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CHAPTER 22
RESPONSIBILITY CENTER ACCOUNTING
AND TRANSFER PRICING
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Brief
Exercises
B. Ex. 22.1
B. Ex. 22.2
B. Ex. 22.3
B. Ex. 22.4
B. Ex. 22.5
B. Ex. 22.6
B. Ex. 22.7
B. Ex. 22.8
B. Ex. 22.9
B. Ex. 22.10

Topic
Contribution margin effects
Contribution margin vs. responsibility margin
Responsibility center design
Transfer Prices
Contribution margin ratios
Identifying transfer prices
Tracing common costs
Common or traceable costs
Responsibility accounting system
Evaluating responsibility center managers

Exercises
22.1

Topic
Accounting terminology

22.2
22.3

Types of responsibility centers
Classification of costs in an income statement

22.4
22.5
22.6
22.7
22.8
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20 Easy

22.2 A,B

Regal Flair Enterprises/Brown Enterprises
Prepare a responsibility income statement and identify the business units that will provide the most benefit from short-run product promotion and from long-run expansion. Requires an understanding of the different roles of contribution margin and responsibility margin in managerial decisions. 30 Medium

22.3 A,B

Giant Chef Equipment Company/Glassware Company
Prepare a responsibility income statement and use the data to perform cost-volume-profit analysis.

30 Medium

22.4 A,B

Muscle Bound Company/Freeze, Inc.
Prepare income statements at two successive levels of responsibility.
Also, compute the return on assets for two investment centers and use data in several managerial decisions.

60 Strong

22.5 A,B

Butterfield, Inc./Sotheby, Inc.
Given income statements at two levels of responsibility, students are asked to make several decisions based upon the data and to explain the
“disappearance” of the common costs as the responsibility centers are redefined. Also calls for a revised version of one responsibility statement reflecting different sales levels.

45 Strong

22.6 A,B

Flywiz, Inc./Footware, Inc.
Students are asked to evaluate a decision to close a seemingly unprofitable unit of a business. However, upon closer examination, they may discover that seasonality is distorting the data and that products of the unprofitable unit support sales in the more profitable
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