Question 1

Disneyland charges visitors for admission to the park but not for individual rides or attractions."Splash Mountain" is one of the rides in Disneyland.The Walt Disney Company should evaluate "Splash Mountain" as:
A)A revenue center.
B)A cost center.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

"Splash Mountain" does not generate revenue directly since Disneyland charges a general admission fee rather than for individual rides. It is considered a cost center because it incurs costs for operation and maintenance, and its performance can be evaluated based on how efficiently it manages those costs.

Question 2

When an external market exists for a transferred product or service,most companies use either negotiated transfer prices or cost-plus transfer prices.

Accepted Answer

The answer of When an external market exists for a...

Question 3

An investment center:
A)Is a profit center for which management is able to objectively measure the cost of the assets used in the center's operations.
B)Is a cost center for which management is able to identify the original amount invested.
C)May be either a cost center or a profit center.
D)Is a subunit of the organization that provides services to other centers within the organization.

Accepted Answer

An investment center is a profit center that is able to objectively measure the cost of the assets used in the center's operations. This means that the center is responsible for generating profits, but management is also able to track the cost of investments made to achieve those profits.

Question 4

Disneyland is one of several theme parks owned by The Walt Disney Company.Disneyland should be evaluated as:
A)An investment center.
B)A cost center.
C)An entertainment center.
D)A profit center (other than an investment center).

Accepted Answer

The answer of Disneyland is one of several theme parks...

Question 5

One of the unique services provided by San Francisco's St.Francis Hotel is cleaning and polishing coins (pocket change)for the guests.From the standpoint of hotel management,this "money laundry" should be viewed as:
A)A contribution center.
B)A cost center.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

Cleaning and polishing coins for guests is a service that would likely incur expenses and require resources such as staff time and cleaning supplies. Therefore, it should be viewed as a cost center. It is not generating any revenue, so it cannot be considered a profit center, nor is it an investment center as it is not a long-term investment or asset. It also cannot be considered a contribution center as it is not contributing to the hotel's overall revenue directly.

Question 6

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse,New York.Carrier should evaluate its Syracuse plant as:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)A committed center.

Accepted Answer

The Syracuse plant is a production center that generates revenues from selling heating and air conditioning equipment. As such, it should be evaluated as an investment center, which is a unit that generates both revenues and costs and is responsible for achieving a target return on investment. Evaluating the plant as an investment center would enable Carrier to assess its profitability, efficiency, and utilization of capital, and to make decisions about resource allocation, pricing, production volumes, and capital investments based on its financial performance.

Question 7

The transfer price is the dollar amount used in recording sales to primary customers.

Accepted Answer

The transfer price is the dollar amount used in recording transactions between different units or divisions within the same company. It is not related to sales to primary customers.

Question 8

In a responsibility accounting system,the recording of revenue and costs begins with the:
A)Most profitable segments of the business.
B)Least profitable segments of the business.
C)Broadest areas of management responsibility.
D)Smallest areas of management responsibility.

Accepted Answer

The answer of In a responsibility accounting system,the recording of...

Question 9

The part of a business a particular manager is held responsible for is called a:
A)Cost center.
B)Profit center.
C)Investment center.
D)Responsibility center.

Accepted Answer

A responsibility center is the part of a business that a particular manager is responsible for. Both cost centers and profit centers are types of responsibility centers, but investment centers are a broader category that includes responsibility for investments and returns on those investments, in addition to operational responsibilities. Therefore, the best choice is D, Responsibility center.

Question 10

Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating Products divisions.The management of the Syracuse plant should evaluate the Heating Products division as:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)A revenue center.

Accepted Answer

The answer of Carrier Corporation's Syracuse plant is organized into...

Question 11

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation.Thomas should be evaluated as manager of:
A)A cost center.
B)An investment center.
C)A profit center (other than an investment center).
D)Human resources under his supervision.

Accepted Answer

As the manager of materials movement, John Thomas is responsible for controlling costs associated with the movement of materials, which makes his area a cost center. This is because his primary responsibility is to manage and minimize costs without direct responsibility for generating revenue or investment decisions.

Question 12

The human resources department of a large company would be considered:
A)A cost center.
B)A profit center.
C)An investment center.
D)A revenue center.

Accepted Answer

The human resources department is considered a cost center because it incurs expenses related to employee salaries, benefits, training, and development. Its purpose is to provide support services to other departments and ensure that the workforce is well-managed and compliant with applicable laws and regulations. Unlike a profit center, it does not generate revenue directly, and unlike an investment center, it does not have the authority to make significant investment decisions.

Question 13

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is:
A)Responsible for earning a specified amount of profit.
B)Responsible for all business operations in a specific region.
C)Under the control of a specified center manager.
D)Approximately the same size.

Accepted Answer

Responsibility centers are defined so that each center has a manager or a leader who is responsible for the activities and performance of that center. This allows for accountability and control within different parts of an organization.

Question 14

The bookstore of a university would be considered:
A)A cost center.
B)A profit center.
C)An investment center.
D)A revenue center.

