Ch 9 Flashcards
In responsibility accounting, unit managers are evaluated only on things that they can …
control
A department that incurs costs without generating revenues is considered a(n):
cost center
Match the center on the left with the center’s method of evaluation.
Cost center
Profit center
Investment center
Cost center: success in controlling actual costs compared to budgeted costs.
Profit center: sucess in generating revenue.
Investment center: success on use of assets to generate income.
A _____ center manager is evaluated on their success in generating income.
profit center
A department that incurs costs, generates revenues, and is responsible for effectively using department assets is considered a(n):
investment center
In responsibility accounting, unit managers are evaluated on:
costs they can control
An example of a cost that a department manager would not control is:
the manager’s own salary
The accounting department of a manufacturing company is a(n):
cost center
A cost that is not within a manager’s control or influence is called a(n) … cost.
uncontrollable
Each of the following are a type of responsibility accounting center:
profit
investment
cost
A department that is evaluated on their success in generating income is a(n):
profit center
The purpose of a responsibility accounting system is to provide information to: (Check all that apply.)
assign costs and expenses to the managers responsible for controlling them.
evaluate managers’ performance.
The manager of a certain division at Alpha Manufacturing is evaluated on how efficiently the division uses equipment, buildings, and other assets to generate profits. This division is considered a(n):
investment center
A responsibility accounting performance report contains which of the following items? (Check all that apply.)
A list of all controllable costs
Budgeted amounts
Actual amounts
A list of all controllable direct costs
The difference between actual and budgeted amounts
A cost that a manager can determine or influence is called a(n)
cost.
controllable
When comparing responsibility accounting performance reports for higher-level management to those of lower-level management, responsibility and control are ________ for upper-level management.
less detailed
A(n) _____ cost is not within the manager’s control or influence.
uncontrollable
Profit centers commonly use _____ to report profit center performance:
departmental income statements
A responsibility accounting system recognizes that control over costs and expenses belong to:
several levels of management
Reports to ______ managers are usually less detailed because they need to concentrate on the key issues.
upper-level
A responsibility accounting system provides: (Check all that apply.)
differences between budgeted and actual amounts
actual cost information
Determine if the following costs would be considered direct or indirect for a division which manufactures bicycles.
Property insurance
Depreciation on manufacturing equipment
Property insurance: indirect
Depreciation on manufacturing equipment: direct
Costs readily traced to a department because they are incurred for that department’s sole benefit are called … expenses.
direct
Decisions related to allocating expenses include: (Check all that apply).
how to allocate service department expenses
how to allocate indirect expenses
Costs that are incurred for the joint benefit of more than one department and cannot be readily traced to only one department are called … expenses.
Indirect
A(n) … accounting system provides information that management can use to evaluate a department’s manager.
responsibility
True or false: Standard rules exist to help managers identify appropriate allocation bases.
False
Which service department is most likely to use square feet of floor space occupied as the allocation base to assign its costs to operating departments?
Maintenance
True or false: Controllable costs are the same as direct costs.
False.
manager may or may not have control over all direct costs.
A retail store has 10,000 square feet of space and incurs rent costs of $5,000 per month. If Department A uses 2,000 square feet of space, the amount of rent allocated to the department will be $…
$1000
(2,000÷10,000)×5,000
Julie works in the production department. Julie’s wages are an example of ______ expenses for the production department.
direct
Departmental income statements include:
direct and indirect expenses
Jane works in the maintenance department which supports both the production department and the research department. Jane’s wages are an example of which type expenses? (Check all that apply.)
Indirect to the production department
Indirect to the research department
Direct to the maintenance department
Operating department income statements are used to evaluate the performance of ______ centers.
profit
Match each indirect expense to the most likely allocation base.
Supervisor salaries
Rent
Advertising
Insurance
Supervisor salaries: # of employees in department.
Rent: sq.ft. of floor space occupied.
Advertising: % of total sales.
Insurance: value of insured assets.
Personnel expenses would most likely be allocated to operating departments using which allocation base?
