Online Tutorial Quiz

Please answer all questions

1		A responsibility center is a segment of, or the part of, a business a for which a particular manager has responsibility.
			A)	True
			B)	False
2		A cost center is a business section that incurs costs (or expenses) but does not generate revenues.
			A)	True
			B)	False
3		The men's shoe department of a department store would not be considered a profit center.
			A)	True
			B)	False
4		The children's clothing department of a department store would be considered an investment center.
			A)	True
			B)	False
5		All profit centers can be evaluated as investment centers because a return on investment can be measured for their output.
			A)	True
			B)	False
6		The accounting system used to measure the performance of cost, profit, and investment centers is called a responsibility accounting system.
			A)	True
			B)	False
7		Measures of center performances are summarized in a responsibility income statement.
			A)	True
			B)	False
8		The elimination of a profit center that is not generating contribution margin may have an adverse effect the overall profit of the company.
			A)	True
			B)	False
9		If a particular profit center is eliminated, all of its variable costs will be absorbed by other centers.
			A)	True
			B)	False
10		Contribution margin ignores fixed costs.
			A)	True
			B)	False
11		A company's fixed costs can be sorted into two categories: traceable fixed costs and common fixed costs.
			A)	True
			B)	False
12		Some costs, whether variable or fixed, cannot be traced to any level of the organization.
			A)	True
			B)	False
13		Responsibility margin is the residual of contribution margin minus common fixed costs.
			A)	True
			B)	False
14		Responsibility margin is a more useful tool than contribution margin for long-run decisions.
			A)	True
			B)	False
15		When a profit center's responsibility margin is less than zero, it should be eliminated.
			A)	True
			B)	False
16		The salaries of personnel assigned to a profit center are both traceable fixed costs and controllable fixed costs.
			A)	True
			B)	False
17		One preferred method of determining the profitability of a profit center is to allocate the common fixed costs among all of the centers of a segment so that operating income or loss can be determined for each center within the segment.
			A)	True
			B)	False
18		Cost should be used as a transfer price for the interdepartmental transfer of products to both cost centers and profit centers.
			A)	True
			B)	False
19		Many companies now use market value of the product as the transfer price of products produced in profit centers.
			A)	True
			B)	False
20		The amount assigned as the transfer price of a product can effect the cash flow of the producing department.
			A)	True
			B)	False
21		When there is no established market price for transferred products, a transfer price can be determined by negotiation or adding a predetermined markup to the cost of the transferred product.
			A)	True
			B)	False
22		The conventional practice of including both variable and fixed manufacturing costs in the valuation of inventories and costs of goods sold is called full costing, a method required by GAAP and by income tax regulations.
			A)	True
			B)	False
23		Under variable costing, all fixed manufacturing costs are treated as period costs.
			A)	True
			B)	False
24		Full costing results in a lower responsibility margin than does variable costing when more units are produced than are sold.
			A)	True
			B)	False
25		Under full costing, changes in the level of production can cause significant changes in key measurements of performance.
			A)	True
			B)	False
26		In the long run, the difference in the total amounts of responsibility margin reported under full costing and variable costing will be insignificant.
			A)	True
			B)	False
27		Computing the break-even point in dollars or units is simplified through use of a variable costing income statement.
			A)	True
			B)	False
28		The accounting department for a manufacturer is which type of responsibility center?
			A)	Profit
			B)	Cost
			C)	Investment
			D)	A and B
			E)	A and C
29		Which of the following is not true about responsibility centers?
			A)	Business responsibility centers are usually classified as profit, cost, or investment centers.
			B)	Profit centers are evaluated primarily on their profitability.
			C)	Cost centers are evaluated solely on their ability to control costs.
			D)	Some profit centers also qualify as investment centers.
			E)	Investment centers are evaluated primarily using return on investment measurements.
30		Which of the following is not one of the basic steps in the operation of a responsibility accounting system?
			A)	Preparing budgets
			B)	Developing transfer prices
			C)	Measuring performance
			D)	Preparing timely performance reports
			E)	B and C
31		Which of the following statements is not true about contribution margin and the components that comprise it?
			A)	Variable costs change in proportion to levels of activity.
			B)	Contribution margin expresses the relationship between revenue and variable cost.
			C)	Total contribution margin must exceed fixed costs before a business is profitable.
			D)	Contribution margin can be used as a long-run tool for management planning.
			E)	Contribution margin is the excess of revenues over variable costs.

