HANDOUT#4

PERFORMANCE MEASURES AND RESPONSIBILITY ACCOUNTING

Question 1
Adams Street Winery has sales of $287,000. Its variable costs are $96,500, fixed costs are $82,800, and
total assets are $400,000. If the winery would increase its sales by 5% with a constant contribution margin,
how would this affect their ROI?

A. Decrease it by 2.38%
B. Increase it by 1.34%
C. Decrease it by 1.34%
D. Increase it by 2.38%

Question 2
Hunter Accessories’ investment center records sales of $12,700,000, variable costs of $8,200,000, fixed
costs of $2,100,000, and an ROI of 16%. What are Hunter’s assets?

A. $28,125,000
B. $384,000
C. $1,696,000
D. $15,000,000

Question 3
The balanced scorecard provides an action plan for achieving competitive success by focusing
management attention on critical success factors. All of the following are critical success factors commonly
focused upon in the balanced scorecard
except:
A. employee innovation and learning.
B. internal business processes.
C. financial performance measures.
D. competitor business strategies.

Question 4
Which of the following statements about a balanced scorecard is incorrect?

A. It seeks to address the problems associated with traditional financial measures used to
assess performance.
B. It relies on the perception of the users with regard to service provided.
C. It is directly derived from the scientific management theories.
D. The notion of value chain analysis plays a major role in the drawing up of a balanced scorecard.
Question 5
The CPC Company has the following information for the current year:

Further analysis indicates that of the fixed expenses listed here, common fixed costs of $1,000,000 were
allocated to each product. Based on this information, what would be the impact on CPC’s operating income
if it dropped Customer 890?

A. Operating income would decrease by $1,800,000.

B. Operating income would decrease by $6,000,000.
C. Operating income would decrease by $400,000.
D. Operating income would decrease by $2,800,000.

Question 6
REB Service Co. is a computer service center. For the month of May, REB had the following operating
statistics:

REB uses operating income to calculate return on investment and residual income.
Based on the above information, which one of the following statements is correct? REB has a:

A. residual income (RI) of $13,000.

B. residual income (RI) of $(22,000).
C. return on investment(ROI) of 4%.
D. residual income (RI) of $(5,000).

Question 7
A technique for improving performance of activities and processes that searches for best practices is called:

A. value-added reporting.
B. trend reporting.
C. benchmarking.
D. Kaizen costing.
 Question 8
Petersburg Manufacturing’s investment center records sales of $6,000,000,
variable costs of $3,800,000, fixed costs of $1,300,000, and an ROI of 9%. What are Petersburg’s assets?

A. $24,444,444
B. $81,000
C. $10,000,000
D. $423,000
Question 9
The Atlantic division of Monterosa, Inc., has a current return on investment of 9% and the company has
established an 8% minimum rate of return for the division.
The division manager has two investment projects available, for which the following estimates have been
made:

Project A: Annual operating income = $49,600, operating assets = $464,000 Project B: Annual
operating income = $66,000, operating assets = $672,000 Which project(s), if any, should be
funded?

A. Project A only
B. Project B only
C. Both projects
D. Neither project
Question 10
The southeast division of a distribution company is planning on purchasing a new delivery truck for
$18,500. The current truck has a book value of $5,000 and will be sold immediately. The new truck is
expected to increase operating income by
$6,000. Additional information is as follows:

Based on the expected change in the return on investment metric, should the truck be purchased?

A. No, because the return on investment decreases from 10.3% to 10.0%

B. No, because the return on investment decreases from 10.9% to 10.3%
C. Yes, because the return on investment increases from 10.3% to 10.7%
D. Yes, because the return on investment increases from 10.3% to 10.9%
Question 11
Return on investment focuses on income as a percentage of investment, while residual income focuses on:

A. the capital charge.

B. operating income less a capital charge.
C. management decisions.
D. cost of capital times the amount of investment.
Question 12
Last year, RL Enterprises had exceptional brand recognition and produced a high percentage of defect-free
products. Unfortunately, it also had a plummeting credit rating and reported numerous accidents within its
facilities. Which of the following best sums up RL’s balanced scorecard for the year?

