Chapter 12 Segment Reporting and Decentralization

Chapter 12 Segment Reporting and Decentralization - Chapter...

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Chapter 12 Segment Reporting and Decentralization 606 Garrison, Managerial Accounting, 12th Edition True/False Questions 1. Only those fixed costs labeled “common” are charged to the individual segments when preparing a segmented income statement. Answer: False Level: Easy LO: 1 2. A company has two divisions, each selling several product lines. If segment reports are prepared at the product line level, the division managers' salaries would be considered as common fixed costs of the product lines. Answer: True Level: Easy LO: 1 3. A segment margin is computed by deducting variable and traceable fixed expenses from the sales of a segment. Answer: True Level: Easy LO: 1 4. Those fixed costs that arise because of the existence of the segment and that would disappear if the segment were eliminated are called traceable fixed costs of the segment. Answer: True Level: Easy LO: 1 5. Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is less than 12%. Answer: False Level: Medium LO: 2,3 6. Return on investment (ROI) encourages managers to accept all investment decisions that will benefit the company as a whole when it is used as a measure of performance. Answer: False Level: Medium LO: 2 7. Just-in-time practices improve return on investment (ROI) by decreasing turnover. Answer: False Level: Hard LO: 2
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Chapter 12 Segment Reporting and Decentralization Garrison, Managerial Accounting, 12th Edition 607 8. Whenever the selling division must give up outside sales in order to sell internally, it has an opportunity cost that should be considered in setting the transfer price. Answer: True Level: Medium LO: 4 Appendix: 12 9. If transfer prices are to be based on cost, then the costs should be actual costs rather than standard costs. Answer: False Level: Medium LO: 4 Appendix: 12 10. Setting transfer prices at full cost can lead to bad decisions since, among other reasons, full cost does not take into account opportunity costs. Answer: True Level: Hard LO: 4 Appendix: 12 11. The selling division in a transfer pricing situation would want the transfer price to be set to cover at least the full cost per unit plus the lost contribution margin per unit on outside sales. Answer: False Level: Hard LO: 4 Appendix: 12 12. Under a responsibility accounting system, fewer expenses are charged against managers the higher one moves upward in an organization. Answer: False Level: Medium LO: 5 13. Responsibility accounting functions most effectively in decentralized organizations. Answer: True Level: Easy LO: 5 14. In a strongly centralized organization there is a large amount of freedom to make decisions at all levels of management. Answer: False
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This note was uploaded on 01/23/2012 for the course ADMS 2510 taught by Professor Beavis during the Fall '08 term at York University.

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Chapter 12 Segment Reporting and Decentralization - Chapter...

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