19) Decentralization is: A.a practice that is not recommended. B. allowing lower
ID: 2584983 • Letter: 1
Question
19)
Decentralization is:
A.a practice that is not recommended.
B. allowing lower-level managers to implement decisions made by top management.
C. the practice of allowing lower-level managers to participate in the budget.
D. the practice of delegating authority to lower-level managers.
20)
A center where a manager is responsible only for sales is called:
A. a profit center.
B. an investment center.
C. a revenue center.
D. a cost center.
21)
Which of the following is not a transfer pricing policy?
A. Cost-based price
B. Negotiated price
C. Market price
D. Exchange price
23)
The Pacific Division reported the following results for the previous quarter:
Sales Revenues: $560,000
Cost of Goods Sold: (400,000)
Gross Margin: 160,000
Selling and administrative expenses: 100,000
Operating income: 60,000
Operating assets at the beginning of the quarter were $240,000; at the end of the quarter, they were $300,000. The company requires a minimum rate of return of 13%.
The division's turnover was:
A. 2.33
B. 2.38
C. 1.87
D. 2.07
27)
Which of the following is not an example of a qualitative factor?
A. reliability of a suppleri
B. cost of shipping
C. labor relations with employees
D. quality of a product
28)
In short-term decision making, sunk costs:
A. do not include depreciation on equipment purchased in the past.
B. should not be included in the decision analysis.
C. should be identified and included if they will affect future periods
D. are those costs that do not differ across alternatives.
29)
In a keep-or-drop decision:
A. variable-costing income statements should be provided.
B. fixed costs should be ignored.
C. sunk costs should be included.
D. absorption-costing income statements should be provided.
30)
Target costing is useful because:
A. it forces managers to control costs.
B. it is useful in the decision to keep inventory.
C. it includes all manufacturing costs.
D. it considers how much it costs to make a product before setting the selling price.
Explanation / Answer
Answer (19)
D. the practice of delegating authority to lower-level managers.
Explanation - Decentralization is the process of distributing decision making powers in different hands. It means dispersing or spreading roles, powers, people or things away from a central location or authority.
Answer (20)
C. a revenue center
Explanation – It is that division of a business organisation which is mainly responsible for generating sales revenue. Manager of a revenue center does not have any control over cost and investment in assets.
Answer (21)
D. Exchange price
Explanation - Rest of the policies comes under transfer pricing:
Cost-based transfer pricing: When external market does not exist or are not available to the company or when information about external market prices is not easily accessible, companies may choose to use cost-based transfer pricing system.
Negotiated Transfer Prices: Negotiated prices are usually taken as a mid way solution between market prices and cost- based prices. The managers involved in this, acts much the same as the managers of independent companies.
Market price: When there is a competitive external market for the transferred product, market prices work well as transfer prices.
Answer (23)
D. 2.07
Calculation:
Turnover Ratio
= Sales Revenue / Average Operating Assets*
= $ 560,000 / $ 270,000
= 2.07
*Average Total Assets = (Operating assets at the beginning of quarter + Operating assets at the end of quarter) / 2
= ($ 240,000 + $ 300,000) / 2
= $ 540,000 / 2
= $ 270,000
Answer (27)
B. cost of shipping
Explanation – Cost of shipping is quantitative factor as it can be calculated in numbers. Rest of the 3 options are related to quality, so they are qualitative factors.
Answer (28)
B. should not be included in the decision analysis.
Explanation – A sunk cost is that cost which cannot be recovered or altered and is independent of any future costs that a business may incur. As decision-making only affects the future course of action, sunk costs should be irrelevant in the decision-analysis.
Answer (29)
B. fixed costs should be ignored.
Explanation – keep-or-drop decision is application of marginal costing which is nothing but total of variable cost. It composed of all direct costs and variable overheads and excludes fixed cost.
Answer (30)
A. it forces managers to control costs.
Explanation – The fundamental rule of target costing is to never surpass the target cost. The focus of target costing is to achieve a desired level of cost reduction determined by target costing process.
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