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Accounting 2 – Chapter 24 – Test 3 – Review MC

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Which of the following would be most effective in a small owner/manager-operated business?
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Centralization
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Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:
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decentralized
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Which of the following is NOT a disadvantage of decentralized operation?
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Top management freed from everyday tasks to do strategic planning
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Which is the best example of a decentralized operation?
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Each unit is responsible for their own operations and decision making.
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The following are advantages of decentralization except:
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Each decentralized operation purchases their own assets and pays for operating costs.
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Which of the following is not one of the common types of responsibility centers?
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Revenue Center
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Which of the following is a disadvantage of decentralization?
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Decisions made by one manager may negatively affect the profitability of the entire company.
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A manager is responsible for costs only in a(n):
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cost center
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In a cost center, the manager has responsibility and authority for making decisions that affect:
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costs
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For higher levels of management, responsibility accounting reports:
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are more summarized than for lower levels of management
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Most manufacturing plants are considered cost centers because the have control over
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costs only.
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The following is a measure of a manager’s performance working in a cost center.
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budget performance report
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A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):
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profit center
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In a profit center, the department manager has responsibility for and the authority to make decisions that affect:
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both costs and revenues for the department or division
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Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?
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Insurance on inventory of sporting goods
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Which of the following expenses incurred by a department store is an indirect expense?
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Salary of vice-president of finance
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In a profit center, the manager has responsibility and authority for making decisions that affect:
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costs
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Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:
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direct expenses
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In evaluating the profit center manager, the income from operations should be compared:
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to historical performance or budget
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The costs of services charged to a profit center on the basis of its use of those services are called:
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service department charges
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To calculate income from operations, total service department charges are:
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subtracted from income from operations before service department charges
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What is the term used to describe expenses that are incurred for the benefit of a specific department?
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Direct expenses
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Responsibility accounting reports for profit centers will include
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revenues, expenses, net income or loss from operations.
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Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?
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Inventory Control
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The following is a measure of a manager’s performance working in a profit center.
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divisional income statements
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Which of the following would not be considered an internal centralized service department?
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Manufacturing department
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Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?
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Investment center
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A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:
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an investment center
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In an investment center, the manager has the responsibility for and the authority to make decisions that affect:
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not only costs and revenues, but also assets invested in the center
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In an investment center, the manager has responsibility and authority for making decisions that affect:
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costs, revenues, and assets
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The profit margin is the:
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ratio of income from operations to sales
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The investment turnover is the:
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ratio of sales to invested assets
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Identify the formula for the rate of return on investment.
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Income From Operations/Invested Assets
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Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?
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Income From Operations/Sales
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Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?
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Sales/Invested Assets
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What additional information is needed to find the rate of return on investment if income from operations is known?
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Invested assets
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The best measure of managerial efficiency in the use of investments in assets is:
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investment turnover
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The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:
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residual income
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Which one of the following is NOT a measure that management can use in evaluating and controlling investment center performance?
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Negotiated price
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A factor in determining the rate of return on investment–the ratio of income from operations to sales–is called:
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profit margin
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A factor in determining the rate of return on investment–the ratio of sales to invested assets–is called:
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investment turnover
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Investment centers differ from profit centers in that they
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are able to invest in assets.
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The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement.
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Employees
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The following is a measure of a manager’s performance working in an investment center.
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A. budget performance report B. rate of return and residual income measures C. divisional income statements
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The balanced scorecard measures
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both financial and nonfinancial information
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Which of the following is not a commonly used approach to setting transfer prices?
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Revenue price approach
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Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:
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Market price approach
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When is it appropriate to use the market price approach when two related companies are providing services or products to each other?
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The purchasing company is currently purchasing a product at a price from an outside supplier as it would from its related company that is operating at full capacity.
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Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?
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Market Price
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The transfer price which is uses a variety of cost concepts is the
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Cost price approach
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The transfer price that must be less than the market price but greater than the supplying division’s variable costs per unit is called
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the negotiated cost approach