28 Dec • Compton Corporation,

ACC650 Managerial Accounting

Week 6 Quiz

• Which of the following would have a low likelihood of being organized as a profit center?

• A movie theater of a company that operates a chain of theaters.

•A maintenance department that charges users for its services.

•A maintenance department that charges users for its services.

•The mayor’s office in a large city.

•Both the billing department of an Internet Services Provider (ISP) and the mayor’s office in a large city.

• Halpern Corporation is in the process of overhauling the performance evaluation system for its San Diego manufacturing division, which produces and sells parts that are popular in the aerospace industry. Which of the following is least likely to be chosen to evaluate the overall operations of the San Diego division?

•Cost center.

•Responsibility center.

•Profit center.

•Investment center.

•The profit center and investment center are equally unlikely to be chosen.

• Which of the following describes the goal that should be pursued when setting transfer prices?

•Maximize profits of the buying division.

•Maximize profits of the selling division.

•Allow top management to become actively involved when calculating the proper dollar amounts.

•Establish incentives for autonomous division managers to make decisions that are in the overall organization’s best interests (i.e., goal congruence).

•Minimize opportunity costs.

• Economic value added (EVA) analysis indicates:

•the amount of income generated by each dollar of capital investment.

•the number of sales dollars generated by each dollar of capital investment.

•the percentage of each sales dollar that remains as profit after all expenses are covered.

•the amount of increased capital generated by each dollar of income.

•how much shareholder wealth is being created.

• Crimson Industries is in the process of evaluating allocation bases so that selected costs can be charged to responsibility centers. Would the number of employees likely be a good base for allocating the costs of Human Resources, Building and Grounds, and Repairs and Maintenance to user centers?

•Human Resources: Yes

Buildings and Grounds: Yes

Repairs and Maintenace: Yes

•Human Resources: Yes

Buildings and Grounds: No

Repairs and Maintenace: Yes

•Human Resources: Yes

Buildings and Grounds: No

Repairs and Maintenace: No

•Human Resources: No

Buildings and Grounds: Yes

Repairs and Maintenace: Yes

•Human Resources: No

Buildings and Grounds: Yes

Repairs and Maintenace: No

• Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income. Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. On the basis of this information, X’s residual income was:

•$24,960.

•$36,000.

•$156,000.

•$192,000.

•None of the answers is correct.

• An allocation base for a cost pool should ideally be:

•machine hours.

•a cost object.

•a common cost.

•a cost driver.

•direct labor, either cost or hours.

• A division’s return on investment may be improved by increasing:

•cost of goods sold and expenses.

•sales margin and cost of capital.

•sales revenue and cost of capital.

•capital turnover or sales margin.

•capital turnover or cost of capital.

• Standard costs rather than actual costs should be used in transfer-pricing methods because:

•financial accounting rules (GAAP) require the use of standard costs.

•tax rules require the use of standard costs.

•standard costs are more readily available than actual costs.

•standard costs facilitate a professionally negotiated, amicable settlement between the buying and selling divisions.

•inefficient producing divisions could pass on their inefficiencies to buying divisions in the transfer price.

• Gulf Coast Enterprises (GCE) operates 87 stores and has three divisions: Florida, Georgia, and Alabama. Which of the following costs would not appear on Georgia’s portion of GCE’s segmented income statement?

•Costs related to statewide advertising contracts, negotiated by Georgia’s divisional manager.

•Variable sales commissions paid to Georgia’s salespeople.

•Compensation paid to Georgia’s chief operating officer, as determined by GCE’s management.

•Georgia’s allocated share of general GCE corporate overhead.

•Compensation paid to Georgia’s chief operating officer, as determined by GCE’s management and Georgia’s allocated share of general GCE corporate overhead.

• Distinguishing between controllable and noncontrollable costs on a performance report may result in:

•an increase in the effectiveness of a cost management system.

•a decrease in goal congruent behavior by managers.

•an increase in the quality of performance information.

•an increase in feelings of blame by managers.

•an increase in the effectiveness of a cost management system and an increase in the quality of performance information.

• If the head of a hotel’s food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a (n):

•cost center.

•revenue center.

•profit center.

•investment center.

•contribution center.

• Jamison Company had sales revenue and operating expenses of $5,000,000 and $4,200,000, respectively, for the year just ended. If invested capital amounted to $6,000,000, the firm’s ROI was:

•13.33%.

•83.33%.

•120.00%.

•750.00%.

•None of the answers is correct.

• A responsibility center in which the manager is held accountable for the profitable use of assets and capital is commonly known as a (n):

•cost center.

•revenue center.

•profit center.

•investment center.

•contribution center.

• Which of the following is an appropriate base to distribute the cost of building depreciation to responsibility centers?

•Number of employees in the responsibility centers.

•Budgeted sales dollars of the responsibility centers.

•Square feet occupied by the responsibility centers.

•Budgeted net income of the responsibility centers.

•Total budgeted direct operating costs of the responsibility centers.

• A revenue center manager:

•does not have the ability to produce revenue.

•may be involved with the sale of new marketing programs to clients.

•would normally be held accountable for producing an adequate return on invested capital.

•often oversees divisional operations.

•may be the manager who oversees the operations of a retail store.

• Cost pools should be charged to responsibility centers by using:

•budgeted amounts of allocation bases because the cost allocation to one responsibility center should influence the allocations to others.

•budgeted amounts of allocation bases because the cost allocation to one responsibility center should not influence the allocations to others.

•actual amounts of allocation bases because the cost allocation to one responsibility center should influence the allocations to others.

•actual amounts of allocation bases because the cost allocation to one responsibility center should not influence the allocations to others.

•some other approach.

• The profit margin controllable by the segment manager would not include:

•variable operating expenses.

•fixed expenses controllable by the segment manager.

•a share of the company’s common fixed expenses.

•income tax expense.

•a share of the company’s common fixed expenses and income tax expense

• The difference between the profit margin controllable by a segment manager and the segment profit margin is caused by:

•variable operating expenses.

•allocated common expenses.

•fixed expenses controllable by the segment manager.

•fixed expenses traceable to the segment but controllable by others.

•sales revenue.

• Compton Corporation, with operations throughout the country, will soon allocate corporate overhead to the firm’s various responsibility centers. Which of the following is definitely not a cost object in this situation?

•The maintenance department.

•Product no. 675.

•Compton Corporation.

•The Midwest division.

•The telemarketing center.