Number of employees
List the sections of a departmental expense allocation spreadsheet with the first section on top:
- Direct expenses
- Indirect expenses
- Service department expenses
- Total expense allocated to operating department
A company incurs advertising costs of $10,000. The company’s three selling departments have the following sales: Department 1—$10,000; Department 2—$30,000; Department 3—$40,000. Advertising is allocated based on percent of sales. The amount of advertising allocated to Department 3 will be $…
5000 HOW
List the steps in allocating costs to operating departments and preparing departmental income statements, with the first step on top.
- Accumulate she’s, direct expenses, indirect expenses by department.
- Allocate indirect expenses to service and operating departments.
- Applicate service department expenses to operating departments
Which report is more effective in evaluating the performance of profit centers?
Departmental contribution to overhead reports
A … center is evaluated based on control of costs so a performance report is prepared instead of an income statement.
cost
A manufacturing division has an average assets of $1,800,000 and income of $720,000. The division’s return on investment is
%.
40%
(720,000÷1,800,000)
×100
Division ABC has $750,000 in average assets and income of $200,000. Division XYZ has $800,000 average assets and income of $210,000. Which of the following statements is true?
Division ABC has a higher return on investment.
ABC: (200,000÷750,000)×100. = 27%
XYZ: (210,000÷800,000)×100. = 26.25%
A departmental expense allocation spreadsheet is used to allocate expenses:
from service departments to operating departments
A division has residual income of $350,000. If the division has income of $600,000 and $2,500,000 in average assets, what is the target income %?
10%
Reason: $600,000 minus target investment center income = $350,000. $600,000 - $350,000 = $250,000. Target investment center income = investment center average invested assets x __%. $2,500,000 x __% = $250,000. $2,500,000 / $250,000 = 10 or 10%.
A division of a manufacturing company has a return on investment of 24%. The division has an opportunity to accept a project that is expected to earn a return on investment of 22%. The company’s target return on investment rate is 20%. Which of the following statements is true?
Division ABC has $750,000 in average assets and $200,000 in income. Division XYZ has $800,000 in average assets and $210,000 in income. The company’s target rate is 10%. Which division has the highest residual income?
Division XYZ with residual income of $130,000. HOW
A departmental contribution to overhead report is based on:
controllable costs
A division reports the following figures: Profit margin = 20%; Investment turnover = 0.5. The division’s return on investment is …%.
10%
(20% × 0.5) × 100
If a company has $2,000,000 in average assets, and desires to earn a return on investment of 30%, the company will need to earn income of $….
$600,000
(2,000,000×30%)
Company A has a return on investment of 20% and Company B has a return on investment of 24%. Assuming both companies have the same investment center average assets, which of the following statements is true?
Company B has higher return on investment than Company A.
A manufacturing division has $1,800,000 in average assets and income of $720,000. The company’s target rate is 8%. The division’s residual income is $…
$576,000
720,000-(1,800,000×8%)
A division of a manufacturing company has a return on investment of 24%. The division has an opportunity to accept a project that is expected to earn a return on investment of 22%. The company’s target return on investment rate is 20%. Which of the following statements is true?
The division should accept the project because the return is greater than the company’s target return on investment rate.
Company A has a profit margin of 12% and investment turnover of 3.2. Company B has a profit margin of 15% and investment turnover of 2.4. Company … has a better return on investment.
A
A manufacturing division has an average assets of $1,800,000 and income of $720,000. The division’s return on investment is …%.
40%
(720,000/1,800,000) × 100
Given the following information for Mouse Inc., calculate its profit margin for the year 20x1.
$ in thousands
20x1
20x2
Net income
$ 500
$ 450
Net sales
3500
3650
Accounts receivable
2150
1500
14.29%
(500 Net income / 3500 net sales) ×100
Division ABC has $750,000 in average assets and income of $200,000. Division XYZ has $800,000 average assets and income of $210,000. Which of the following statements is true?
Division ABC has a higher return on investment.