Accepted Answer

A profit center is responsible for generating revenue and profits for the organization. As a bookstore, it is expected to generate profits from the sales of books, school supplies, and other merchandise. Therefore, a university bookstore is considered a profit center.

Question 15

San Francisco's famous St.Francis Hotel is owned by Westin Hotel and Resort Group.Westin should evaluate the St.Francis as:
A)A cost center.
B)A historical landmark.
C)An investment center.
D)A profit center (other than an investment center).

Accepted Answer

As the St. Francis Hotel is a property owned by Westin Hotel and Resort Group, it should be evaluated as an investment center. This means that the financial performance and return on investment of the hotel should be assessed to determine whether it is a profitable investment for the group. While the hotel may also be a historical landmark and a cost center (in terms of operating expenses and maintenance costs), these factors are not as relevant to Westin's evaluation of the property as an investment. Therefore, option C is the best choice.

Question 16

Which of the following is not a valid reason for developing responsibility center information?
A)Responsibility center information is useful in deciding how to allocate resources among segments of the business.
B)Separately measuring the revenue and expenses of each responsibility center is a necessary step in developing financial statements for the business entity viewed as a whole.
C)Responsibility center information is useful in evaluating the performance of segment managers.
D)Responsibility center information helps management to quickly identify sections of the business that are performing poorly.

Accepted Answer

Separately measuring the revenue and expenses of each responsibility center is not a necessary step in developing financial statements for the business entity viewed as a whole. Financial statements for the business entity as a whole only need to show the total revenue and expenses, and not necessarily the break down by responsibility center.

Question 17

A responsibility accounting system measures the performance of each of the following centers except:
A)Profit center.
B)Investment center.
C)Control center.
D)Cost center.

Accepted Answer

Responsibility accounting system measures the performance of Profit center, Investment center, and Cost center. Control center is not a commonly recognized center for a responsibility accounting system.

Question 18

Cost centers are evaluated primarily on the basis of their ability to control costs and:
A)Their return on assets.
B)Residual income.
C)The quantity and quality of the services they provide.
D)Their contribution margin ratio.

Accepted Answer

Cost centers are responsible for controlling costs, but they are not typically evaluated on measures such as return on assets or residual income. Instead, the primary focus is on the quantity and quality of the services they provide, as this is where they can make the biggest impact on the organization. The contribution margin ratio may be relevant for profit centers but is less important in cost centers' evaluation.

Question 19

The primary difference between profit centers and cost centers is that:
A)Profit centers generate revenue.
B)Cost centers incur costs.
C)Profit centers are evaluated using return on investment criteria.
D)Profit centers provide services to other centers in the organization.

Accepted Answer

Profit centers are revenue-generating units within an organization, while cost centers are focused on managing and controlling costs. Profit centers are evaluated based on their ability to generate profit and return on investment, while cost centers are evaluated based on their ability to control costs and manage their budgets.

Question 20

An example of a profit center is:
A)The accounting department in a manufacturing company.
B)The maintenance department of a university.
C)The furniture department of a retail department store.
D)The human resources department in a hospital.

Accepted Answer

A profit center is a department, unit or section of a business that generates revenue and earns profit. The furniture department of a retail department store is a profit center as it sells products that generate revenue and profits for the store. The accounting department, maintenance department, and human resources department are not profit centers as they provide necessary support services to the business operations but do not directly generate revenue or profits.

Quiz 22: Responsibility Accounting and Transfer Pricing

Disneyland charges visitors for admission to the park but not for individual rides or attractions."Splash Mountain" is one of the rides in Disneyland.The Walt Disney Company should evaluate "Splash Mountain" as:

When an external market exists for a transferred product or service,most companies use either negotiated transfer prices or cost-plus transfer prices.

An investment center:

Disneyland is one of several theme parks owned by The Walt Disney Company.Disneyland should be evaluated as:

One of the unique services provided by San Francisco's St.Francis Hotel is cleaning and polishing coins (pocket change) for the guests.From the standpoint of hotel management,this "money laundry" should be viewed as:

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse,New York.Carrier should evaluate its Syracuse plant as:

The transfer price is the dollar amount used in recording sales to primary customers.

In a responsibility accounting system,the recording of revenue and costs begins with the:

The part of a business a particular manager is held responsible for is called a:

Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating Products divisions.The management of the Syracuse plant should evaluate the Heating Products division as:

John Thomas is the manager of materials movement for the Syracuse plant of Carrier Corporation.Thomas should be evaluated as manager of:

The human resources department of a large company would be considered:

The term responsibility center reflects the idea that the "centers" of a business usually are defined in a manner such that each center is:

The bookstore of a university would be considered:

San Francisco's famous St.Francis Hotel is owned by Westin Hotel and Resort Group.Westin should evaluate the St.Francis as:

Which of the following is not a valid reason for developing responsibility center information?

A responsibility accounting system measures the performance of each of the following centers except:

Cost centers are evaluated primarily on the basis of their ability to control costs and:

The primary difference between profit centers and cost centers is that:

An example of a profit center is: