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24 terms

Chapter 24

STUDY
PLAY
Separation of businesses into more manageable operating units is termed decentralization
True
The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting
True
A decentralized business organization is one in which all major planning and operating decisions are made by top management
False
The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer
True
The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers
True
The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed
True
Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report
True
A manager in a cost center also has responsibility and authority over the revenues and the costs
False
The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants
True
Sales commissions expense for a department store is an example of a direct expense
True
The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department
False
Depreciation expense on store equipment for a department store is an indirect expense
False
Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases
True
The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department
True
The rate of return on investment may be computed by multiplying investment turnover by the profit margin
True
If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%
True
The ratio of sales to investment is termed the rate of return on investment
False
The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income
True
The ratio of income from operations to sales is termed the profit margin component of the rate of return on investment
True
If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5
False
In rate of return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets
True
Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers
False
Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers
False
It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant
True