1.

) The basic purpose of responsibility accounting system is

a. Budgeting c. Authority
b. Motivation d. Variance analysis
2.) A successful responsibility reporting system is dependent upon
a. The correct allocation of controllable variable costs
b. Identification of the management level at which all cost are controllable
c. The proper delegation of responsibility and authority
d. a responsible separation of cost to their fixed and variable components since fixed
costs are not controllable and must be eliminated from the performance report
3.) The least complex segment or area of responsibility for which costs are allocated is
a(n)
a. Profit Center c. Contribution Center
b. Investment Center d. Cost Center
4.) Which of the following techniques would be best for evaluating the management
performance of a department that is operated as a cost center?
a. Return on asset ratio
b. Return on investment %
c. Payback method
d. Variance analysis
5.) If a manufacturing company uses responsibility accounting, which one of the
following items is least likely to appear in a performance report for a manger of an
assembly line
Depreciation on equipment

6.) Decentralized firms can delegate authority and yet retain control and monitor
mangers performance by structuring the organization into responsibility centers.
Which one of the following organizational segments is most like an independent
business

Investment center

7.) the segment margin of an investment center after deducting the imputed interest
on assets?
residual income

8.)A segment of an organization is referred to as a service center if it has

Authority to provide specialized support to other units within the organization.
9. Which equation describes residual income? (I = investment, N = income, and K =
minimum required ROI)
a. N - (K x I)
b. (K x I) - N
c. N/I - K
d. (K x I) - (N/I)
10. If a division's ROI and the minimum required ROI are the same, the division's
residual income is
a. positive.
b. zero.
c. negative.
d. none of the above.
11. Compared to a jewelry store, a supermarket has
a. higher margin and higher turnover.
b. higher margin and lower turnover.
c. lower margin and higher turnover.
d. lower margin and lower turnover.

12. A firm earning a profit can increase its return on investment by

A. Increasing sales revenue and operating expenses by the same dollar amount.
B. Decreasing sales revenues and operating expenses by the same percentage.
C. Increasing investment and operating expenses by the same dollar amount.
D. Increasing sales revenues and operating expenses by the same percentage.
13. The imputed interest rate used in the residual income approach to performance
evaluation can best be described as the
A. Average lending rate for the year being evaluated.
B. Historical weighted-average cost of capital for the company.
C. Target return on investment set by the companys management.
D. Average return on investments for the company over the last several years.
14. Residual income is a better measure for performance evaluation of an investment
center manager than return on investment because
A. The problems associated with measuring the asset base are eliminated.
B. Desirable investment decisions will not be neglected by high-return divisions.
C. Only the gross book value of assets needs to be calculated.
D. The arguments about the implicit cost of interest are eliminated.
15. In evaluating an investment center, top management should concentrate on
A. Peso rate.
B. Net income.
C. Profit percentages.
D. Return on investment.
16. When using a contribution margin format for internal reporting purposes, the major
distinction between segment manager performance and segment performance is
a. unallocated fixed cost
b. Direct variable cost of producing the product
c. Direct fixed cost controllable by the segment manager
d. Direct fixed cost controllable by others
1.b 9.a
2.c 10.b
3.d 11.c
4.d 12.d
13.c 15.d
14.b 16.d