Chapter 15 Accounting

Which of the following statements regarding cost centers is incorrect? A. Cost centers tend to be found at upper levels on a company's organization chart B. Cost center managers are evaluated on their ability to control costs and keep within budget C. Cost centers are units within a business that incur expense, but do not have responsibility for generating revenue D. A manager of a cost center has less responsibility than a manager in an investment center

A. Cost centers tend to be found at upper levels on a company's organization chart

Select the correct statement regarding flexible budgets A. A flexible budget shows expected revenues and costs at a variety of activity levels B. A flexible budget can only be prepared for a single level of activity C. A flexible budget is not used for planning D. A flexible budget is also known as the master budget

A. A flexible budget shows expected revenues and costs at a variety of activity levels

Which of the following statements regarding profit centers is incorrect? A. A manager of a profit center is evaluated on his/her ability to control costs and generate revenues B. A manager of a profit center is evaluated only on his/her ability to control costs C. A manager of a profit center is responsible for assets, liabilities, and earnings D. A manager of a profit center has more responsibility than a manager of an investment center

A. A manager of a profit center is evaluated on his/her ability to control costs and generate revenues

Select the incorrect statement concerning the application of the controllability concept to responsibility accounting A. Each manager should be evaluated on the costs but not the revenues that are under his or her control B. Managers lose motivation when they are help accountable for actions that are beyond their scope of control C. The concept of control is crucial to an effective responsibility accounting system D. As a practical matter, control of costs or revenues may be shared rather than absolute

A. Each manager should be evaluated on the costs but not the revenues that are under his or her control

Which of the following statements about residual income is true? A. Residual income is the amount of income in excess of a target or desired return on investment B. Residual income=Operating Income-Sales C. Residual income= Operating Income - Operating Assets D. None of these

A. Residual income is the amount of income in excess of a target or desired return on investment

A budget prepared at a single volume of activity is referred to as a: A. Static budget B. Standard budget C. Strategic budget D. Flexible budget

A. Static budget

When would sales price variance be listed as unfavorable? A. When the actual sales price is less than the standard sales price B. When the actual sales volume is less than the budgeted sales volume C. When the actual sales price is greater than the standard sales price D. When the actual sales price is equal to the standard sales price

A. When the actual sales price is less than the standard sales price

All of the following are characteristics that are required for effective responsibility accounting except: A. centralization B. motivation C. accountability D. none of these

A. centralization

Packrall Company makes computer chips. Curtis is the manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as: A. profit center B. cost center C. investment center D. revenue center

A. profit center

Payne Company reported the following information for the current year: Sales: $1,600,000 Average Operating Assets: $500,000 Desired ROI: 14% Net Income: $85,000 The company's residual income was: A. $14,000 B. $15,000 C. ($15,000) D. $24,000

B. $15,000

Contribution margin would be the most important variable in evaluating the performance of: A. An investment center B. A profit center C. A production center D. A cost center

B. A profit center

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is: A. An asset center B. An investment center C. A cost center D. A profit center

B. An investment center

Vanessa Grant is responsible for controlling expenses, but is not responsible for generating revenue. Vanessa Grant is manager of: A. Profit center B. Cost center C. Investment center D. Liability center

B. Cost center

Which of the following is a difference between a static and flexible budget? A. Static budgets are based on the same per unit variable amount, whereas flexible budgets are based on multiple per unit variable amounts B. Static budgets are based on single estimate of volume, whereas flexible budgets show estimates costs and revenues at a variety of activity levels. C. Static budgets use the same fixed cost amounts, whereas flexible budgets change the amount of fixed costs at different levels of activity D. None of these answers is correct

B. Static budgets are based on single estimate of volume, whereas flexible budgets show estimates costs and revenues at a variety of activity levels.

Static and flexible budgets are similar in that: A. They both are prepared for multiple activity levels B. They are both on the same per unit variable amounts and the same fixed costs C. They both concentrate sorely on costs D. None of these answers is correct

B. They are both on the same per unit variable amounts and the same fixed costs

When would a sales variance be listed as favorable? A. When actual sales are less than budgeted or expected sales B. When actual sales exceed budgeted or expected sales C. When actual sales are equal to budgeted or expected sales D. None of these are correct

B. When actual sales exceed budgeted or expected sales

Huang Company reported the following information for the current year: Sales: $400,000 Average Operating Assets: $250,000 Margin: 10% The company's return on investments was: A. Cannot be determinded B. 6.25% C. 16% D. 10%

C. 16%

Select the incorrect statement regarding flexible budgets A. Standard prices and costs are used in preparing a flexible budget B. A flexible is used to compare actual to budgeted amounts C. A flexible budget is also known as a master budget D. Flexible budgets often show the estimated revenues and costs at multiple volume levels

C. A flexible budget is also known as a master budget

The practice of delegating authority and responsibility is referred to as: A. Centralization of authority B. Management by exception C. Decentralization D. Standard costing

C. Decentralization

Which of the following would increase residual income? (assume all other things are equal) A. Decrease in operating income B. Increase in the desired return on investment C. Decrease in investment D. None of these

C. Decrease in investment

An organizational unit of business that incurs costs and generates revenues is known as a: A. Investment center B. Cost center C. Profit center D. Sales center

C. Profit center

A reporting unit of decentralized business that controls identifiable revenue and/or expense items is known as: A. Management center B. Performance center C. Responsibility center D. Accounting center

C. Responsibility center

When would a variance be labeled as favorable? A. When standard costs are less than actual costs B. When estimated costs are greater than actual costs C. When actual costs are less than standard costs D. When standard costs are equal to actual costs

C. When actual costs are less than standard costs

When would a cost variance be listed as unfavorable? A. When actual costs are less than budgeted costs B. When actual costs are equal to budgeted costs C. When actual costs exceed budgeted costs D. When actual sales are less than budgeted sales

C. When actual costs exceed budgeted costs

The research and development department of Apple Computers would likely be organized as: A. A revenue center B. An investment center C. A profit center D. A cost center

D. A cost center

Which of the following is a characteristic that is needed for decentralization to work well in an organization? A. Responsibility B. Good communication C. Clear lines of authority D. All of these answers are correct

D. All of these answers are correct

Which of the following reasons cause flexible budgets to be useful planning tools? A. Flexible budgets can help managers judge if materials and storage facilities are appropriate for various production levels B. Flexible budgets allow managers to anticipate results under a variety of scenarios C. Flexible budgets can help determine if a company's cash position is adequate D. All of these answers are correct

D. All of these answers are correct

Which of the following statements regarding a balances scorecard is correct? A. A balances scorecard includes several different performance measures that can be used to assess how well a business is accomplishing their mission B. A balances scorecard includes non-financial measures such as defect rates or on-time deliveries C. A balanced scorecard includes financial performance measures such as ROI D. All of these are correct answers

D. All of these are correct answers

Delegating authority and responsibility throughout an organization is known as: A. Centralization B. Suboptimization C. Management by exception D. Decentralization

D. Decentralization

Which of the following is not typically found in a decentralized organization? A. Profit center B. Investment center C. Cost center D. Decision center

D. Decision center

The process of evaluating the performance of an individual managers is known as: A. Responsibility management B. Management by exception C. Performance management D. Responsibility accounting

D. Responsibility accounting

Which of the following applications is most suited for developing flexible budgets? A. Word processing B. Graphics C. Database D. Spreadsheet

D. Spreadsheet