Question 1

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:
A) total operating expenses are $755,000
B) total manufacturing expenses are $755,000
C) direct materials, direct labor, and factory overhead total $755,000
D) total service department charges are $755,000

Accepted Answer

The answer of Income from operations for Division K is...

Question 2

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:
A) miscellaneous administrative expenses
B) direct expenses
C) indirect expenses
D) fixed expenses

Accepted Answer

Direct expenses are those that can be directly linked to a specific department and can be controlled by the department manager. Indirect expenses, on the other hand, are costs that cannot be directly traced to a department or product, while miscellaneous administrative expenses are a general category that can include various expenses such as office supplies and employee training. Fixed expenses are costs that do not vary with changes in the level of production or sales.

Question 3

Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z?
A) $650,000
B) $2,516,000
C) $2,916,000
D) $2,666,000

Accepted Answer

Income from operations = Revenues - Total service department charges - Operating expenses
$250,000 = Revenues - $400,000 - $2,266,000
$250,000 + $400,000 + $2,266,000 = Revenues
$2,916,000 = Revenues. Therefore, the answer is C.

Question 4

In a cost center, the manager has responsibility and authority for making decisions that affect:
A) revenues
B) assets
C) both costs and revenues
D) costs

Accepted Answer

A cost center is responsible for managing and controlling costs. Therefore, the manager has the responsibility and authority to make decisions that affect costs, but not revenues or assets.

Question 5

In evaluating the profit center manager, the income from operations should be compared:
A) across profit centers
B) to historical performance or budget
C) to the competitor's net income
D) to the total company earnings per share

Accepted Answer

Comparing the income from operations of the profit center to historical performance or budget will help evaluate the manager's effectiveness in generating profits within the established framework. Comparing to other profit centers may not be fair as they may have different operating structures, and comparing to the competitor's net income or the total company's earnings per share may not provide a true picture of the profit center's performance.

Question 6

The following is a measure of a manager's performance working in a cost center.
A) budget performance report
B) rate of return and residual income measures
C) divisional income statements
D) balance sheet

Accepted Answer

A budget performance report is the most appropriate measure of a manager's performance in a cost center, as it compares actual expenses and revenues to budgeted amounts, highlighting any variances and identifying areas where costs can be reduced or efficiency improved. Choices B, C, and D are measures that are more commonly used for evaluating the performance of profit center managers.

Question 7

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):
A) profit center
B) investment center
C) volume center
D) cost center

Accepted Answer

In a profit center, the department manager has responsibility for and authority over both costs and revenues. This means that they are accountable for the profitability of their department, and are able to make decisions about pricing, sales, and expenses that directly impact the department's bottom line. A profit center is a more flexible and empowered type of responsibility center than a cost center, which is focused solely on controlling costs. An investment center, on the other hand, also includes responsibility for capital investment decisions, which may not be relevant to all department managers. A volume center is not a commonly used term in management accounting.

Question 8

To calculate income from operations, total service department charges are:
A) added to income from operations before service department charges
B) subtracted from operating expenses
C) subtracted from income from operations before service department charges
D) subtracted from gross profit margin

Accepted Answer

Total service department charges are costs associated with support departments and should be subtracted from income from operations before service department charges to remove their impact on the final operating income of the company.

Question 9

What is the term used to describe expenses that are incurred for the benefit of a specific department?
A) Indirect expenses
B) Margin expenses
C) Departmental expenses
D) Direct expenses

Accepted Answer

Direct expenses are incurred for the benefit of a specific department or cost center. They can be directly traced to a particular department or product.

Question 10

For higher levels of management, responsibility accounting reports:
A) are more detailed than for lower levels of management
B) are more summarized than for lower levels of management
C) contain about the same level of detail as reports for lower levels of management
D) are rarely provided or reviewed

Accepted Answer

Responsibility accounting reports for higher levels of management are more summarized as they are typically focused on overall performance and strategy rather than detailed operations. Higher management levels are more concerned with the big picture and making strategic decisions, whereas lower levels of management are more focused on specific operational details.

Question 11

In a profit center, the manager has responsibility and authority for making decisions that affect:
A) liabilities
B) assets
C) investments
D) costs

Accepted Answer

In a profit center, the manager is responsible for generating profits and controlling costs. Therefore, the manager has the authority to make decisions that directly affect costs.