Entire Retail Wholesale
Company Division Division
Sales $900,000 $120,000 $780,000
Variable Costs 360,000 (1) (2)
-------- -------- --------
Contribution Margin $540,000 $ $
Fixed Costs
Traceable to Divisions 320,000 (3) (4)
-------- -------- ---------
Division
Responsibility Margins $220,000 (5) (6)

32		Variable costs are: (1) 50% of sales, and (2), 60% of sales. Fixed costs traceable to divisions: (3) $128,000, and (4) $192,000. What is the division responsibility margin for the Wholesale Division?
			A)	$192,000
			B)	$120,000
			C)	$132,000
			D)	$184,000
			E)	$ 88,000

33		Which of the following is a common fixed cost for a department store with five departments, each of which is treated as a profit center, with no walls or partitions dividing them?
			A)	Advertising expenditures for Yellow Pages
			B)	Costs of lighting the interior of the department store
			C)	Salary of the department store manager
			D)	Salaries of custodial staff
			E)	All of the above

Profit Centers
Main Street Hardware Lumber
Store Depart. Depart.
Sales $450,000 $200,000 $250,000
Variable costs 225,000 100,000 125,000
-------- -------- --------
Contribution margin $225,000 $100,000 $125,000
Fixed costs 200,000 70,000 130,000
-------- -------- --------
Profit or loss $ 25,000 $ 30,000 $ (5,000)
======== ======== =========

34		Thirty percent of the fixed costs charged to the Lumber Department are allocated common fixed costs. If the Lumber Department is eliminated, what will be the effects (ignore the complementary association of hardware and lumber sales)?
			A)	Net income will remain unchanged.
			B)	Eliminating the department will result in a net loss of $57,000.
			C)	Net income will decrease by $34,000.
			D)	Net income will increase by $91,000.
			E)	None of the above.

35		Under which type of transfer pricing will the profit on the product being transferred wind up in the profit center that produced the product?
			A)	Market value
			B)	Negotiated price
			C)	Cost-plus price
			D)	Variable costs of the product
			E)	None of the above

The information below applies to the production and sales of Year 1.
Number of units manufactured: 12,000
Number of units sold: 10,000
Sales price per unit $50
Variable manufacturing costs per unit $12
Fixed manufacturing costs per unit
($120,000/12,000) $10
Variable Selling and Administrative costs $60,000
Fixed Selling and Administrative costs $90,000

36		Using the information above, determine the difference in responsibility margin between a full costing income statement and a variable costing income statement.
			A)	$15,000
			B)	$12,000
			C)	$ 2,000
			D)	$20,000
			E)	$30,000

The information below applies to the production and sales of the final year of operation of a profit center.
Beginning inventory, full costing: 3,000 units at $24 per unit
Beginning inventory, variable costing: 3,000 units at $15 per unit
Number of units manufactured: 12,000
Number of units sold: 15,000
Sales price per unit $50
Variable manufacturing costs per unit $ 9
Fixed manufacturing costs per unit
($120,000/12,000) $10
Variable Selling and Administrative costs $72,000
Fixed Selling and Administrative costs $90,000

37		Which of the following statements is true about the financial statements of the final year of production and sales?
			A)	Responsibility margin will be the same under full costing and variable costing.
			B)	Responsibility margin will be larger under full costing than variable costing.
			C)	Responsibility margin will be larger under variable costing than fixed costing.
			D)	There will be a negative responsibility margin under full costing and a net profit under variable costing.
			E)	None of the statements above are true.

The following information is based on the production of 12,000 units.
Sales price per unit $50
Variable manufacturing costs per unit $ 9
Fixed manufacturing costs per unit $10
Variable Selling and Administrative costs $72,000
Fixed Selling and Administrative costs $90,000

38		If the company wants to earn a responsibility margin of $45,000 under variable costing how sales dollars will it have to generate?
			A)	$364,300
			B)	$700,000
			C)	$600,000
			D)	$262,500
			E)	$300,000

39		Which of the following statements are true about preparing income statements under the full costing method?
			A)	When production exceeds units sold, a portion of fixed costs are deferred in ending inventory.
			B)	When production is less than units sold, fixed costs included in the beginning inventory are released from inventory.
			C)	When production is less than units sold, the cost of goods sold includes fixed costs incurred in a prior period.
			D)	All of the above are true.
			E)	Only A and C are true.

Fixed manufacturing costs for the month of March:
Factory rent $12,000
Depreciation $ 8,000
Supervisory salaries $24,000
Security utilities $ 3,000

40		Ten thousand units were produced in March but only 8,000 units were sold. There was no beginning inventory. All the ending inventory of March was sold in the subsequent month. What portion of the rent expenditure for March will be recognized as an expense on the April full costing income statement?
			A)	$9,600
			B)	$12,000
			C)	$3,000
			D)	$2,400
			E)	None
41		Ten thousand units were produced in March but only 8,000 units were sold. There was no beginning inventory. All the ending inventory of March was sold in the subsequent month. What portion of the rent expenditure for March will be recognized as an expense on the April variable costing income statement?
			A)	$ 9,600
			B)	$12,000
			C)	$ 3,000
			D)	$ 2,400
			E)	None of the above