A division has residual income of $350,000. If the division has income of $600,000 and $2,500,000 in average assets, what is the target income %?
10%
Reason: $600,000 minus target investment center income = $350,000. $600,000 - $350,000 = $250,000. Target investment center income = investment center average invested assets x __%. $2,500,000 x __% = $250,000. $2,500,000 / $250,000 = 10 or 10%.
During the period, a company reports Sales of $38,000, Cost of Goods Sold of $20,000, and Income of $1,500. Profit margin is:
3.9%
(1500 income/ 38000 sales)×100
A division reports the following figures: Sales = $50,000; Net income = $5,000; Average assets = $30,000. The division’s investment turnover is …..
. Round your answer to two decimal places.
1.67or.67
50,000 sales/ 30,000 avg A
The formula to figure out the profit margin of a company is net …
(income/receivable/sales) divided by net …
(income/Cash/sales).
income
sales
Evaluating manager’s performance based solely on financial measures has limitations. Therefore, companies should consider using … measures to help evaluate manager performance.
Nonfinancial
The balanced scorecard is a unique system of performance measures in that it: (Check all that apply.)
has a focus on customer satisfaction.
has financial and nonfinancial measures.
has multiple perspectives.
During the period, a company reports Sales of $48,000, Cost of Goods Sold of $28,000, and Income of $2,500. Profit margin is:
5.2%
(2500 income/ 48000 sales) ×100
Which of the indicators listed would be considered performance measures for the financial perspective? (Check all that apply.)
Residual income
Sales growth
ROI
Transfer pricing can use the following approaches: (Check all that apply.)
negotiated price
market-based
cost
Transfer pricing can use the following approaches: (Check all that apply.)
negotiated price
market-based
cost
A division reports the following figures: sales = $140,000; income = $2,800; average assets = $28,000. The division’s investment turnover is
5
140000 sales/28000 avg A
Some disadvantages of relying solely on financial measures include that: (Check all that apply.)
they can encourage managers to focus too heavily on short-term financial goals.
some profitable opportunities may be rejected to keep return on investment high.
residual income is not as useful when comparing investment centers of different sizes.
A _____-based transfer price is used when there is no excess capacity.
market
Match the four perspectives of the balanced scorecard with questions managers are trying to answer.
Financial
Customer
Internal processes
Innovation and learning
Financial: what do owners think?
Customer: what do customers think?
Internal processes: which operations are critical to customers?
Innovation and learning: how can we improve?
Which of the indicators listed would be considered performance measures for the internal process perspective? (Check all that apply.)
Labor hours per order
Defect rates
Product costs
Transfer prices: (Check all that apply.)
are transfers within the same company.
have a direct impact on division income.
Transfer prices should be set at: (Check all that apply.)
market price, if there is no excess capacity.
a negotiated price, if there is excess capacity.
Desktop Computer Company would like to calculate their cash conversion cycle. What factors are included in computing this metric?
days’ sales in accounts receivable
days’ sales in inventory
days’ sales in accounts payable (aka days payables outstanding)
The _ conversion cycle measures the average time it takes to convert cash outflows into cash inflows.
cash
Which of the indicators listed would be considered performance measures for the innovation and learning perspective? (Check all that apply.)
Employee satisfaction
Employee turnover
Dollars spent on training
A company has days’ sales in accounts receivable of 25 days; days’ sales in inventory of 45 days, and days’ payable outstanding of 50 days. The cash conversion cycle is _.
20
25+45−50
To speed up the cash conversion cycle a company can: (Check all that apply).
offer customers a discount for prompt payment
adopt lean inventory principles
offer customers fewer days to pay
To speed up the cash conversion cycle a company can: (Check all that apply).
offer customers a discount for prompt payment
adopt lean inventory principles
offer customers fewer days to pay
Costs which are incurred to produce two or more products at the same time are called _____ costs:
joint
The cash conversion cycle formula is
days’ sales in accounts receivable plus days’ sales in inventory minus days’ sales in accounts payable
Joint products C and D emerge from common processing costs of $10,000 and yield 1,000 units of Product C and 5,000 units of Product D. Product C can be sold for $100 per unit. Product D can be sold for $150 per unit. The amount of joint costs allocated to Product C if joint costs are allocated on the basis of relative sales value will be $…_(rounded to nearest dollar). Do not round your intermediate calculations.
