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Exam 9: Responsibility Accounting

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Question 31

Multiple Choice

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Which of the following should not be included in the investment base used to compute residual income?

A) Accounts receivable
B) Inventory
C) Cash
D) Land held for future use

E) B) and C)
F) All of the above

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Question 32

Multiple Choice

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Stephanie's responsibility report includes the salary and benefits of her secretary.Although Stephanie prepares a performance evaluation for the secretary each year,Stephanie's superior determines how much the secretary will be paid.This example is an illustration of the fact that:

A) Responsibility reporting systems are not perfect.
B) Managers sometimes are held responsible for items over which they have only limited control.
C) Control may be shared.
D) All of these are correct answers.

E) A) and D)
F) B) and D)

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Question 33

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Belfield Corporation includes two divisions,Motor Division and Lawnmower Division.The Motor Division makes specialized motors,including one that could be used by the Lawnmower Division.Costs for the motor are: variable costs,$16;fixed costs,$20.The Motor Division has capacity to make 20,000 of the motors,and it is operating at capacity.It sells the motors to other companies for $52 each.If a sale was made to the Lawnmower Division,variable costs would be reduced by $4 per motor on those units.The Lawnmower Division needs 8,000 motors per year,and it has been purchasing them from another company for $45 each. Required: 1)If a transfer were to occur between Motor Division and Lawnmower Division,what is the maximum that Lawnmower Division should be willing to pay for the motors? 2)If a transfer were to occur between Motor Division and Lawnmower Division,what is the minimum price that Motor Division should be willing to accept? 3)Do you recommend that a transfer occur between Motor Division and Lawnmower Division? If the transfer did occur,what would be the effect on the overall profits of Belfield Corporation?

The Family Restaurant chain had a 12% return on a $60,000 investment in new ovens.The investment resulted in increased sales and an increase in income that was 3% of the increase in sales.The increase in sales was:

Ormand Organic Grocery has invested in a yogurt stand for its store.The investment cost the company $100,000.Variable materials,preparation,and marketing costs are expected to be $0.60 per unit and fixed costs are estimated at $6,000 a year.If actual sales were 20,000 servings,what would the ROI be using the sales price of $1.80?

Vanessa Grant is responsible for controlling expenses,but is not responsible for generating revenues.Vanessa Grant is a manager of a(n) :

When a market-based transfer price is not possible,a transfer price imposed by upper management should preserve a sense of fairness among the divisions of the company affected by the transfer.

Describe some of the factors and issues that must be considered in defining return and investment in calculating return on investment.

Indicate whether each of the following statements is

Which of the following statements regarding responsibility accounting is not correct?

An investment center of Lannigan Company reported operating income of $330,000 on total operating assets of $2,600,000 during the current year.The company has established a target ROI of 13% for the investment center.Last year,the investment center's ROI was 12.2%. Required: Calculate the return on investment for the investment center for the current year.Compare its performance with both the performance from the previous year and the target ROI.

Indicate whether each of the following statements is

Which of the following may be used to establish transfer prices?

Select the incorrect statement concerning the application of the controllability concept to responsibility accounting.

Which of the following statements about residual income is

Frank and Brooke manage separate departments at Vantage Corporation.Frank's department is in charge of production of products,while Brooke's is responsible for sales of products.One of the company's objectives is to minimize its investment in inventory.Whose set of responsibility reports should include the cost of storing goods awaiting sale?

Contribution margin would be the most important variable in evaluating the performance of:

Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system?

Which of the following statements regarding investment centers is incorrect?

The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as: