unit.Assuming Division X completed and transferred 5,000 units to division Y,the total transfer price on this transaction is:

In deciding how the store will benefit most from increasing the sales of selected departments,the store manager should be most interested in the:

In the short run,the greatest increase in profitability will result from increasing sales in those profit centers with the:

The dollar amount used by one division which supplies a good or a service to another division within a company is called a:

Company MHF operates subsidiaries in two countries.One of the subsidiaries consumes the output of the other in the production of a good for sale to the public.The company could increase cash flows by:

Division managers at Colonial Company are paid a bonus based on the responsibility margin of their respective responsibility centers.Division A sells goods to Division B and to outside customers.The manager of Division B would most likely prefer that transfer prices be based on:

Division X supplies partially completed units of product to division Y.The divisions negotiated a price of $30 per unit.Assuming Division X completed and transferred 3,000 units to division Y,the total transfer price on this transaction is:

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

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