$1,176
How
A company has days’ sales in accounts receivable of 40 days; days’ sales in inventory of 55 days, and days’ payable outstanding of 30 days. The cash conversion cycle is…
65
40+55-30
If the cash conversion cycle is too long, companies do not have use of that money and risk missing
_ opportunities.
investment
Costs incurred to produce or purchase two or more products at the same time are called …
costs.
Joint
Joint products A and B emerge from common processing costs of $100,000 and yield 2,000 units of Product A and 1,000 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $120 per unit. The amount of joint costs allocated to Product A if joint costs are allocated on the basis of relative sales value will be $….
(rounded to nearest dollar).
62500
How
Ch 9 cv
Select the correct answer from the drop-down menu.
Costs that are incurred for the joint benefit of more than one department:
Costs readily traced to a department and incurred for that department’s sole benefit:
Costs that are incurred for the joint benefit of more than one department: indirect expenses
Costs readily traced to a department and incurred for that department’s sole benefit: direct expenses
Indirect and service department expenses are allocated across departments that ______blank them.
benefit from
Select the correct indirect expense item to be allocated from the drop-down menu.
Time spent in each department:
Floor space occupied:
Number of hours equipment is used:
Time spent in each department: wages expenses
Floor space occupied: rent expenses
Number of hours equipment is used:
Equipment depreciation expense
Select the correct indirect service department expense item to be allocated from the drop-down menu.
Number of purchase orders
Number of employees
Floor space occupied
Number of purchase orders: purchasing
Number of employees: payroll
Floor space occupied: maintenence
An outside company provides security services for a department store for $1,200 per month. Management allocates this cost across the store’s four departments based on the square feet each department occupies. Using the information below, what is the cost allocated to the Men’s department?
Department Department Square Feet
Men’s. 800
Women’s 1,000
Children’s 600
$400
(800÷(800+1,000+600))
×1,200
The Midwest Division of Grainger Company has average assets of $200,000 and income of $40,000. What is the return on investment for this division?
20%
(40,000/200,000) ×100
Skilling Incorporated has the following information on one of its investment center departments. Sales: $9,800,000; income: $766,500; and investment center assets: $3,650,000. Management has set a target income of 11.5% of investment center assets. What is the department’s residual income?
$346,750
Skilling Incorporated has the following information on one of its investment center departments. Sales: $9,800,000; income: $766,500; and investment center assets: $3,650,000. Management has set a target income of 11.5% of investment center assets. What is the department’s residual income?
$346,750
Residual income = Income of $766,500 − Target income of $419,750 (Average assets of $3,650,000 × 11.5%) = $346,750.
An operating division of Dell Company has $500,000 in sales, $200,000 in income, and $250,000 in average assets. What is the operating division’s investment turnover?
2.0
500,000/ 250,000
A key performance indicator within the internal process measure includes
employee satisfaction
A key performance indicator within the internal process measure includes
product costs
The management team of Charter Company holds monthly training sessions for its employees. What area of the balanced scorecard are they focusing on?
Innovation / Learning
Transfer pricing is the price used to record transfers of goods across ______blank of the same company.
divisions
Delta Company sells bells to customers for $1 each. The variable cost to manufacture the bells is 10 cents. If the rattle department, a division of the Delta Company, wants to use the bells in its new line of rattles, which of the following transfer prices can be used if there is excess capacity?
$0.11
$0.95
The cash conversion cycle is computed as:
days’ sales in inventory plus days’ sales in accounts receivable minus days’ payable outstanding
Days’ sales in accounts receivable 25
Days’ sales in inventory 60
Days’ payable outstanding 80
The cash conversion cycle is
5
25+60−80
