San Beda College

College of Arts and Sciences

Department of Accountancy and Taxation
Managerial Accounting Part 2

Quiz #4: RESPONSIBILITY ACCOUNTING & BALANCED SCORECARD M. B. GUIA

NAME: _____________________________________ SECTION: _________ RATING: ___________

PART 1 (MULTIPLE CHOICE THEORY QUESTION): In the date column of your worksheet, write the
CAPITAL letter corresponding to your answer.
1. Which of the following statements does not describe responsibility accounting?
a. It measures the plans and actions of each responsibility center
b. It budgets to emphasize that for which each responsibility center is accountable
c. It calculates variances between budgeted and actual for each responsibility center
d. It identifies managers at fault for operating problems by reports for each responsibility
center.
2. Larger number of manager subordinates and higher level manager are termed as
a. Activity subordinates c. Broader responsibility center
b. Broader subordinates d. Activity ordinates
3. The operation of a responsibility accounting system usually involves each of the following steps
except:
a. Allocating common fixed costs among the responsibility centers that benefit from these
costs.
b. The preparation of budgets for each responsibility center.
c. Separate measurement of the performance of each responsibility center.
d. None of the above
4. When an income statement is prepared by profit centers, costs traceable directly to a cost center,
such as the Personnel Department, are:
a. Omitted from the income statement.
b. Classified as common fixed costs.
c. Allocated among the profit centers based upon the number of employees in each
department.
d. Classified as committed fixed costs and allocated among the profit centers.
5. A performance report can be used for which of the following?
a. Reporting actual and budgeted cost differences for a single subunit
b. Reporting actual and budgeted costs differences for several subunits
c. Reporting actual and budgeted cost differences between cost centers
d. All of the above
6. All of the following is the proper focus of a responsibility-accounting system, except?
a. To determine who is responsible for unfavorable variances
b. To determine who is in the best position to explain variances
c. The presentation of useful information
d. Both (B) and (C)
7. The behavioral effects of responsibility-accounting systems:
a. can be significant.
b. can encourage cost/benefit analyses among managers.
c. can motivate desirable actions by upper-level management.
d. can do all of the above
8. Which of the following is a key feature or characteristic of segmented reporting?
a. Segmented income statements use a contribution format
b. Segmented income statements highlight controllable and uncontrollable expenses
c. Segmented income statements show the income statement for the company as a whole
and for its major segments.
d. All of the above are key features or characteristics of segments reporting.
9. The responsibility center that generates both revenue and expense and has been given decision-
making responsibility for making significant capital investments related to the center's business
activities is called which of the following?
a. Cost Center b. Revenue Center c. Profit Center d. Investment Center
10. Which of the following is not one of the basic steps in the operation of a responsibility accounting
system?
a. Preparing Budgets c. Developing Transfer Price
b. Measuring Performance d. Preparing timely performance report
 11. Which of the following is a common fixed cost for a department store with five departments, each
of which is treated as a profit center, with no walls or partitions dividing them?
a. Advertising expenditures for Yellow Pages.
b. Costs of lighting the interior of the department store.
c. Salary of the department store manager.
d. All of the above.
12. When the producing department is evaluated as a cost center, what should the transfer price be?
a. The product's market value c. The product's negotiated price
b. The product's cost d. The product's variable costs
13. Under which type of transfer pricing will the profit on the product being transferred wind up in
the profit center that produced the product?
a. Market Value c. Negotiated Price
b. Cost-plus Price d. Variable Costs of the Product
14. Which of the following statements is false?
a. When the managers of subunits throughout an organization all strive to achieve the goals
set by top management, it is called goal congruence.
b. Responsibility accounting is used to foster goal congruence.
c. Top management is generally responsible for the tasks performed in an organization's
subunits.
d. Examples of an organization's subunits include divisions, departments, and segments.
Items 15 to 17 are based on the following information: Goose Island Brewery, was a pioneer in the U.S.
craft beer industry. They are based out of Chicago, Illinois and manufacture numerous types of ale
ranging from classic and seasonal varieties to heavier dark ales reminiscent of European varieties.
Beginning in 1988, Goose Island started operating pub style restaurants in the Chicago area. Currently
Goose Island operates two restaurants known as "brewpubs". Each restaurant employs a full time
restaurant manager who is accountable for the profit earned by their restaurant. The restaurant manager is
responsible for making all daily operational decisions (for example hiring all of the staff except kitchen
staff, setting wage rates, and establishing procedures and standards for operations). Capital improvements
(i.e. investment decisions) must go through the corporate office and be approved by, Steve Bryant (VP of
Food & Beverage). Menu decisions and food purchases are made by the restaurant manager in
conjunction with the head chef. The chef is responsible for hiring kitchen staff, buying food & supplies
and oversees the entire food preparation process. The head chef is responsible for providing high quality
food at the lowest possible cost.
15. The kitchen would be considered a:
a. Cost Center b. Revenue Center c. Profit Center d. Investment Center
16. An individual brewpub would be considered a:
a. Cost Center b. Revenue Center c. Profit Center d. Investment Center
17. the food & beverage division would be considered a:
a. Cost Center b. Revenue Center c. Profit Center d. Investment Center
18. Responsibility accounting aims to:
a. Ensure that costs become the responsibility of a specific manager
b. Allocate costs to all areas of a business
c. Ensure that a manager is punished if things go wrong
d. Reduce the costs that a department incurs
19. When comparing performance report information for top management with that for lower level
managers
a. Lower level management reports are typically for longer time periods.
b. Top management reports are more detailed
c. Lower level management reports are likely to contain more quantitative data and less
financial data
d. Top management reports show control over fewer costs
20. In theory, the optimal method for establishing a transfer price is
a. Market Price c. Flexible Budget Cost
b. Incremental Cost d. Budgeted cost with or without mark-up
21. Which one of the following is an incorrect description of transfer pricing?
a. If a market price exists, that price may by used as a transfer price
b. If no market price exists, the transfer price may be based on cost
c. It measures the value of goods or services furnished by a profit center to other
responsibility center within a company.
d. It measures exchanges between a company and external customers
22. Morrison’s Plastics Division, a profit center, sells its products to external customers as well as to
other internal profit centers. Which one of the following circumstances would justify the Plastics
Division selling a product internally to another profit center at a price that is below the market-
based transfer price?
a. Routine sales commissions and collection costs would be avoided
 b. The profit centers’ managers are evaluated on the basis of unit operating income
c. The buying unit has excess capacity
d. The selling unit is operating at full capacity
23. The most fundamental responsibility center affected by the use of market-based transfer prices is
a(n):
a. Cost Center b. Production Center c. Profit Center d. Investment Center
24. Happy Time Industries uses segment reporting for all of its decentralized divisions. It has several
products that are transferred from one division to other divisions. Happy Times wants to motivate
the manager of the selling division to produce efficiently. Assuming the following methods are
available, the optimal transfer pricing method should be a:
a. Cost-based transfer price that uses budgeted amounts
b. Market-based transfer price
c. Variable cost-based transfer price that uses actual amounts
d. Cost-based transfer price that uses actual amounts
25. Which of following is an example of internal business perspective in balanced scorecard?
a. employee turnover rates c. operating capabilities and number of patents
b. operating income and revenue growth d. customer satisfaction and market share
26. Balanced scorecard perspective, which measures strategy profitability and amount of operating
income results from cost reduction is classified as
a. learning perspective c. financial perspective
b. internal business process perspective d. customer perspective
27. An example of learning and growth perspective in balanced scorecard is
a. employee turnover rates c. operating capabilities and number of patents
b. operating income and revenue growth d. customer satisfaction and market share
28. In an innovation process, operation process and post sales services are all sub processes of a
perspective named
a. internal business process perspective c. external business process perspective
b. customer perspective d. financial perspective
29. Which one of the following is a ‘lag’ performance indicator?
a. output per employee c. number of training hours per employee
b. return on capital employed d. number of complaints received from customers
30. Which of the following statements is false? Balanced scorecards:
a. cannot be used in conjunction with budgetary control systems
b. can be cascaded to different levels/parts of organisations
c. are one type of performance dashboard
d. can be used to produce strategy maps