A. Customer and internal process categories scored high, while the financial and learning and
growth categories scored low.
B. Financial and internal process categories scored high, while the learning and growth and customer
categories scored low.
C. Internal process and learning and growth categories scored high, while the customer and financial
categories scored low.
D. Financial and customer categories scored high, while the internal process and learning and
growth categories scored low.

Question 13
The board of directors of a chain of retail department stores has identified the following strategic objectives:

Which of these objectives is most closely linked to the learning and growth perspective of the balanced
scorecard?

A. Increase employee satisfaction

B. Provide quality products
C. Increase sales to repeat customers
D. Increase gross profit margin

Question 14
What is the return on investment(ROI) if sales are $2,000,000, variable costs are
$1,700,000, fixed costs are $100,000, and the investment center assets are
$1,000,000?

A. 30%
B. 2.0
C. 20%
D. 10%

Question 15
A company is concerned that its divisional managers are not making decisions that are in the best interests
of the overall corporation. In order to prevent this, the company should use a performance evaluation system
that focuses on:

A. residual income.
B. controllable costs.
C. flexible budget variances.
D. operating income.

Question 16
Each of the following are typically perspectives or segments of a balanced scorecard, except:

A. Customer
B. Budgeted performance
C. Learning and growth
D. Internal business process
Question 17
Which of the following correctly describes what it means when a business unit has a negative residual
income?

A. The business unit’s actual operating income is lower than its budgeted operating income.
B. The business unit’s operating income is higher than the product of its investment base and
minimum required rate of return.
C. The business unit’s operating income is lower than the product of its investment base and
current return on investment.
D. The business unit’s operating income is lower than the product of its investment base and
minimum required rate of return.

Question 18
Performance data for three divisions at Cupco, Inc. are presented below.

What is the asset turnover for Division B and what is the operating income for Division C, respectively?

A. Division B Asset Turnover: 10; Division C Operating Income: $18,750

B. Division B Asset Turnover: 1; Division C Operating Income: $18,750
C. Division B Asset Turnover: 1; Division C Operating Income: $12,500
D. Division B Asset Turnover: 10; Division C Operating Income: $12,500

Question 19
The management team of a company is evaluating the use of either return on investment or residual income
as a measure of the performance of the company’s lines of business. In a presentation about the two
measures, which of the
following statements is correct?

A. I and II only
B. II and III only
C. III and IV only
D. I and IV only
 Question 20
The following information is available for Halle Department Stores:

How much is Halle's residual income?

A. $102,000
B. $540,000
C. $12,000
D. $48,000

Question 21
The board of directors of a chain of retail department stores has identified the following strategic objectives:

Which of these objectives is most closely linked to the financial perspective of the balanced scorecard?

A. Provide quality products

B. Increase gross profit margin
C. Increase sales to repeat customers
D. Increase employee satisfaction

Question 22
Performance data for three divisions at Cupco, Inc. are presented below.

What is the traditional return on investment for Division A?

A. 40%
B. 33.3%
C. 13.33%
D. 300%
Question 23
Bloomington Clothing Inc., has been growing steadily over the years and has created a reputation for
reasonably priced contemporary clothing for both men and women. The Powell division manufactures and
sells men’s fashions. The divisional president is responsible for all short-run decisions regarding the
manufacturing and sale of clothing and accessories; however, all long-run strategic decisions are made at
the corporate level by a committee of senior executives. Based on these facts, the Powell division should
be held accountable as a(n) center.

A. cost
B. investment
C. operating
D. profit
Question 24
Which of the following business unit profitability measures would allow a manager to be evaluated based
on whether or not the business unit can be profitable even when common costs are deducted from the
unit's profits?

