Accounting 2 - Chapter 24 - Test 3 - Review MC

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Which of the following would be most effective in a small owner/manager-operated business?

Centralization

Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:

decentralized

Which of the following is NOT a disadvantage of decentralized operation?

Top management freed from everyday tasks to do strategic planning

Which is the best example of a decentralized operation?

Each unit is responsible for their own operations and decision making.

The following are advantages of decentralization except:

Each decentralized operation purchases their own assets and pays for operating costs.

Which of the following is not one of the common types of responsibility centers?

Revenue Center

Which of the following is a disadvantage of decentralization?

Decisions made by one manager may negatively affect the profitability of the entire company.

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

cost center

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

costs

For higher levels of management, responsibility accounting reports:

are more summarized than for lower levels of management

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

costs only.

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

budget performance report

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

profit center

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

both costs and revenues for the department or division

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

Insurance on inventory of sporting goods

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

Salary of vice-president of finance

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

costs

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:

direct expenses

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

to historical performance or budget

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

service department charges

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

subtracted from income from operations before service department charges

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

Direct expenses

Responsibility accounting reports for profit centers will include

revenues, expenses, net income or loss from operations.

Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?

Inventory Control

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

divisional income statements

Which of the following would not be considered an internal centralized service department?

Manufacturing department

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

Investment center

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

an investment center

In an investment center, the manager has the responsibility for and the authority to make decisions that affect:

not only costs and revenues, but also assets invested in the center

In an investment center, the manager has responsibility and authority for making decisions that affect:

costs, revenues, and assets

The profit margin is the:

ratio of income from operations to sales

The investment turnover is the:

ratio of sales to invested assets

Identify the formula for the rate of return on investment.

Income From Operations/Invested Assets

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

Income From Operations/Sales

Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

Sales/Invested Assets

What additional information is needed to find the rate of return on investment if income from operations is known?

Invested assets

The best measure of managerial efficiency in the use of investments in assets is:

investment turnover

The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:

residual income

Which one of the following is NOT a measure that management can use in evaluating and controlling investment center performance?

Negotiated price

A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called:

profit margin

A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:

investment turnover

Investment centers differ from profit centers in that they

are able to invest in assets.

The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement.

Employees

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

A. budget performance report
B. rate of return and residual income measures
C. divisional income statements

The balanced scorecard measures

both financial and nonfinancial information

Which of the following is not a commonly used approach to setting transfer prices?

Revenue price approach

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

Market price approach

When is it appropriate to use the market price approach when two related companies are providing services or products to each other?

The purchasing company is currently purchasing a product at a price from an outside supplier as it would from its related company that is operating at full capacity.

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Market Price

The transfer price which is uses a variety of cost concepts is the

Cost price approach

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

the negotiated cost approach

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