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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 calculated by:

A) Subtracting fixed costs traceable to a center from its contribution margin.
B) Subtracting common fixed costs from the contribution margin.
C) Subtracting variable costs from sales.
D) Subtracting common fixed costs from variable costs.

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Question 42

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If a company wanted to evaluate the manager's ability to control costs,the company would probably look at the:

A) Performance margin.
B) Responsibility margin.
C) Contribution margin.
D) Segment margin.

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Question 43

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

Using a responsibility income statement Shown below is the current monthly income statement of Metro Video,by profit centers: On the basis of this information,compute the increase in monthly income from operations that may be expected to result from each of the following actions: (a)Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%.$________________ (b)Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month.This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month.$_______________

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

Responsibility margin is equal to:

The contribution margin approach to preparing reports for managers classifies costs into fixed and variable costs.

Traceable fixed costs that the manager of a department cannot change are called:

Accounting terminology Listed below are seven technical accounting terms introduced or emphasized in this chapter: Each of the following statements may (or may not)describe one of these technical terms.In the space provided beside each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms. ____ (a)Costs that jointly benefit several responsibility centers of the business and that do not vary significantly with changes in sales volume. ____ (b)The amount charged by a responsibility center for the goods it sells to another responsibility center. ____ (c)Used to evaluate the performance of a manager based solely on revenue and costs under the manager's control. ____ (d)A responsibility center of a business that may be evaluated by the return earned on assets. ____ (e)The subtotal in a responsibility income statement that is most useful in evaluating the short-term effects of various marketing strategies on profitability.

Successful operation of a responsibility accounting system requires all of the following except:

Responsibility income statement Classico's Pizza,a chain of pizza parlors,views each branch location as an investment center.The local branch reported the following results for the current year: Compute the following measures for this investment center: (a)Contribution margin: $_______________ (b)Contribution margin ratio: _______________% (c)Responsibility margin: $_______________ (d)Increase in annual responsibility margin that would be expected to result from a 10% increase in sales volume: $_______________

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.