Advantages of decentralization
A. Managers make better decisions when closer to the operation of the company.
B. Each decentralized operation purchases their own assets and pays for operating costs.
C. Expertise in all areas of the business is difficult, decentralization makes it better to delegate certain responsibilities.
D. Dencentralized managers can respond quickly to customer satisfaction and quality
2. In a profit center, the department manager has responsibility for and the authority to make decisions that affect:
A. costs and assets invested in the center, but not revenues
B. the assets invested in the center, but not costs and revenues
C. both costs and revenues for the department or division
D. not only costs and revenues, but also assets invested in the center
3.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?
A. human resources
B. inventory control
C. payroll accounting
D. information systems
4. Espinosa Corp. had $1,045,293.00 in invested asstes, sales of $1,287,615.00, income from operations amounitng to $216,824.00, and a desired minimum rateof return of 14%. What is the residual income for Stevenson?
5.A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:
A. a cost center
B a profit center
C. an investment center
D. an operating center
6. Division Q for Mott Co. has a rate of return on investment turnover of $2.32. What is the profit margin
7. 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 includedas a performance measurement.
A. internal process
B. innovation and learning
8. Determining the transfer price as the price at which the product or services transferred could be sold to outside buyers is known as the:
A. market price approach
B. cost price approach
C. revenue price approach
D. negotiated price approach
9.The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is termed:
A. manufacturing margin
B. differential cost
C. contribution margin
D. differential revenue
10. A cost will not be affected by later decisions is termed as
A. historical cost
B differential cost
C. replacement cost
D. sunk cost
11. The amonut of income that would result from an alternative use of cash is called:
A. differential revenue
B. differential income
C. sunk cost
D. opportunity cost
12. Jones Co. can futher process Product B to produce Product C. Product B is currently elling for $31.00 per pound and costs $28.00 per pound to produce. Product C would sell for $62.00 per pound and would require an additional cost of $24.00 per pound. Determine the differential cost of producing Product C.
A $24.00 per pound
B $28.00 per pound
C $31.00 per pound
D $62.00 per pound
13 Relevant revenues nd costs focus on:
a. activities that occured in the past
B. monies already earned and/or spent
C last year's net income
D. differences between the alternatives being considered
14. Win Co. produces a single product. Its normal selling price is $26.00 per unit. The variable costs are $16.00 per unit. Fixed costs are $20,549.00 for a normal production run of 5,000 units per month. Win received a request for a special order that would not interfere with normal sales. The order was for 1,657 units and a special price of $19.00 per unit. Win Co. has the capacity to handle the special order and, for this order, a variable selling cost of $2 per unit would be elimated
A. increase of $8,285.00
B decrease of $11,599.00
C. increase of $36,258.06
D. increase of $31,483.00
15.Discontinuing a product or segment is a huge decision that must be carefully analyzed. WHICH OF THE FOLLOWING WOULD BE A VALID REASON NOT TO DISCONTINUE AN OPERATION?
a. THE ALLOCATED FIXED COSTS ARE MORE THAN REVENUES
b. THE VARIABLE COSTS ARE MORE THAN REVENUES
c. the losses are minimal
D. the variable costs are less than revenues
16. All of the following should be considered in a make or buy decesion except
A. future growth in the plant and other production opportunities
B.quality issues with the supplier
C. the supplier will make profit that would no longer belong to the business
D. cost savings
17. When using the total cost concept of applying the cost-plus approach pricing, what is included in the markup?
A. total costs plus desired profit
B. desired profit
C. total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
D. total selling and administrative expenses plus desired profit
Cost: Cost is any value spent to produce a product or to render any service. The types of costs are fixed cost and variable cost.
Fixed cost: Fixed cost is the cost that remains the same, irrespective of the increase or decrease in the value of goods or any services rendered. It is the cost paid by a company that does not depend on the activities concerned with the business.
Variable cost: Variable cost is the cost that varies according to the output produced or any service rendered. It is the cost paid by a company that depends on the activities concerned with the business.
Assets: Asset is the resource of a company to generate income. Asset is generally classified into fixed assets, current assets, tangible assets, and intangible assets. Fixed assets are the assets that are used to generate income over a long period. Current assets are the assets that are realized within the current financial year. Tangible assets are the assets that can be felt and touched. Intangible assets are the assets that cannot be felt or touched.
Operating expenses: The expenses which are incurred in day-to-day business activities but not directly allied with the production of goods and service are called operating expenses. This expense is considered as a main element in the calculation for operating income.
Revenues: The income or earnings received by a company for the goods and services delivered, are known as revenues. It is the income received by a company from its business operations.
Inventory: Inventory refers to the goods purchased by a company from manufacturers for reselling them to the customers. Transportation charges at the time of purchase, storage, insurance cost, and many more are included in the merchandise inventory account. Inventory is one of the important current assets of a company.
Decentralization: Decentralization is the process by which the actions or process are segregated individually. Each division is responsible for the work to be done or framing the work. It is not under single department.
A profit center is a type of responsibility center where both costs/expense and revenues are taken into account in order to determine the operating income. In this center, the managers must have the ability to control the revenues as well as expenses (cost).
Determine the responsibility of department manager and the factor getting affected.
In the profit center, the revenue of the departments should be focussed. The manager has responsibility over the revenue. Apart from the revenue, the areas such as cost and assets should be focussed. These are responsible for the revenues to be earned.
Therefore, the cost, revenue, and assets are the responsibilities of the department manager.
The cost, revenue, and assets are the responsibilities of the department manager.
- Hint for Next Steps
A profit center is a place where profits are focussed. Revenue is the main concern. To earn revenues, cost should be spent or expense should be done. Thus, the cost and expense are related to revenue. Thus, the cost, revenue, and assets are the responsibilities of the department manager.
Determine the organization that would not lend itself as a service department.
Inventory control is the division that focuses on maximisation of profits. It cannot extend services to other department. It has full control over the inventory department. The goal of inventory control is to earn profit.
Therefore, the inventory control division cannot provide services to other departments.
The inventory control division cannot provide services to other departments.
- Common Mistakes
Internal service departments provide services to other divisions within an organization. Human resources can extend services to other department such as recruiting personal for other divisions. Payroll accounting also extends services as it fixes payroll for overall employees. Information systems have control over other divisions through their portal. Inventory control is the division that focuses on maximisation of profits. It is not a service department, and the service cannot be extended to any other department.