Question Details

Accounting 101 PART 5 BUDGETARY CONTROL AND
RESPONSIBILITY ACCOUNTING

91.	A profit center is
		a.	a responsibility center that always reports a profit.
		b.	a responsibility center that incurs costs and generates revenues.
		c.	evaluated by the rate of return earned on the investment allocated to the center.
		d.	referred to as a loss center when operations do not meet the company's objectives.

	92.	Each of the following are controllable by a profit center manager except
		a.	variable costs.
		b.	sales.
		c.	indirect fixed costs.
		d.	all of these options are controllable.

	93.	Direct fixed costs are
		a.	also called common costs.
		b.	not controllable by a profit center manager.
		c.	costs that apply to more than one center.
		d.	deducted from contribution margin on a responsibility report.

	94.	An indirect fixed cost is also called a
		a.	common fixed cost.
		b.	controllable fixed cost.
		c.	direct fixed cost.
		d.	traceable fixed cost.

	95.	All of the following statements about a profit center responsibility report are correct except that
		a.	controllable fixed costs are deducted from controllable margin.
		b.	it shows budgeted and actual controllable revenues and costs.
		c.	noncontrollable fixed costs are not reported.
		d.	it may include cumulative year-to-date results.

	96.	The denominator in the formula for return on investment calculation is
		a.	investment center controllable margin.
		b.	dependent on the specific type of profit center.
		c.	average investment center operating assets.
		d.	sales for the period.

	97.	In the formula for ROI, idle plant assets are
		a.	included in the calculation of controllable margin.
		b.	included in the calculation of operating assets.
		c.	excluded in the calculation of operating assets.
		d.	excluded from total assets.
	98.	In computing ROI, land held for future use
		a.	will hurt the performance measurement of an investment center's manager.
		b.	is important in evaluating the performance of a profit center manager.
		c.	is included in the calculation of operating assets.
		d.	is considered a nonoperating asset.

	99.	If an investment center has a $15,000 controllable margin and $200,000 of sales, what average operating assets are needed to have a return on investment of 10%?
		a.	$20,000.
		b.	$25,000.
		c.	$150,000.
		d.	$200,000.

	100.	Which of the following valuations of operating assets are not readily available from the accounting records?
		a.	Cost
		b.	Book value
		c.	Market value
		d.	Both cost and market value

	101.	A distinguishing characteristic of an investment center is that
		a.	revenues are generated by selling and buying stocks and bonds.
		b.	interest revenue is the major source of revenues.
		c.	the profitability of the center is related to the funds invested in the center.
		d.	it is a responsibility center which only generates revenues.

	102.	A measure frequently used to evaluate the performance of the manager of an investment center is
		a.	the amount of profit generated.
		b.	the rate of return on funds invested in the center.
		c.	the percentage increase in profit over the previous year.
		d.	departmental gross profit.

	103.	Return on investment is calculated by dividing
		a.	contribution margin by sales.
		b.	controllable margin by sales.
		c.	contribution margin by average operating assets.
		d.	controllable margin by average operating assets.

	104.	Which one of the following will not increase return on investment?
		a.	Variable costs are increased
		b.	An increase in sales
		c.	Average operating assets are decreased
		d.	Variable costs are decreased

	105.	If an investment center has generated a controllable margin of $60,000 and sales of $300,000, what is the return on investment for the investment center if average operating assets were $500,000 during the period?
		a.	12%
		b.	20%
		c. 	48%
		d.	60%
106.	The manager of an investment center can improve ROI by increasing
		a.	average operating assets.
		b.	controllable fixed costs.
		c.	controllable margin.
		d.	variable costs.

	107.	Behavioral principles included in performance evaluation include all of the following except that the
		a.	evaluation should be based entirely on matters that are controllable by the manager being evaluated.
		b.	top management should support the evaluation process.
		c.	evaluation process must allow managers to respond to their evaluation.
		d.	evaluation should identify only poor performance.

*	108.	The following information is available for Louie Company:
			Average operating assets	$500,000
			Controllable margin	70,000
			Contribution margin	100,000
			Minimum rate of return	12%
		Louie- residual income is
		a.	$70,000.
		b.	$40,000.
		c.	$30,000.
		d.	$10,000.

*109.	Residual income is defined as
		a.	contribution margin less controllable fixed costs.
		b.	contribution margin less the minimum rate of return on average operating assets.
		c.	controllable margin less the minimum rate of return on average operating assets.
		d.	controllable margin divided by average operating assets.

*110.	All of the following are correct statements about residual income except that
		a.	its goal is to maximize the total amount of residual income.
		b.	it ignores the fact that one division- operating assets might be substantially lower than another division- assets.
		c.	it is the difference between contribution margin and the minimum rate of return on average operating assets.
		d.	it evaluates performance using a company- minimum rate of return.