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Exam 22: Responsibility Accounting and Transfer Pricing

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Question 41

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The responsibility margin is the contribution margin less common fixed costs.

A) True
B) False

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Question 42

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A subtotal used in evaluating the performance of a responsibility center manager, as distinct from the performance of the center, is:

A) Contribution margin, less traceable fixed costs.
B) Sales, less committed costs.
C) Contribution margin, plus fixed costs deferred into inventory.
D) Contribution margin, less controllable fixed costs.

E) A) and B)
F) None of the above

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Question 43

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Responsibility income statement-cost classification Milton's, a large department store, prepares income statements by sales department. These statements follow the contribution margin approach, showing contribution margin and responsibility margin for each profit center as well as monthly income from operations for the store. Indicate the classification of each of the costs listed below by inserting the appropriate code letters in the space provided. Costs ______ (a) The cost of merchandise sold in the Women's Sportswear Department. ______ (b) Advertising a sale in the Housewares Department (classify as a fixed cost). ______ (c) Depreciation on equipment used in the Automotive Service Department. ______ (d) Depreciation on the store's heating and air conditioning system. _____ (e) Monthly salary of the manager of the Toy Department. _____ (f) Sales taxes collected from customers and paid to local tax authorities. _____ (g) Monthly salaries of store security guards. $\begin{array}{l}\text { Code Letters }\\\begin{array} { | l | l | l | l | } \hline \text { VC } & \text { = Variable costs } & \text { CF } & \text { = Common fixed costs } \\\hline \text { TF } & \text { = Traceable fixed costs } & \mathrm { X } & \text { = None of the above } \\\hline\end{array}\end{array}$

The responsibility margin for the uptown branch during the year is:

Contribution margin ratio: _____________%

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

In deciding which responsibility centers can benefit most from short-term marketing efforts, such as advertising specific products, management should give greatest consideration to the relationship between a center's sales and:

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each. These salaries should be classified as:

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

If a business activity qualifies as a profit center, it cannot also qualify as an investment center.

Responsibility income statements Identify and discuss briefly the two concepts generally used in assigning costs to responsibility centers of a business.

Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?

Company MHF operates subsidiaries in two countries. One of the subsidiaries consumes the output of the other in the production of a good for sale to the public. The company could increase cash flows by:

An example of a revenue center is:

Common fixed costs jointly benefit several parts of the business and would not change significantly even if one of the parts of the business were discontinued.

An investment center is a profit center where management can make related capital investment choices.

All of the following costs are traceable to specific sales departments except:

A common cost may become a traceable cost as it moves up to larger responsibility centers.

Depreciation on the factory would be an example of a:

In a responsibility income statement, the term common fixed costs describes fixed costs that: