Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 24 Performance Measurement and Responsibility
Accounting
MULTIPLE CHOICE QUESTIONS
1) Evaluation of the performance of an investment center involves only financial measures.
A) True
B) False
2) Profit center managers are evaluated on their ability to generate revenues in excess of costs.
A) True
B) False
3) Departmental information is usually distributed to the public as part of the company's annual report
and footnotes.
A) True
B) False
4) Investment center is another name for profit center.
A) True
B) False
5) Investment center managers are evaluated on their use of investment center assets to generate
income.
A) True
B) False
6) A department can never be considered to be a profit center.
A) True
B) False
7) A cost center does not directly generate revenues.
A) True
B) False
8) A selling department is usually evaluated as a profit center.
A) True
B) False
9) Product lines are often evaluated as profit centers.
A) True
B) False
10) A profit center generates revenue, incurs costs, and has the authority to make significant investing
decisions.
A) True
B) False
11) Cost center managers are evaluated on their success in controlling costs compared to budgeted
costs.
A) True
B) False
12) Indirect expenses are allocated to departments based upon the benefits received by each
department.
A) True
B) False
13) Indirect expenses are incurred for the joint benefit of more than one department; they cannot be
readily traced to only one department.
A) True
B) False
14) Direct expenses are incurred for the joint benefit of more than one department; they cannot be
readily traced to only one department.
A) True
B) False
15) Direct expenses require allocation across departments because they cannot be readily traced to one
department.
A) True
B) False
16) Departmental salary expenses are direct expenses of that department.
A) True
B) False
17) The concepts of direct expenses and uncontrollable costs are essentially the same; also, indirect
expenses and controllable costs are essentially the same.
A) True
B) False
18) The number of hours that a department uses equipment and machinery is a reasonable basis for
allocating depreciation.
A) True
B) False
19) Direct expenses are costs readily traced to a department because they are incurred for that
department's sole benefit.
A) True
B) False
20) Advertising expense can be reasonably allocated to departments on the basis of each department's
proportion of sales.
A) True
B) False
21) No standard rule identifies the best basis of allocating expenses across departments, so it is
impossible to allocate costs in a manner that will be perceived as fair.
A) True
B) False
22) No standard rule identifies the best basis of allocating expenses across departments.
A) True
B) False
23) A department's direct expenses are usually considered uncontrollable costs.
A) True
B) False
24) An example of a controllable cost is equipment depreciation expense.
A) True
B) False
25) A responsibility accounting performance report usually compares actual costs to budgeted costs
amounts by management level.
A) True
B) False
26) Joint costs are costs incurred in producing or purchasing a single product.
A) True
B) False
27) Joint costs can be allocated either using a physical basis or a value basis.
A) True
B) False
28) A joint cost of producing two products can be allocated between those products on the basis of the
relative physical quantities of each product produced.
A) True
B) False
29) In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is
considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring
the joint cost.
A) True
B) False
30) Investment center managers are typically evaluated using performance measures that combine
income and assets.
A) True
B) False
31) Return on investment is a useful measure to evaluate the performance of a cost center manager.
A) True
B) False
32) Measures used to evaluate the manager of an investment center include investment turnover and
profit margin.
A) True
B) False
33) A useful measure used to evaluate the performance of an investment center is investment center
residual income.
A) True
B) False
34) An example of a service department is the human resources department.
A) True
B) False
35) Allocating costs to service departments involves accumulating revenues and direct expenses,
allocating indirect expenses, and preparing the department income statement.
A) True
B) False
36) Since service departments do not generate revenues, it is unnecessary to accumulate and allocate
their costs.
A) True
B) False
37) The process of preparing departmental income statements begins with allocating service
department expenses.
A) True
B) False
38) Departmental income statements are prepared for service departments but not operating
departments.
A) True
B) False
39) Departmental income statements are prepared for operating departments (profit centers) but not
service departments (cost centers).
A) True
B) False
40) Departmental contribution to overhead is the amount of sales for that department, less its direct
expenses.
A) True
B) False
41) Departmental contribution to overhead is the same as gross profit generated by that department.
A) True
B) False
42) Decentralization refers to companies that have multiple locations.
A) True
B) False
43) In a decentralized organization, decisions are made by managers throughout the company rather
than by a few top executives.
A) True
B) False
44) A cost center is a unit of a business that incurs costs without directly generating revenues. All of
the following are considered cost centers except:
A) Advertising department at Hertz.
B) Accounting department at Warner Bros.
C) Research department at Microsoft.
D) Juice division at Coca Cola.
E) Purchasing department at Best Buy.
45) A unit of a business that generates revenues and incurs costs is called a:
A) Expense center.
B) Responsibility center.
C) Profit center.
D) Performance center.
E) Cost center.
46) The type of department that generates revenues and incurs costs, and its manager is responsible for
the investments made in operating assets is called a(n):
A) Cost center
B) Service department
C) Responsibility center
D) Investment center
E) Profit center
47) An accounting system that accumulates and reports costs incurred by each service department for
management to evaluate the performance of a department is a:
A) Standard accounting system.
B) Cost accounting system.
C) Departmental accounting system.
D) Service accounting system.
E) Revenue accounting system.
48) A department that incurs costs without directly generating revenues is a:
A) Profit center.
B) Production center.
C) Cost center.
D) Service center.
E) Performance center.
49) The difference between a profit center and an investment center is
A) An investment center is responsible for investments made in operating assets.
B) An investment center provides services to profit centers.
C) An investment center incurs costs, but does not directly generate revenues.
D) An investment center incurs no costs but does generate revenues.
E) There is no difference; investment center and profit center are synonymous.
50) An expense that is readily traced to a department because it is incurred for that department's sole
benefit is a(n):
A) Administrative expense.
B) Common expense.
C) Recurring expense.
D) Indirect expense.
E) Direct expense.
51) Expenses that are easily traced and assigned to a specific department because they are incurred for
the sole benefit of that department are called:
A) Uncontrollable expenses.
B) Direct expenses.
C) Fixed expenses.
D) Indirect expenses.
E) Controllable expenses.
52) Expenses that are not easily associated with a specific department, and which are incurred for the
joint benefit of more than one department, are:
A) Fixed expenses.
B) Direct expenses.
C) Variable expenses.
D) Indirect expenses.
E) Uncontrollable expenses.
53) Regardless of the system used in departmental cost analysis:
A) Direct costs are allocated, indirect costs are not.
B) Indirect costs are allocated, direct costs are not.
C) Neither direct nor indirect costs are allocated.
D) Total departmental costs will always be the same.
E) Both direct and indirect costs are allocated.
54) The salaries of employees who spend all their time working in one department are:
A) Indirect expenses.
B) Unavoidable expenses.
C) Direct expenses.
D) Variable expenses.
E) Responsibility expenses.
