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Exam 10: Decentralized Performance Evaluation

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Question 1

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Evergreen Corp.has two divisions,Fern and Bark.Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs,plus the cost of the widget,to manufacture.Fern's variable costs are $60 per widget,and fixed manufacturing costs are applied at a rate of $36 per widget.Widgets sell on the open market for $105 each.Evergreen's policy is that internal transfers will be made at variable cost.If Bark purchases the widgets from Fern,what will be the transfer price?

A) $60
B) $96
C) $100
D) $175

E) A) and C)
F) All of the above

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Question 2

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Which of the following is not a method used to determine transfer prices?

A) market price method
B) cost-based method
C) negotiation
D) balanced scorecard method

E) None of the above
F) C) and D)

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Question 3

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One of the most important concepts in responsibility accounting is the

The responsibility center in which the manager does not have responsibility and authority over costs is

Avocado Company has an operating income of $80,000 on revenues of $1,000,000.Average invested assets are $500,000,and Avocado Company has an 8% cost of capital.What is the return on investment?

Which of the following statements contrasting residual income with return on investment is correct?

Which of the following balanced scorecard perspectives measures an organization's ability to change?

Which of the following balanced scorecard perspectives measures how an organization satisfies its stakeholders?

Which of the following is the primary tool used by cost centers to manage costs?

Avocado Company has an operating income of $80,000 on revenues of $1,000,000.Average invested assets are $500,000 and Avocado Company has an 8% cost of capital.What is the residual income?

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail is operating at capacity,what would be the cost savings if the transfer was made and Marlin currently is purchasing 100,000 units on the open market?

Segment margin and profit margin are identical terms.The segment margin includes only those costs that are within the segment manager's control whereas the profit margin includes costs that are not controllable by the manager.

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail is operating at capacity,what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Evergreen Corp.has two divisions,Fern and Bark.Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs,plus the cost of the widget,to manufacture.Fern's variable costs are $60 per widget,and fixed manufacturing costs are applied at a rate of $36 per widget.Widgets sell on the open market for $105 each.Evergreen's policy is that internal transfers will be made at full cost.If Bark purchases the widgets from Fern,what will be the transfer price?

The part of the organization for which managers are responsible is called a related-party center.The part of the organization for which managers are responsible is called a responsibility center.

Spice Company has two divisions,Parsley and Sage.Parsley produces a unit that Sage could use in its production.Sage currently is purchasing 50,000 units from an outside supplier for $50.Parsley is operating at less than full capacity and has variable costs of $27 per unit.The full cost to manufacture the unit is $38.Parsley currently sells 450,000 units at a selling price of $54.If an internal transfer is made,variable shipping and administrative costs of $2 per unit could be avoided.What would be the maximum transfer price?

Which of the following is not a limitation of return on investment?

Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at capacity,what would be the minimum transfer price Daffodil would accept for an internal transfer?

The controllability principle holds that managers should not be held responsible only for what they can control but are also responsible for allocated costs.The controllability principle holds that managers should be held responsible only for what they can control.

Grove Corp.has revenues of $1,500,000 resulting in an operating income of $105,000.Average invested assets total $750,000.Calculate the ROI if sales increase by 10% and the profit margin and investment level remain constant.