Question 1

Contribution to overhead generated by a department is the same as gross profit generated by that department.

Accepted Answer

Contribution to overhead is the amount of revenue that remains after deducting direct expenses, while gross profit is the amount of revenue that remains after deducting all costs of goods sold, including direct and indirect expenses. Therefore, contribution to overhead is not the same as gross profit.

Question 2

Cycle efficiency is the ratio of value-added time to total cycle time.

Accepted Answer

Cycle efficiency is indeed the ratio of value-added time to total cycle time. Value-added time refers to the time spent on activities that directly contribute to creating value for the customer, while total cycle time includes both value-added and non-value-added activities. Therefore, cycle efficiency is a measure of how efficiently the value is being added to the product or service being delivered.

Question 3

When a company has no excess capacity,the use of cost-based transfer pricing is preferred.

Accepted Answer

When a company has no excess capacity, market-based transfer pricing is preferred because it reflects the opportunity cost of using resources internally rather than selling them externally.

Question 4

Investment center managers are responsible only for revenues and the costs of investment.

Accepted Answer

Investment center managers are responsible for not only revenues and investment costs, but also for the efficient use of assets and achieving a certain level of return on investment. They are evaluated on overall profitability, not just revenue and investment costs.

Question 5

Return on investment for a given investment center can be split into two components: profit margin and investment turnover.

Accepted Answer

This statement is true. Return on investment (ROI) is calculated as the product of profit margin and investment turnover. Profit margin is the percentage of sales that result in profit, while investment turnover refers to the number of times the investment center's assets are used to generate revenue.

Question 6

Which of the following is most likely to be considered a profit center?
A) An individual retail store in a large chain.
B) The grocery department of a Walmart Supercenter or Target Superstore.
C) The maintenance department of a large retail operation.
D) The personnel office of a business.
E) A stand-alone eye clinic.

Accepted Answer

The answer of Which of the following is most likely...

Question 7

A profit center:
A) Incurs costs but does not directly generate revenues.
B) Incurs costs and directly generates revenues.
C) Has a manager who is evaluated solely on efficiency in controlling costs.
D) Incurs only indirect costs and directly generates revenues.
E) Incurs only indirect costs and generates revenues.

Accepted Answer

A profit center is an organizational unit that incurs costs and directly generates revenues. The manager of a profit center is evaluated based on their ability to generate profits, which involves controlling costs while maximizing revenues. Therefore, choice (B) is the best answer.

Question 8

Profit margin measures how efficiently an investment center generates sales from its invested assets.

Accepted Answer

Profit margin measures how much profit a company makes for every dollar of sales, not how efficiently it generates sales from its invested assets.

Question 9

Return on total assets for a cost center is a useful measure to evaluate the cost center manager.

Accepted Answer

Return on total assets is a measure used to evaluate the overall profitability of the company and is not specific to a cost center. It would not be an appropriate measure to evaluate the performance of a cost center manager, who may not have control over the company's total assets. Instead, cost center managers may be evaluated based on measures such as cost savings or efficiency improvements within their specific areas of responsibility.

Question 10

Departmental contribution to overhead is the amount of revenues for that department less its direct expenses.

Accepted Answer

The answer of Departmental contribution to overhead is the amount...

Question 11

Joint costs can be allocated either using a physical basis or a value basis.

Accepted Answer

Joint costs can be allocated based on either the physical quantity of goods produced or the value of the goods produced. Both methods are accepted accounting practices.

Question 12

A useful measure used to evaluate the manager of an investment center is return on total costs for the investment center.

Accepted Answer

Return on total costs is not a standard measure for evaluating investment center managers. Instead, return on investment (ROI) or residual income is typically used to assess their performance.

Question 13

An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a:
A) Departmental accounting system.
B) Cost accounting system.
C) Service accounting system.
D) Revenue accounting system.
E) Standard accounting system.

Accepted Answer

The answer of An accounting system that provides information that...

Question 14

Cycle time is a financial measure commonly used to evaluate a company's production processes.

Accepted Answer

Cycle time is an operational measure, not a financial one, used to evaluate the efficiency of production processes by measuring the time taken to complete one cycle of production.

Question 15

A unit of a business that not only incurs costs but also generates revenues is called a:
A) Performance center.
B) Profit center.
C) Cost center.
D) Responsibility center.
E) Expense center.

Accepted Answer

Profit centers not only incur costs but also generate revenues and are responsible for their financial performance. They are distinct units of a business that are evaluated based on their ability to generate profits.

Question 16

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.

Accepted Answer

The answer of In producing oat bran,the joint cost of...

Question 17

The process of preparing departmental income statements starts with allocating service departments.

Accepted Answer

The process of preparing departmental income statements typically starts with allocating revenues and direct expenses to the respective departments before any allocation of service departments' costs.

Question 18

Which of the following would not be considered a cost center?
A) Accounting department.
B) Purchasing department.
C) Research department.
D) Advertising department.
E) Pharmacy in a grocery store.

Accepted Answer

Cost centers are departments or units within a company that incur costs but do not directly generate revenue. The pharmacy in a grocery store is a revenue center because it generates revenue through the sales of prescriptions and other items. Therefore, it would not be considered a cost center. The other choices are departments within a company that incur costs but do not directly generate revenue and would be considered cost centers.

Question 19

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.

Accepted Answer

This is the most common method used for allocating joint costs between two or more products. It is based on the assumption that the physical volume or quantity of each product reflects the amount of resources consumed in producing that product. This method is easy to understand and apply, but it may not accurately reflect the actual value or profitability of each product.

Question 20

Joint costs are a group of several costs incurred in producing or purchasing a single product.

Accepted Answer

Joint costs are costs incurred in the process of producing two or more products simultaneously from the same raw material or input, not for a single product.

Quiz 22: Decentralization and Performance Measurement