PART 2 (PROBLEM SOLVING): In the particular section of your worksheet, write your answers to the
question given while starting the first money column, provide the supporting computations for each
answer.
Problem 1: The following information refers to the Bocaue Branch of Bulacan Corporation:
Sales P 1,500,000
Cost of Goods Sold 800,000
Sales Commission 50,000
Share in Real Property Tax of Building 20,000
Share in Building Depreciation 30,000
Share in Building Utilities directly traceable to the unit being occupied by
Bocaue Branch 50,000
Advertising Costs as approved by the branch manager 35,000
Transportation Allowance for activities authorized by the branch manager 5,000
Salaries Expense (excluding the salaries of Branch Manager) 120,000
Salaries of Branch Manager 50,000
Share in the General and Administrative Expenses of the Company 60,000
Supplies Expense in relation to the normal activity of the branch 30,000
Net Income P 250,000
The salaries expense pertains to the amount paid to different personnel, 40% of which are regular
employees of the branch while the balance pertains to contractual employees and overtime payment that
are within the discretion of the branch manager.
Required:
1. How much is segment’s variable cost?
2. How much is the segment’s controllable margin?
3. How much is the segment margin?
Problem 2: Domingos Company has two product lines, C and J. Line C has sales of P 100,000 during
March, a segment margin ratio of 19%, and traceable fixed expenses of P 20,000. The company as a
whole had a contribution margin ratio of 25% and P 105,000 in total contribution margin.
4. Based on this information, total variable expenses for product J must have been:

Problem 3; James Webb is the general manager of the Industrial Product Division, and his performance is
measured using the residual income method. Webb is reviewing the following forecasted information for
his division for next year:
Working Capital P 1,800,000
Revenue 30,000,000
Plant and Equipment 17,200,000
Imputed interest charge 15%
Required:
5. If Webb wants to achieve a residual income target of P 2,000,000, what will costs have to be in
order to achieve the target?
6. Considering your answer in the previous item and assuming that all costs are fixed, if Webb
would like to achieve a residual income of P 4,000,000, how much additional revenues should be
earned by the division?

