Question 1

Service department charges are similar to the expenses that would be incurred if the profit center purchased the services from outside the company.

Accepted Answer

A) True 
 B)False

Question 2

How much would Division A's income from operations increase?

Accepted Answer

A)  $175,000
B)  $70,000
C)  $105,000
D)  $75,000E) A) and B)
F) None of the above

Question 3

Property tax expense for a department store's store equipment is an example of a direct expense.

Accepted Answer

A) True 
 B)False

Question 4

PDT Co.has two divisions,East and West.Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:

Accepted Answer

(a) PDT Co. Divisional Income Statements...

Question 5

If divisional income from operations is $75,000,invested assets are $637,500,and the minimum rate of return on the invested assets is 6%,the residual income calculated would be $36,750.

Accepted Answer

A) True 
 B)False

Question 6

Responsibility accounting reports for profit centers will include:

Accepted Answer

A)  only costs.
B)  only revenues.
C)  both expenses and fixed assets.
D)  revenues,expenses,and net income or loss from operations.E) B) and D)
F) A) and B)

Question 7

Sales commissions expense for a department store is an example of a direct expense.

Accepted Answer

A) True 
 B)False

Question 8

The major advantage of using the rate of return on investment over income from operations as a divisional performance measure is that,divisional investment is directly considered and thus comparability of divisions is facilitated.

Accepted Answer

A) True 
 B)False

Question 9

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

Accepted Answer

A) True 
 B)False

Question 10

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

Accepted Answer

A)  miscellaneous administrative expenses.
B)  indirect expenses.
C)  direct expenses.
D)  variable expenses.E) None of the above
F) A) and D)

Question 11

For higher levels of management,responsibility accounting reports:

Accepted Answer

A)  are more detailed than for lower levels of management.
B)  are more summarized than for lower levels of management.
C)  contain almost the same level of detail as reports for lower levels of management.
D)  are rarely provided or reviewed.E) A) and D)
F) A) and B)

Question 12

Which of the following is not a approach used for setting transfer prices?

Accepted Answer

A)  Market price approach
B)  Revenue price approach
C)  Negotiated price approach
D)  Cost price approachE) None of the above
F) A) and D)

Question 13

The ratio of sales to invested assets is termed the investment turnover,a component of the rate of return on investment.

Accepted Answer

A) True 
 B)False

Question 14

Depreciation expense on store equipment for a department store is a direct expense.

Accepted Answer

A) True 
 B)False

Question 15

If the profit margin for a division is 11% and the investment turnover is 1.5,the rate of return on investment computed would be 16.5%.

Accepted Answer

A) True 
 B)False

Question 16

To calculate income from operations,total service department charges are:

Accepted Answer

A)  subtracted from income from operations before service department charges.
B)  subtracted from operating expenses.
C)  added to income from operations before service department charges.
D)  subtracted from gross profit margin.E) B) and C)
F) A) and D)

Question 17

The manager of the furniture department of a leading retailer does not have control on salaries of the department personnel.

Accepted Answer

A) True 
 B)False

Question 18

In a profit center,the manager has responsibility and authority for making decisions that affect:

Accepted Answer

A)  only costs.
B)  only assets.
C)  both costs and assets.
D)  both costs and revenues.E) None of the above
F) A) and C)

Question 19

Responsibility accounting reports for a profit center typically show:

Accepted Answer

A)  revenues,expenses,and profit controlled by the manager of the center.
B)  only the controllable revenues.
C)  revenues,expenses,profit,and investment in assets controlled by the manager of the center.
D)  all the investment in assets controlled by the manager of the center.E) None of the above
F) All of the above

Question 20

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

PDT Co.has two divisions,East and West.Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:

Correct Answerverified(a) PDT Co. Divisional Income Statements...View AnswerShow Answer

The ratio of sales to invested assets is termed the investment turnover,a component of the rate of return on investment.

Correct AnswerverifiedShow Answer

In a profit center,the manager has responsibility and authority for making decisions that affect:

Correct AnswerverifiedShow Answer

Property tax expense for a department store's store equipment is an example of a direct expense.

Correct AnswerverifiedShow Answer

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

Correct AnswerverifiedShow Answer

Which of the following is not a approach used for setting transfer prices?

Correct AnswerverifiedShow Answer

Responsibility accounting reports for a profit center typically show:

Correct AnswerverifiedShow Answer

How much would Division A's income from operations increase?

Correct AnswerverifiedShow Answer

The manager of the furniture department of a leading retailer does not have control on salaries of the department personnel.

Correct AnswerverifiedShow Answer

Responsibility accounting reports for profit centers will include:

Correct AnswerverifiedShow Answer

Service department charges are similar to the expenses that would be incurred if the profit center purchased the services from outside the company.

Correct AnswerverifiedShow Answer

For higher levels of management,responsibility accounting reports:

Correct AnswerverifiedShow Answer

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

Correct AnswerverifiedShow Answer

If the profit margin for a division is 11% and the investment turnover is 1.5,the rate of return on investment computed would be 16.5%.

Correct AnswerverifiedShow Answer

To calculate income from operations,total service department charges are:

Correct AnswerverifiedShow Answer

If divisional income from operations is $75,000,invested assets are $637,500,and the minimum rate of return on the invested assets is 6%,the residual income calculated would be $36,750.

Correct AnswerverifiedShow Answer

Sales commissions expense for a department store is an example of a direct expense.

Correct AnswerverifiedShow Answer

The major advantage of using the rate of return on investment over income from operations as a divisional performance measure is that,divisional investment is directly considered and thus comparability of divisions is facilitated.

Correct AnswerverifiedShow Answer

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

Correct AnswerverifiedShow Answer

Depreciation expense on store equipment for a department store is a direct expense.

Correct AnswerverifiedShow Answer

Correct Answer
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(a) PDT Co. Divisional Income Statements...
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