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Exam 24: Evaluating Decentralized Operations

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Question 31

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The materials used by Holly Company's Division A are currently purchased from an outside supplier. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. Division B normally sells its units for $53 per unit. What is the range of transfer prices within which the two division managers should negotiate?

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Question 32

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The support department cost that will be allocated to the Macro Division is

A) $405,000
B) $175,000
C) $130,000
D) $305,000

E) C) and D)
F) A) and B)

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Question 33

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Responsibility accounting reports for profit centers are normally in the form of income statements.

Which of the following is not a measure that management can use in evaluating and controlling investment center performance?

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.​ -Division C's operating income will increase by

Match each of the following phrases as describing (a) an advantage, (b) a disadvantage, or (c) neither of decentralization. -Operational issues are made by managers closest to the operations A)Advantage of decentralization B)Disadvantage of decentralization C)Neither an advantage nor a disadvantage

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 operating expenses.

Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

The formula for the return on investment (ROI) is

Operating expenses incurred by support departments are indirect expenses to a profit center.

The Central Division for Chemical Company has a return on investment of 22% and an investment turnover of 1.4. The profit margin is

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

If operating income for a division is $5,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

The sales, operating income, and invested assets for each division of Wren Company are as follows: Management has established a minimum acceptable return on investment of 8%. a.Determine the residual income for each division. b.Based on residual income, which division is the most profitable?

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determining the return on investment (ROI) , is called

Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

The major shortcoming of operating income as an investment center performance measure is that it ignores the amount of assets invested in the center.

Which of the following expressions is termed the profit margin factor as used in the DuPont formula for determining the return on investment (ROI) ?

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000. -The profit margin for International Boot Company is

Two divisions of Oregano Company (Divisions TX and OY) have the same profit margins. Division TX's investment turnover is larger than that of Division OY (1.2 to 1.0) . Operating income for Division TX is $55,000, and operating income for Division OY is $43,000. Division TX has a higher return on investment than Division OY by