A. Contribution margin
B. Indirect profit
C. Controllable profit
D. Income before taxes

Question 25
The accounting department in a large manufacturing company would be classified as a(n):

A. Profit center.
B. Cost center.
C. Investment center.
D. Controllable center.

Question 26
Based on the following information from CDF Corporation, calculate its contribution margin per unit.

A. $65 per unit

B. $57 per unit
C. $36 per unit
D. $77 per unit

Question 27
The production manager of the Super T-shirt Company is responsible for the activity of her
department and the costs associated with production. Super T adheres to a responsibility centered
budget process, and the manager's performance is measured by how well she performs to budget.
Recently, the dark horse team won the local college basketball tournament. As a result, the sales
department, which operates as a profit center, received an order for 10,000 t-shirts, but only if they
could be delivered in three days. The production manager said she could meet the schedule, but
 only by incurring overtime pay that would cause her to be over budget for hourly wages paid. What
would be the best course of action for the sales department and the production manager to
undertake in this case?

A. Charge the overtime to the sales department's budget.

B. Accept the order and overrun the production manager's budget.
C. Refuse the overtime and produce only what the production department is capable of while staying
within the budget.
D. Accept the order and ignore the effect on the production department budget when
conducting the performance review.

Question 28
Lawson Company discloses segment financial information for its operating segments. The following
information is available for Year 1:

Nontraceable expenses are allocated based on the ratio of a segment's income before nontraceable
expenses. The segment profit for Operating Segment B is (approximately):

A. $80,000.
B. $66,667.
C. $61,538.
D. $200,000.

Question 29
A manager at which of the following centers will have the highest number of assets to manage in order to
have a positive performance evaluation?

A. Investment center
B. Profit center
C. Cost center
D. Sales center
 Question 30
Sara Bellows, manager of the telecommunication sales team, has the following department budget.

Her responsibility center is best described as a:

A. profit center.
B. revenue center.
C. cost center.
D. investment center.

Question 31
The responsibility report for the Hayward division shows actual contribution margin of $1,600,000 and
actual controllable fixed costs of $800,000. Budgeted contribution margin for the division was $1,680,000
and budgeted controllable fixed costs were $720,000. Based on this information, the manager’s overall
performance is:

A. 16.7% below expectations.

B. 20% below expectations.
C. equal to expectations.
D. 4.8% below expectations.

Question 32
Based on the following information from ASX Corporation, calculate its total contribution margin.

A. $50,730
B. $32,040
C. $57,850
D. $68,530
Question 33
The following information from the prior year was provided by Comfortable Sofas & Couches, Inc. (CSCI):

What is the contribution margin earned by CSCI for the prior year?

A. $72,000
B. $108,000
C. $93,600
D. $86,400
Question 34
The receipt of raw materials for its production of certain products and the shipping of the completed goods
to its customers is under the control of the warehouse supervisor. The warehouse supervisor's time is spent
approximately 70% on receiving activities and 30% on shipping activities. Separate staffs of employees
are employed for the receiving and shipping functions. The labor- related costs for the warehousing function
are:

The company utilizes a responsibility accounting system for reporting the performance of business segments.
All costs on the report are classified as period or product costs. The total labor-related costs attributable to
product costs under the control of the warehouse supervisor would appear on the responsibility accounting
performance report as:

A. $152,000.
B. $119,000.
C. $238,800.
D. $303,800.
Question 35
Clark and Hemsley, Inc., has two divisions—toys and books. Itis preparing an estimate of the controllable
margin for the toy division. The following information for the division is available:

Based on this information, what is the toy division’s controllable margin?

A. $150,000
B. $225,000
C. $500,000
D. $275,000
Question 36
National Advertisers has advertising divisions for several different product categories. Matthew is the senior
manager over the sports division, where he is responsible for human resource decisions, obtaining clients,
negotiating fees, and ensuring quality advertising campaigns. Matthew is compensated based on
commissions from clients. Based on this information, Matthew’s business unit is likely regarded as a(n):

A. Profit center.
B. Investment center.
C. Cost center.
D. Accounting center.