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Chapter 22 Responsibility Accounting and Transfer Pricing Answer
Key
True / False Questions
1.
Profit centers generate revenues and costs.
2.
If a business activity qualifies as a profit center, it cannot also qualify as an investment
center.
3.
An investment center is a profit center where management can make related capital
investment choices.
4.
Evaluating the performance of cost centers involves subjective judgments as to the value
of the services rendered by these centers.
5.
An accounting system designed to measure the performance of each center within a
business is referred to as a profitability accounting system.
6.
One purpose of a responsibility accounting system is to evaluate the performance of center
managers.
7.
A responsibility income statement shows the revenue and expenses of each cost center
within a particular part of a business.
8.
In responsibility income statements, revenue is first assigned to the centers responsible for
creating that revenue.
9.
In assigning costs to centers, each center is charged with costs attributed to the center and
based on company-wide rates.
10.
If operations at a center are discontinued, all traceable costs attributed to the cost would
be discontinued.
11.
Traceable fixed costs usually cannot be eliminated even if the center is closed.
12.
All costs become traceable at some level of the organization.
13.
A cost that is directly traceable to a particular center must be a variable cost.
14.
Common fixed costs jointly benefit several parts of the business and would not change
significantly even if one of the parts of the business were discontinued.
15.
A common cost may become a traceable cost as it moves up to larger responsibility
centers.
16.
Revenue, less variable costs, less traceable fixed costs, is called the contribution margin.
17.
Responsibility margin is useful in evaluating the consequences of short-run marketing
strategies, while contribution margin is more useful in evaluating long-term profitability.
18.
The contribution margin approach to preparing reports for managers classifies costs into
fixed and variable costs.
19.
The responsibility margin is the contribution margin less common fixed costs.
20.
Performance margin is equal to controllable fixed costs minus the contribution margin.
21.
The transfer price is the dollar amount used in recording sales to primary customers.
22.
When an external market exists for a transferred product or service, most companies use
either negotiated transfer prices or cost-plus transfer prices.
Multiple Choice Questions
23.
A responsibility accounting system measures the performance of each of the following
centers
except
:
24.
The part of a business a particular manager is held responsible for is called a:
25.
An example of a profit center is:
26.
The primary difference between profit centers and cost centers is that:
27.
An investment center:
28.
Disneyland is one of several theme parks owned by The Walt Disney Company. Disneyland
should be evaluated as:
29.
Disneyland charges visitors for admission to the park but not for individual rides or
attractions. "Splash Mountain" is one of the rides in Disneyland. The Walt Disney Company
should evaluate "Splash Mountain" as:
30.
San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group.
Westin should evaluate the St. Francis as:
31.
One of the unique services provided by San Francisco's St. Francis Hotel is cleaning and
polishing coins (pocket change) for the guests. From the standpoint of hotel management,
this "money laundry" should be viewed as:
32.
Cost centers are evaluated primarily on the basis of their ability to control costs and:
33.
Carrier Corporation produces heating and air conditioning equipment at a number of plants
throughout the United States including one in Syracuse, New York. Carrier should evaluate
its Syracuse plant as:
34.
Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating
Products divisions. The management of the Syracuse plant should evaluate the Heating
Products division as:
35.
John Thomas is the manager of materials movement for the Syracuse plant of Carrier
Corporation. Thomas should be evaluated as manager of:
36.
The human resources department of a large company would be considered:
37.
The bookstore of a university would be considered:
38.
Which of the following is
not
a valid reason for developing responsibility center
information?
39.
The term responsibility center reflects the idea that the "centers" of a business usually are
defined in a manner such that each center is:
40.
In a responsibility accounting system, the recording of revenue and costs begins with the:
41.
Responsibility accounting systems measures the performance of:
42.
Successful operation of a responsibility accounting system requires all of the following
except
:
43.
Responsibility accounting systems should begin with:
44.
In preparing a responsibility income statement that shows contribution margin and
responsibility margin, generally two concepts are involved in allocating costs to the various
centers. These concepts are:
45.
A responsibility income statement generally does
not
show the:
Chic Jewelers views each branch location as an investment center. The local branch
reported the following results for the current year:
46.
Refer to the above information, the contribution margin of the local branch is:
47.
Refer to the above information. The contribution margin ratio of the local branch is closest
to:
