Q.1 What is the main objective of responsibility accounting?
To record daily transactions
To assign accountability to managers
To prepare statutory reports
To calculate tax liability
Explanation - Responsibility accounting focuses on assigning responsibility to managers for the financial performance of their specific areas.
Correct answer is: To assign accountability to managers
Q.2 Which of the following is NOT a type of responsibility center?
Cost center
Revenue center
Profit center
Ledger center
Explanation - Ledger center is not a recognized type of responsibility center; common types include cost, revenue, profit, and investment centers.
Correct answer is: Ledger center
Q.3 A cost center is mainly responsible for:
Maximizing revenue
Controlling costs
Investing in assets
Deciding product mix
Explanation - Cost centers focus on controlling and managing expenses rather than generating revenue.
Correct answer is: Controlling costs
Q.4 Which responsibility center is evaluated based on both revenues and expenses?
Cost center
Revenue center
Profit center
Investment center
Explanation - Profit centers are responsible for both generating revenues and controlling costs, making profits measurable.
Correct answer is: Profit center
Q.5 What is the distinguishing feature of an investment center?
Focus on cash flows only
Responsibility for revenues and costs
Responsibility for assets and investments
Only controls costs
Explanation - Investment centers are accountable not only for revenues and costs but also for how assets and investments are managed.
Correct answer is: Responsibility for assets and investments
Q.6 Responsibility accounting is MOST useful for:
Internal control
Tax reporting
Shareholder reporting
Statutory compliance
Explanation - Responsibility accounting provides a framework for internal control by holding managers accountable for areas under their supervision.
Correct answer is: Internal control
Q.7 Which statement about responsibility accounting is TRUE?
It eliminates all variances
It focuses on individual accountability
It is only useful in small firms
It replaces financial accounting
Explanation - The core of responsibility accounting is assigning accountability to individuals or departments for performance.
Correct answer is: It focuses on individual accountability
Q.8 A revenue center is evaluated on the basis of:
Costs incurred
Assets utilized
Sales achieved
Profit margins
Explanation - Revenue centers are judged mainly on their ability to generate sales or revenues, not costs or assets.
Correct answer is: Sales achieved
Q.9 What type of information is emphasized in responsibility accounting reports?
Historical data only
Non-financial data
Controllable costs
General company-wide data
Explanation - Responsibility accounting emphasizes controllable costs so that managers are fairly evaluated based on what they can influence.
Correct answer is: Controllable costs
Q.10 The principle of controllability in responsibility accounting means:
Managers are responsible for all costs
Managers are responsible only for costs they control
All costs are shared equally
Costs are ignored if uncontrollable
Explanation - Controllability ensures managers are evaluated only on costs and results they can directly influence.
Correct answer is: Managers are responsible only for costs they control
Q.11 In responsibility accounting, performance evaluation should be based on:
Uncontrollable costs
Overall company profit
Controllable performance measures
Stock market value
Explanation - Evaluating performance on controllable measures is fair and aligns with responsibility accounting principles.
Correct answer is: Controllable performance measures
Q.12 Responsibility accounting reports are usually prepared for:
External auditors
Government authorities
Internal management
Public investors
Explanation - These reports are designed for internal use, especially for managerial decision-making and control.
Correct answer is: Internal management
Q.13 Which center focuses only on efficiency of using resources?
Cost center
Revenue center
Profit center
Investment center
Explanation - Cost centers emphasize resource efficiency since they are accountable for expenses only.
Correct answer is: Cost center
Q.14 ROI (Return on Investment) is a performance measure typically used for:
Revenue centers
Profit centers
Investment centers
Cost centers
Explanation - Investment centers are judged on profitability relative to the assets they control, often using ROI.
Correct answer is: Investment centers
Q.15 Which of the following best describes responsibility centers?
Divisions with no accountability
Units with specific accountability
Departments sharing equal costs
Groups of shareholders
Explanation - Responsibility centers are organizational units given specific responsibility for performance.
Correct answer is: Units with specific accountability
Q.16 Responsibility accounting aligns with which management function the most?
Planning
Organizing
Controlling
Staffing
Explanation - It helps managers control performance by setting responsibility for various costs and outputs.
Correct answer is: Controlling
Q.17 What is the basis for assigning costs in responsibility accounting?
Random allocation
Managerial control
Industry averages
Tax requirements
Explanation - Costs are assigned based on whether managers can control them, following the controllability principle.
Correct answer is: Managerial control
Q.18 The responsibility accounting system is MOST helpful in:
Measuring external profit
Assigning accountability within organizations
Ensuring tax compliance
Preparing financial statements
Explanation - Responsibility accounting is designed to assign accountability at various levels of management.
Correct answer is: Assigning accountability within organizations
Q.19 A marketing department in responsibility accounting is often treated as:
Revenue center
Profit center
Cost center
Investment center
Explanation - Marketing departments are generally judged by the revenue they generate rather than their costs.
Correct answer is: Revenue center
Q.20 A production department is usually classified as which type of responsibility center?
Revenue center
Cost center
Profit center
Investment center
Explanation - Production departments focus on controlling and minimizing costs, not directly generating revenue.
Correct answer is: Cost center
Q.21 In responsibility accounting, a manager should be held accountable for:
Both controllable and uncontrollable costs
Only controllable costs
Only uncontrollable costs
Company-wide profit
Explanation - Managers are accountable for costs they can influence; holding them responsible for uncontrollable costs is unfair.
Correct answer is: Only controllable costs
Q.22 Which report is most common in responsibility accounting?
Budget reports
Tax reports
Cash flow reports
Shareholder reports
Explanation - Budget reports compare actual performance with budgeted figures, helping evaluate responsibility centers.
Correct answer is: Budget reports
Q.23 A profit center manager is responsible for:
Revenues only
Costs only
Both revenues and costs
Assets only
Explanation - Profit center managers are accountable for generating revenue and controlling costs to maximize profits.
Correct answer is: Both revenues and costs
Q.24 Which of the following is NOT a purpose of responsibility accounting?
Assigning accountability
Enhancing control
Measuring performance
Tax filing
Explanation - Responsibility accounting is meant for internal management purposes, not for tax compliance.
Correct answer is: Tax filing
Q.25 Which responsibility center has the broadest scope of accountability?
Cost center
Revenue center
Profit center
Investment center
Explanation - Investment centers cover revenues, costs, and investment of assets, making their scope the broadest.
Correct answer is: Investment center