Learning Objective 22-5
1) When companies use an enterprise resource planning system to roll up or consolidate the budgets of the
individual business units, it is more difficult for managers to conduct sensitivity analysis on their own budget data.
2) Budgets are compared to actual results in order to incorporate better informed business strategies into their future
planning decisions.
3) When the different business units at a company use differently structured reporting formats for their business unit
budgets, it is more difficult for the company to consolidate the business unit data into a companywide budget.
4) Which of the following best describes the term sensitivity analysis?
A) Testing data to determine how results would differ if key assumptions are changed
B) An analysis of the emotional sensitivity of a company’s employees
C) An evaluation of the accuracy of the data’s assumptions
D) Evaluating a company’s financial condition by doing financial statement ratio analysis
5) At a company with different business units, individual managers can modify various assumptions of their budget
in order to determine how the modifications would affect the operational and financial results. This is an example
of:
A) financial statement analysis.
B) responsibility accounting.
C) sensitivity analysis.
D) zero-based budgeting.
1) One of the key functions of responsibility accounting is to evaluate the performance of company managers and
the units they manage.
2) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions Construction, Manufacturing, and Military. The total monthly costs of the procurement
department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable.
Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed.
Below is a list of the purchase orders per division.
Divisions Purchase Orders
Construction 3,200
Manufacturing 2,400
Military 800
Total 6,400
When Henderson calculates a rate per purchase order, that rate should be calculated on the basis of the full cost of
the procurement department.
3) Responsibility centers are business units where managers are focused exclusively on controlling costs of
operation.
4) There are five types of responsibility centers cost centers, revenue centers, profit centers, investment centers,
and financial centers.
5) Which of the following describes a responsibility center?
A) The executive management of a company
B) A chart which displays the hierarchy of the company organizational structure
C) The managers of a company who take responsibility for product defects
D) The part of an organization for which a particular manager is responsible
6) Which of the following BEST describes a business unit where the manager is primarily responsible for cost
control?
A) Profit center
B) Investment center
C) Revenue center
D) Cost center
7) Which of the following BEST describes a business unit where the manager is primarily responsible for generating
sales revenue?
A) Profit center
B) Investment center
C) Revenue center
D) Cost center
8) Which of the following BEST describes a business unit where the manager is responsible for both controlling
costs and generating sales revenue?
A) Profit center
B) Investment center
C) Revenue center
D) Center
9) Which of the following BEST describes a business unit where the manager is responsible not only for controlling
costs and generating sales revenue, but also for investment decisions and for return on investments?
A) Profit center
B) Investment center
C) Revenue center
D) Cost center
10) A manufacturing company’s legal department provides legal guidance to all the divisions and units of the
company. The salary and benefits of the legal department’s personnel would be an example of which of the
following?
A) Traceable fixed cost
B) Untraceable fixed cost
C) Variable cost
D) Manufacturing overhead cost
11) If an operating division or a product line of a company was eliminated, which of the following statements would
be TRUE?
A) Traceable fixed costs would be eliminated.
B) Untraceable fixed costs would be eliminated.
C) Variable costs of the product would continue, but be reallocated elsewhere.
D) Traceable fixed costs would continue, but would have to reallocated elsewhere.
12) Assume that AAA Company’s Payroll and Human Resources Department is a centralized service department
serving all the various business units of the company. If AAA wished to assign the costs of the department to the
company’s various business units, which of the following would be the MOST appropriate cost driver or assignment
basis?
A) Number of purchase orders
B) Number of employees
C) Number of reports prepared
D) Number of service hours provided
13) Assume that AAA Company’s Accounting Department is a centralized service department serving all the various
business units of the company. If AAA wished to assign the costs of the department to the company’s various
business units, which of the following would be the MOST appropriate cost driver or assignment basis?
A) Number of purchase orders
B) Number of employees
C) Number of reports prepared
D) Number of service hours provided
14) Assume that AAA Company’s Procurement Department is a centralized service department serving all business
units, which of the following would be the MOST appropriate cost driver or assignment basis?
A) Number of purchase orders
B) Number of employees
C) Number of reports prepared
D) Number of service hours provided
15) Assume that AAA Company’s Legal Department is a centralized service department serving all the various
business units of the company. If AAA wished to assign the costs of the department to the company’s various
business units, which of the following would be the MOST appropriate cost driver or assignment basis?
A) Number of purchase orders
B) Number of employees
C) Number of reports prepared
D) Number of service hours provided
16) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions-Construction, Manufacturing, and Military. The total monthly costs
of the procurement department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are
considered untraceable. Henderson has decided to assign the traceable costs to the divisions based on number of
purchase orders processed. Below is a list of the purchase orders per division.
Divisions Purchase Orders
Construction 3,200
Manufacturing 2,400
Military 800
Total 6,400
Before assigning the traceable costs to the division, Henderson needs to calculate a cost per purchase order. That
amount should be:
A) $56 per purchase order.
B) $60 per purchase order.
C) $75 per purchase order.
D) $82 per purchase order.
17) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions-Construction, Manufacturing, and Military. The total monthly costs of the procurement
department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable.
Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed.
Below is a list of the purchase orders per division.
Divisions Purchase Orders
Construction 3,200
Manufacturing 2,400
Military 800
Total 6,400
How much of the procurement department’s cost should be assigned to the Construction Division?
A) $240,000
B) $144,000
C) $192,000
D) $186,000
18) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions-Construction, Manufacturing, and Military. The total monthly costs of the procurement
department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable.
Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed.
Below is a list of the purchase orders per division.
Divisions Purchase Orders
Construction 3,200
Manufacturing 2,400
Military 800
Total 6,400
How much of the procurement department’s cost should be assigned to the Manufacturing Division?
A) $240,000
B) $144,000
C) $192,000
D) $186,000
19) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions: Construction, Manufacturing, and Military. The total monthly costs of the procurement
department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable.
Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed.
Below is a list of the purchase orders per division.
Divisions Purchase Orders
Construction 3,200
Manufacturing 2,400
Military 800
Total 6,400
How much of the procurement department’s cost should be assigned to the Military Division?
A) $240,000
B) $48,000
C) $192,000
D) $60,000
20) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions-Construction, Manufacturing, and Military. The Construction Division has been allocated a
total of $192,000 of costs from the procurement department. Of that amount, 75% is considered traceable to the
three product types within the division-Civil Construction, Residential Construction, and Commercial Construction.
The division will calculate an allocation rate to assign the traceable costs to each of the three product types based on
number of purchase orders processed within each product type. Please refer to the following information:
The allocation rate for the three product lines should be:
A) $45 per purchase order.
B) $60 per purchase order.
C) $75 per purchase order.
D) $80 per purchase order.
21) Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing
all three of its divisions-Construction, Manufacturing, and Military. The Construction Division has been allocated a
total of $192,000 of costs from the procurement department. Of that amount, 75% is considered traceable to the
three product types within the division-Civil Construction, Residential Construction, and Commercial Construction.
The division will calculate an allocation rate to assign traceable costs to each of the three product types based on
number of purchase orders processed within each product type. Please refer to the following information:
The amount allocated to the Civil Construction Product Line should be:
A) $20,250.
B) $40,500.
C) $27,000.
D) $54,000.