Chapter 10

Question 1

Responsibility center

Answer 1

Part if an organization whose manager is accountable for planning and controlling certain activities

Question 2

Responsibility accounting

Answer 2

System for evaluating the performance of each responsibility center and its manager

-compare budgets w/ actual results for each center

Question 3

Performance report

Answer 3

Compares budget w/ actual revenues and expenses

Question 4

Variance

Answer 4

Diff. Btwn actual and budget

-favorable & unfavorable variance

Question 5

Management bu exception

Answer 5

Only investigate budget variances that are relatively large

Question 6

Segment margin

Answer 6

Operating income generated by a profit or investment center BEFORE subtracting common fixed costs allocated to the center

• direct fixed expenses: can be traced to profit center
• common fixed expenses: cannot “ “

Question 7

Sales margin

Answer 7

Focuses on profitability by showing how much operating income the division earns on every $1 of sales revenue

= Op. Income / sales

Question 8

Capital turnover

Answer 8

Focuses on how efficiently the division uses its assets to generate sales revenue

= sales / total assets

Question 9

ROI

& 2 ways to calculate

Answer 9

Measures amount of income an investment center earns relative to the size of its assets

= Op. Income / Tot assets

= (sales margin) x (capital turnover)

Question 10

Residual Income (RI)

Answer 10

Determines whether the division has created any excess income above and beyond mgmt’s expectations

= Op. Income - (trgt rate of return - tot assets)

• RI often leads to better goal congruence than ROI

Question 11

Flexible budget

Answer 11

A budget prepared for a different level of volume than the one originally anticipated

• actual sales volume x budgeted assumptions
• for performance evaluation at end of period

Question 12

Master Budget Variance

Answer 12

Diff. Btwn. The actual revenues and expenses and the master planning budget

-master budget: planning purposes at the beg. of the period

Question 13

Volume variance

Answer 13

The diff. btwn the master budget and the flexible budget

-arises ONLY because the actual volume differs from the volume originally anticipated in the master budget

Question 14

Flexible budget variance

Answer 14

Difference btwn the flexible budget and the actual results

-highlights variance due to causes other than volume