ACCT 6100 (Exam 2) Questions with Correct Answers Latest Update 2025/2026
Responsibility Accounting - Answers a system of reporting financial results on the basis of
managerial responsibilities within an organization
Cost centers - Answers ____ measure the costs and outputs of a subunit
Profit centers - Answers ____ are composed of several cost centers, where managers are given
a fixed capital budget and have decision rights for input mix, product mix, and selling prices. P
Transfer pricing - Answers Determining how to price transfers of goods and services between
business units is known as ____
Investment centers - Answers ____ are similar to profit centers, but have additional decision
rights for capital expenditures and are evaluated on measures such as ROI.
Net Income - Answers Revenues minus expenses
Net income - Answers The simplest of the three performance measures is ...
ROI - Answers The ratio of accounting net income generated by the investment center divided
by the total assets invested in the investment center
Residual income - Answers _____ measures divisional performance by subtracting the
opportunity cost of capital employed from division profits
Higher - Answers Do riskier projects require a higher or lower cost of capital to compensate
investors for bearing risk?
Economic Value Added - Answers What does EVA stand for?
EVA - Answers ______ measures the total return after deducting the cost of all capital employed
by the division or firm.
controllability principle - Answers Holding managers responsible for only those decisions for
which they have authority
Controllable costs - Answers All costs affected by a managers decisions
International taxation and measuring performance in profit and investment centers - Answers
The two main reasons for transfer pricing within firms are ...
Opportunity cost - Answers The optimal transfer price for a product or service is its ...
Responsibility centers - Answers Firms decentralize and create _____ to take advantage of the
divisional managers specialized knowledge of the local conditions .
Transfer price - Answers When one responsibility center buys or sells goods or services from
, another center, a ___ must be established for this internal transaction in order for each centers
performance measures to be calculated
Responsibility Accounting and transfer pricing - Answers What are two central ways in which
accounting systems are used?
Profit - Answers Profit centers are evaluated based on ...
ROI or residual income - Answers Investment centers are evaluated based on ...
Maximizing - Answers Using residual income as a performance measure rather than ROI
promotes goal congruence because it concentrates on ______ an absolute amount of dollars.
Dysfunctional - Answers Holding managers responsible for only those decisions that they are
responsible for may cause _____ behavior.
Budget - Answers Management's formal quantification of the operations of an organization for
a future period. It is an aggregate forecast of all transactions expected to occur.
Budgeting - Answers ___ assigns decision rights and provides performance measures.
Both - Answers Do budgets communicate and coordinate information vertically or horizontally?
Sandbagging - Answers Negotiating easier targets to help ensure that employees receive
bonuses
Ratchet effect - Answers Basing next years budget on this years actual performance
Bottom up - Answers _____ budgets are those submitted by lower levels of the organization to
higher levels and usually imply greater decision management.
Top down - Answers ___ budgets exist when executives use data on sales trends to forecast
sales for the entire firm and then disaggregate the firmwide budget into field office targets. It
usually implies greater decision control.
Participative budgeting - Answers Where the person ultimately being held responsible for
meeting the target makes the initial budget forecast
CEO - Answers To manage the trade-off between decision management and decision control,
many organizations put the _____ in charge of the budgeting process. This person retains the
final decision rights.
Strategic planning - Answers The process whereby managers select the firm's overall objectives
and the tactics to achieve them.
Single - Answers Does the typical firm integrate short-run and long-run budgeting into a single
process or multiple processes?
Responsibility Accounting - Answers a system of reporting financial results on the basis of
managerial responsibilities within an organization
Cost centers - Answers ____ measure the costs and outputs of a subunit
Profit centers - Answers ____ are composed of several cost centers, where managers are given
a fixed capital budget and have decision rights for input mix, product mix, and selling prices. P
Transfer pricing - Answers Determining how to price transfers of goods and services between
business units is known as ____
Investment centers - Answers ____ are similar to profit centers, but have additional decision
rights for capital expenditures and are evaluated on measures such as ROI.
Net Income - Answers Revenues minus expenses
Net income - Answers The simplest of the three performance measures is ...
ROI - Answers The ratio of accounting net income generated by the investment center divided
by the total assets invested in the investment center
Residual income - Answers _____ measures divisional performance by subtracting the
opportunity cost of capital employed from division profits
Higher - Answers Do riskier projects require a higher or lower cost of capital to compensate
investors for bearing risk?
Economic Value Added - Answers What does EVA stand for?
EVA - Answers ______ measures the total return after deducting the cost of all capital employed
by the division or firm.
controllability principle - Answers Holding managers responsible for only those decisions for
which they have authority
Controllable costs - Answers All costs affected by a managers decisions
International taxation and measuring performance in profit and investment centers - Answers
The two main reasons for transfer pricing within firms are ...
Opportunity cost - Answers The optimal transfer price for a product or service is its ...
Responsibility centers - Answers Firms decentralize and create _____ to take advantage of the
divisional managers specialized knowledge of the local conditions .
Transfer price - Answers When one responsibility center buys or sells goods or services from
, another center, a ___ must be established for this internal transaction in order for each centers
performance measures to be calculated
Responsibility Accounting and transfer pricing - Answers What are two central ways in which
accounting systems are used?
Profit - Answers Profit centers are evaluated based on ...
ROI or residual income - Answers Investment centers are evaluated based on ...
Maximizing - Answers Using residual income as a performance measure rather than ROI
promotes goal congruence because it concentrates on ______ an absolute amount of dollars.
Dysfunctional - Answers Holding managers responsible for only those decisions that they are
responsible for may cause _____ behavior.
Budget - Answers Management's formal quantification of the operations of an organization for
a future period. It is an aggregate forecast of all transactions expected to occur.
Budgeting - Answers ___ assigns decision rights and provides performance measures.
Both - Answers Do budgets communicate and coordinate information vertically or horizontally?
Sandbagging - Answers Negotiating easier targets to help ensure that employees receive
bonuses
Ratchet effect - Answers Basing next years budget on this years actual performance
Bottom up - Answers _____ budgets are those submitted by lower levels of the organization to
higher levels and usually imply greater decision management.
Top down - Answers ___ budgets exist when executives use data on sales trends to forecast
sales for the entire firm and then disaggregate the firmwide budget into field office targets. It
usually implies greater decision control.
Participative budgeting - Answers Where the person ultimately being held responsible for
meeting the target makes the initial budget forecast
CEO - Answers To manage the trade-off between decision management and decision control,
many organizations put the _____ in charge of the budgeting process. This person retains the
final decision rights.
Strategic planning - Answers The process whereby managers select the firm's overall objectives
and the tactics to achieve them.
Single - Answers Does the typical firm integrate short-run and long-run budgeting into a single
process or multiple processes?
