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ACC 118 Strategic Business Analysis
Teachers’ Guide Module #8
Name:_______________________________________________________ Class number: _______

Section: ___________ Schedule:__________________________________ Date: _______________
Lesson Title: Quiz 2 Materials:

SAS, Calculator
Coverage: Decentralized Operations and Segment Reporting
Decentralized type of organization
Importance of decentralization in a responsibility accounting system
Advantages of decentralization
Segmented income statement using the contribution margin format
Productivity Tip: “The beautiful thing about learning is that no one can take it away from you.” -B.B. King
KEY TO CORRECTIONS
Part I
1. T 2. T 3. T 4. T 5. F 6. T 7. T 8. F 9. F 10. F
11. T 12. F 13. T 14. T 15. T
Part II
1.
Sales revenue (65,000 units x $18.00) $1,170,000
Less variable costs:
Cost of goods sold (65,000 units x $812,50
$12.50) 0
Sales commissions ($1,170,000 x 5%) 871,000
58,500
Segment contribution margin $ 299,000
Less traceable, controllable fixed costs:
Local advertising $
54,000
Sales manager’s salary 119,000
65,000
Segment profit margin $ 180,000
Less traceable, uncontrollable fixed costs:
Local property taxes $
14,500
Store manager’s salary 134,000
Other 155,300
6,800
Income before taxes $ 24,700
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Less: Income tax expense 10,000

Net income $ 14,700
Note: The non-traceable costs are ignored.
2.
a. Segment contribution margin: $4,580,000 - ($4,580,000 x 40%) =
$2,748,000
b. Controllable profit margin: $2,748,000 - $1,120,000 = $1,628,000
c. Segment profit margin: $1,628,000 - $1,360,000 = $268,000
3.
a. $9,000 + $6,000 + $5,000 = $20,000
b. $6,000 - $4,400 = $1,600
c. $6,400 - $1,500 = $4,900
d. $1,000 - $200 = $800
QUESTIONS:
Welcome! Are you ready for your second quiz? Good luck!
Read carefully the specific instructions for each part of this quiz. Cheating is prohibited.
Part I. True or False: Write T if the statement is correct and F if otherwise. Write your answer on the
blank space provided.
______1. Allocating common fixed costs to segments on segmented income statements reduces
the usefulness of such statements.
______2. A segment is any part or activity of an organization about which a manager seeks cost,
revenue, or profit data.
______3. A responsibility center is a business segment whose manager has control over costs,
revenues, or investments in operating assets.
______4. The basic objective of responsibility accounting is to charge each manager with those
costs and/or revenues over which he has control.
______5.
F Decentralization is a transfer of authority from the bottom to the top of an organization.
______6. Decentralization can result in a lack of goal congruence among departments.
______7. Decentralization can lead to greater job enrichment and satisfaction.
2

______8.
F Decentralization means that a unit manager has the authority to make all decisions
concerning that specific unit.
______9.
F Decentralization reduces the need for effective communication among an organization’s
departments.
______10.
F Decentralization increases the time required for decision-making.
______11. Separation of businesses into more manageable operating units is termed
decentralization.
______12. A decentralized business organization is one in which all major planning and operating
decisions are made by top management.
______13. Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed direct
expenses.
______14. Controllable expenses are those that can be influenced by the decisions of the profit
center management.
______15. A centralized business organization is one in which all major planning and operating
decisions are made by top management.
Part II: Problem Solving.

1.
Fog City Retail operates a retail store in Phoenix, Las Vegas, and Portland. The following information
relates to the Phoenix facility:
● The store sold 65,000 units at $18.00 each, after having purchased the units from various
suppliers for $12.50. Phoenix salespeople are paid a 5% commission based on gross sales
dollars.
● Phoenix’s sales manager oversees the placement of local advertising contracts, which
totalled $54,000 for the year. Local property taxes amounted to $14,500.
● The sales manager’s $65,000 salary is set by Phoenix’s store manager. In contrast, the
store manager’s $134,000 salary is determined by Fog City’s vice president.
● Phoenix incurred $6,800 of other non-controllable costs along with $10,000 of income tax
expense.
● Non-traceable (common) corporate overhead totalled $68,000.
Fog City’s corporate headquarters is located in Portland, and the company uses responsibility
accounting to evaluate performance.
Required: Compute the following:
- Total Sales Revenue,

- Total Variable Cost,
- Traceable, Controllable Fixed Costs
- Traceable, Uncontrollable Fixed Costs
- Net Income
3

2. The following selected data relate to the Idaho Division of Far West Enterprises (FWE):
Sales revenue $4,580,000

Uncontrollable fixed costs traceable to the division 1,360,000
Allocated corporate overhead 590,000
Controllable fixed costs traceable to the division 1,120,000
Variable costs 40% of revenue
Required: Compute the following for the Idaho Division:

a. Segment contribution margin.
b. Controllable profit margin.
4

c. Segment profit margin.
3.
Pretty Lady is an upscale boutique that operates various stores throughout Florida. The company,
which has three divisions (Miami, Naples, and Tampa), reported the following information for the year
just ended (in thousands):
Miami Naples Tampa
Sales revenue $9,000 $6,000 $5,000
Divisional contribution margin 6,400 4,400 3,500
Profit margin controllable by division 1,500 1,900 1,000
manager
Divisional profit margin 1,000 700 200
Pretty Lady also reported $600 of common fixed expenses that top management wants to allocate to
the divisions on the basis of sales revenue. As the company's chief executive office notes, "Each
division helped to incur a portion of these costs and, as a result, should absorb its fair share." The firm
has adopted various responsibility accounting procedures to evaluate division personnel.
Required:
a. Compute the company's total sales revenue.
b. Calculate the amount of variable operating expense incurred by the Naples Division.
5

c. Calculate the fixed costs controllable by Miami's management.
d. Calculate the fixed costs traceable to the Tampa Division but controllable by others.
Congratulations! You survived the quiz.
6
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ACC 118 Strategic Business Analysis

Teachers’ Guide Module #8

Name:_________________________________________________ Class number: _

Lesson Title: Quiz 2 Materials:

Name:_________________________________________________ Class number: _

Less: Income tax expense 10,000

Note: The non-traceable costs are ignored.

Name:_________________________________________________ Class number: _

Part II: Problem Solving.

Required: Compute the following:

- Total Sales Revenue,

Name:_________________________________________________ Class number: _

Sales revenue $4,580,000

Required: Compute the following for the Idaho Division:

b. Controllable profit margin.

Name:_________________________________________________ Class number: _

c. Segment profit margin.

Name:_________________________________________________ Class number: _

c. Calculate the fixed costs controllable by Miami's management.

Congratulations! You survived the quiz.

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