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Financial and Managerial Accounting: The Basis for Business Decisions, 12/e

Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Responsibility Accounting and Transfer Pricing

Multiple Choice Quiz

Please answer all questions


1	The operation of a responsibility accounting system usually involves each of the following steps except:
		A)	Allocating common fixed costs among the responsibility centers that benefit from these costs.
		B)	The preparation of budgets for each responsibility center.
		C)	Separate measurement of the performance of each responsibility center.
		D)	The preparation of performance reports, comparing the actual performance of each responsibility center with the budgeted amounts.


2	Contribution margin is equal to:
		A)	Revenue, less variable costs and traceable fixed costs.
		B)	Revenue, less variable costs and committed fixed costs.
		C)	Revenue, less variable costs and controllable fixed costs.
		D)	Revenue, less variable costs.


3	Performance margin is equal to:
		A)	Revenue, less variable costs.
		B)	Revenue, less variable costs and traceable fixed costs.
		C)	Revenue, less variable costs and committed fixed costs.
		D)	Revenue, less variable costs and controllable fixed costs.


4	When an income statement is prepared by profit centers, costs traceable directly to a cost center, such as the Personnel Department, are:
		A)	Omitted from the income statement.
		B)	Classified as common fixed costs.
		C)	Allocated among the profit centers based upon the number of employees in each department.
		D)	Classified as committed fixed costs and allocated among the profit centers.


5	In the long run, the contribution of a profit center to the overall profitability of the business is best measured by the center's:
		A)	Contribution margin.
		B)	Performance margin.
		C)	Responsibility margin.
		D)	Taxable income.

Use the following data for questions 6 through 8.

Hudson Co. manufactures a single product. Shown below are cost and sales data for the first year of operations. During the year, 10,000 finished units were manufactured, of which 8,000 were sold.

Sales (8,000 units at $110 per unit)	$880,000
Manufacturing costs for 10,000 finished units
Variable	200,000
Fixed	400,000
Selling and administrative expenses:
Variable ($5 per unit x 8,000 units sold)	40,000
Fixed	240,000

The company prepares two separate sets of income statements: one utilizing variable costing and the other utilizing full costing.


6	Refer to the information above. The per-unit manufacturing cost assigned to units of product is:
		A)	$20 under variable costing and $60 under full costing.
		B)	$25 under variable costing and $75 under full costing.
		C)	$30 under variable costing and $90 under full costing.
		D)	None of the above.


7	Refer to the information above. Under variable costing, the valuations assigned to the cost of goods sold and to the ending inventory of finished goods are:
		A)	Ending inventory, $60,000, and cost of goods sold, $240,000.
		B)	Ending inventory, $50,000, and cost of goods sold, $200,000.
		C)	Ending inventory, $40,000, and cost of goods sold, $160,000.
		D)	None of the above.


8	Refer to the information above. Under variable costing, Hudson Co.'s income from operations for the year is:
		A)	$40,000.
		B)	$80,000.
		C)	$680,000.
		D)	Some other amount.

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