Problem 4: A company’s Return on Investment is 20% while its Residual Income amounted to P 20,000
on Sales amounting to P 500,000. Minimum Required rate of return is 15%.
Required:
7. What is the company’s profit margin?
8. What is the Asset Turnover?

Problem 5: The following information pertains to Laguna Division, under the Calabarzon Group of
Companies:
Sales P 200,000
Variable Costs 120,000
Contribution Margin 80,000
Fixed Costs 40,000
Operating Income 40,000
The current asset turnover of Laguna Division was determined to 1.5.
Required:
9. How much additional peso sales should Laguna Division have if it would like to have an ROI of
40%?
10. How much peso sales should Laguna Division have if it would like to have a residual income of
P 50,000 if the required rate of return is 10%?

Problem 6: The following selected information is from the financial statements of Bishop Corporation for
the last fiscal year.
Current Assets P 500,000
Fixed Assets 250,000
Current Liabilities 50,000
Long-Term Debt 350,000
Shareholders’ Equity 350,000
Operating Profit 128,000
Income Taxes 40,000
Net Income 60,000
Required: If Bishop has a cost of equity of 10%.
Required:
11. The company’s weighted average cost of capital?
12. The company's economic value added (EVA) for last year was

Problem 7: A division’s economic value added for last year’s operation amounted to P 200,000 when net
income is determined to be at P 450,000. The book value of Shareholders’ equity amounted to
P1,000,0000 which is assumed to be equal its market value while total non-current liabilities amounted to
P 3,000,000 that has an interest rate of 20%. The company is subject to the 40% income tax rate.
Required:
13. The division’s operating income amounted to?
14. The division’s weighted average cost of capital is?

Problem 8: The First Division of Furrow Company produces Part 1 that is used by OEN’s as a key part in
their products. Costs and sales data on Part 1 are as follows:
Selling price per unit P100
 Variable Cost per unit 60
Fixed Cost per unit (Based on 40,000 capacity per annum) 24
Furrow Company’s Second division is introducing a new product that will use Part 1. An outside supplier
has quoted Second Division a price of P96 per unit. This represents the usual P100 price less a quantity
discount due to the large number of Second Division. The First Division is currently operating at capacity
but would be able to save P2 in variable cost per unit if it would sell internally.
Required:
15. If the Second Division would buy 15,000 units from the First Division, the effect on the
corporate profits would be:
16. If the Second Division would buy 15,000 units from the First Division, but the First Division’s
current sales is only 30,000 units, the effect on the corporate profits would be:

Problem 9: Manhattan Corporation has several divisions that operate as decentralized profit centers. At
the present time, the Fabrication Division has excess capacity of 5,000 units with respect to the UT-371
circuit board, a popular item in many digital applications. Information about the circuit board follows.
Market Price P 48
Variable selling/distribution costs on external sales 5
Variable Manufacturing Costs 21
Fixed Manufacturing Costs 10
Manhattan’s Electronic Assembly Division wants to purchase circuit boards either internally, or else use a
similar board in the marketplace that sells for P46.
Required:
17. If the minimum price on the point of view of Fabrication Division amounted to P32.00, how
many units does the Electronic Assembly Division would like to purchase?
18. If the Electronic Assembly Division would like to purchase 4,500 units, and Manhattan
management requires the Fabrication Division to meet the price of the external supplier and
provide the units need by the Electronic Assembly Division, what will be the net advantage on
the part of the Fabrication Division?

Problem 10: The Robo Division, a decentralized division of GMT Industries, has been approached to
submit a bid for a potential project for the RSP Company. Robo Division has been informed by RSP that
they will not consider bids over P 8,000,000. Robo Division purchases its materials from the Cross
division of GMT Industries. There would be no additional fixed costs for either the Robo or Cross
Divisions. Information regarding the project is as follows:
Cross Division Robo Division
Variable Costs P 1,500,000 P 4,800,000*
Transfer Price 3,700,000
*This represents Robo Division’s variable conversion costs only (direct labor and variable
overhead), since the division purchases its raw materials from the Cross Division of the same
company.
Required: If Robo Division submits a bid for P 8,000,000,
19. The amount of contribution margin recognized by the Robo Division?
20. The amount of contribution margin that will be recognized by GMT Industries?