Question 12

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?
A) Depreciation expense--office equipment
B) Insurance on inventory of sporting goods
C) Uncollectible accounts expense
D) Office salaries

Accepted Answer

Insurance on inventory of sporting goods is a direct expense because it directly relates to the sporting goods department and is incurred in order to protect the inventory of the department. The other expenses listed are indirect expenses that are shared by multiple departments of the store.

Question 13

A manager is responsible for costs only in a(n):
A) profit center
B) investment center
C) volume center
D) cost center

Accepted Answer

A cost center is an area or department within a business where the manager is responsible for controlling costs. They do not have control over revenue or profits, but rather focus on keeping expenses within budget.

Question 14

The costs of services charged to a profit center on the basis of its use of those services are called:
A) operating expenses
B) noncontrollable charges
C) service department charges
D) activity charges

Accepted Answer

Service department charges are costs of services charged to a profit center based on its usage of those services. Operating expenses refer to all expenses incurred in the normal course of business operations, regardless of their direct relationship to production or sales. Noncontrollable charges are expenses that cannot be controlled by a profit center manager, such as corporate overhead costs. Activity charges refer to costs associated with specific activities within a profit center, which may or may not be related to the use of services provided by service departments.

Question 15

Most manufacturing plants are considered cost centers because they have control over
A) sales and costs.
B) fixed assets and costs.
C) costs only.
D) fixed assets and sales.

Accepted Answer

Manufacturing plants typically focus on optimizing their production processes and reducing costs, making them cost centers. They do not typically have control over sales, as that is the responsibility of the marketing and sales departments. While they may have control over fixed assets, this is not the defining factor in whether a department is a cost center. Therefore, the correct answer is C, costs only.

Question 16

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:
A) not only costs and revenues, but also assets invested in the center
B) the assets invested in the center, but not costs and revenues
C) both costs and revenues for the department or division
D) costs and assets invested in the center, but not revenues

Accepted Answer

In a profit center, the department manager is responsible for both costs and revenues for the department or division, and has the authority to make decisions that affect both. This means they have a direct impact on the profitability of the center and are accountable for its financial performance. While they also have some responsibility for the assets invested in the center, this is secondary to their primary role in managing costs and revenues.

Question 17

Division X reported income from operations of $975,000 and total service department charges of $575,000. Therefore:
A) net income was $400,000
B) the gross profit margin was $400,000
C) income from operations before service department charges was $1,550,000
D) consolidated net income was $400,000

Accepted Answer

Income from operations before service department charges represents the income earned by the division before any charges from other departments within the company are taken into account. Therefore, to determine income from operations before service department charges, we would add the total service department charges ($575,000 in this case) to income from operations ($975,000). This gives us a total income from operations before service department charges of $1,550,000 (Option C). The other options are incorrect based on the information given.

Question 18

Which of the following expenses incurred by a department store is an indirect expense?
A) Insurance on merchandise inventory
B) Sales salaries
C) Depreciation on store equipment
D) Salary of vice-president of finance

Accepted Answer

The answer of Which of the following expenses incurred by...

Question 19

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The residual income for Chicks is:
A) $165,000
B) $302,500
C) $137,500
D) $191,500

Accepted Answer

The answer of Chicks Corporation had $1,100,000 in invested assets,...

Question 20

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The investment turnover for Mason is:
A) 1.08
B) .93
C) 6.57
D) 7.07

Accepted Answer

The answer of Mason Corporation had $650,000 in invested assets,...

Quiz 8: Performance Evaluation for Decentralized Operations

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z?

In a cost center, the manager has responsibility and authority for making decisions that affect:

In evaluating the profit center manager, the income from operations should be compared:

The following is a measure of a manager's performance working in a cost center.

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n) :

To calculate income from operations, total service department charges are:

What is the term used to describe expenses that are incurred for the benefit of a specific department?

For higher levels of management, responsibility accounting reports:

In a profit center, the manager has responsibility and authority for making decisions that affect:

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

A manager is responsible for costs only in a(n) :

The costs of services charged to a profit center on the basis of its use of those services are called:

Most manufacturing plants are considered cost centers because they have control over

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

Division X reported income from operations of $975,000 and total service department charges of $575,000. Therefore:

Which of the following expenses incurred by a department store is an indirect expense?

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The residual income for Chicks is:

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The investment turnover for Mason is: