RESPONSIBILITY ACCOUNTING QUIZ.

SHOW YOUR SOLUTION. NO SOLUTION, NO CORRESPONDING POINTS.

1. When used for performance evaluation, periodic internal

reports based on a responsibility accounting system should
not
a. Be related to the organization chart
b. Include allocated fixed overhead
c. Include variances between actual and budgeted
controllable costs
d. Distinguish between controllable and noncontrollable
costs
2. A successful responsibility accounting reporting system is
dependent upon
a. The correct allocation of controllable variable costs
b. Identification of the management level at which all costs
are controllable
c. The proper delegation of responsibility and authority
d. A responsible separate of costs into their fixed and
variable components since fixed costs are not
controllable and must be eliminated from the performance
report.
3. What is the least complex segment or area of responsibility
for which costs are allocated?
a. Profit center
b. Investment center
c. Contribution center
d. Cost center
4. In responsibility accounting, a center’s performance is
measured by controllable costs. Controllable costs are best
describe as including
a. Direct material and direct labor only
b. Only those costs that the manager can influence in the
current time period
c. Only discretionary costs
d. Those costs about which the manager is knowledgeable and
informed.
5. In evaluating an investment center, top management should
concentrate on
a. Peso rates
b. Net income
c. Profit percentage
d. Return on investment
PROBLEMS 1.
Crane Inc. manufactures and sells various products. Two divisions
of Crane Inc. are the Division X and the Division Y. The Division
X manufactures one product that can be used by both the Division
Y and other external customers. The following information is
available on this month's operations in the Division X:
Selling price per chip P70
Variable costs per chip P40
Fixed production costs
P80,000

Fixed SG&A costs P110,000

Monthly capacity 10,000 chips

External sales 6,000 chips
Internal sales 0 chips

Presently, the Division Y purchases no chips from the Division X,

but instead pays P65 to an external supplier for the 4,000 chips
it needs each month
QUESTION 1: Assume that next month's costs and levels of
operations in the Division X and Y are similar to this month.
What is the minimum of the transfer price range for a possible
transfer of the product from one division to the other?
QUESTION 2: Assume that next month's costs and levels of
operations in the Division X and Y are similar to this month.
What is the maximum of the transfer price range for a possible
transfer of the product from one division to the other?
QUESTION 3: If a transfer between the two divisions is arranged
next period at a price (on 4,000 units) of P60, total profits in
the Division X will
QUESTION 4: Assume, for this question only, that the Division X
is selling all that it can produce to external buyers for P60 per
unit. How would overall corporate profits be affected if it sells
4,000 units to the Division Y at P65?
QUESTION 5: Assume that the Division Y requires 6,000 units/chips
and the Division X is presently selling 6,000 chips to outside
customers, what is the lower limit of the transfer price?
QUESTION 6: Assume that the Division Y requires 6,000 units/chips
and the Division X is presently selling 6,000 chips to outside
customers, what would be the overall effect on company profits if
all 6,000 chips were acquired from Division X rather than from
the outside suppliers?
QUESTION 7: From the standpoint of the entire company, should
Division Y purchase the tools from Division X (operating at
capacity) or from outside supplier? Why?
PROBLEM 2.
Waren Co. has two service departments (A and B) and two
producing departments (X and Y). Data provided are as
follows:

Service Depts. Operating

Depts.

A B X Y
------- ------ ------ -----
Direct costs $200 $400
Services performed by Dept. A 20% 40% 40%
Services performed by Dept. B. 30% 60% 10%

QUESTION 1: Waren uses the direct method to allocate service

department costs. The service department cost allocated to
Department X and Y are?
QUESTION 2: Waren uses the step-down method to allocate
service department costs. Department A costs are allocated
first. The service department cost allocated to Department X
and Y are
QUESTION 3: Waren uses the reciprocal method to allocate
service department costs. The service department cost
allocated to Department X and Y are
PROBLEM 3.
SAD Co. has established a minimum desired rate of return of 16%
for all divisions. For the most recent year, Division D generated
sales of P10,000,000 and expenses of P7,500,000. Total assets at
the beginning of the year were P5,000,000 and total assets at the
end of the year were P7,000,000.
QUESTION 1. In the most recent year, what was Division D's
residual income?
QUESTION 2. For the most recent year, what was Division D's
return on investment ?
PROBLEM 4.
The Advertising Division of Lash Corp reported the following
results for a recent year

Sales P8,000,00
0
Expenses 6,250,000
Total assets, beg 5,000,000
Total assets, end 5,400,000

QUESTION 1. What was the profit margin for the Advertising

Division?
QUESTION 2. What was the asset turnover ratio of the Advertising
Division?