Evaluating and Improving Your Department’s Performance Essay

Evaluating and Improving Your Department’s Performance
1. 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 control.
D. A reasonable separation of costs into their fixed and variable components since fixed costs are not
controllable and must be eliminated from the responsibility report.
2. A segment of an organization is an investment center if it has
A. Authority to make decisions affecting the major determinants of profit, including the power to choose
its markets and sources of supply.
B. Authority to make decisions affecting the major determinants of profit, including the power to choose
its markets and sources of supply and significant control over the amount of invested capital.
C. Authority to make decisions over the most significant costs of operations, including the power to choose
the sources of supply.
D. Responsibility for developing markets for, and selling the output of, the organization.
3. Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n)
A. Revenue center.
B. Profit center
C. Division.
D. Operating unit.
4. Residual income of an investment center is the center’s
A. Operating income plus the minimum required return on its invested capital.
B. Operating income less the minimum required return on its invested capital.
C. Contribution margin plus the minimum required return on its invested capital.
D. Contribution margin less the minimum required return on its invested capital.
5. Residual income (RI) is a better measure for performance evaluation of an investment center manager than
return on investment (ROI) because
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A. The problems associated with measuring the asset base are eliminated.
B. Only the gross book value of assets needs to be calculated.
C. Desirable investment decisions will not be neglected by high-return divisions.
D. The arguments about the implicit cost of interest are eliminated.
6. Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment
(ROI). In many cases, residual income is preferred to ROI because.
A. Residual income is a measure over time, while ROI represents the results for one period.
B. Residual income concentrates on maximizing absolute dollars of income rather than a percentage return
as with ROI.
C. The imputed interest rate used in calculating residual income is more easily derived than the target rate
that is compared to the calculated ROI.
D. Average investment is employed with residual income while year-end investment is employed with ROI.
7. The price that one division of a company charges another division for goods or services provided is called negotiated
pricing. True or False?
8. A limitation of transfer prices based on actual cost is that they
A. Charge inefficiencies to the department that is transferring the goods.
B. Charge cost inefficiencies to the buying division that can lead to suboptimal decisions for the company
as a whole.
C. Must be adjusted by some markup.
D. Lack clarity and administrative convenience.

Evaluating and Improving Your Department’s Performance Essay

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