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Exam 11: Responsibility Accounting Systems

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Question 161

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In service department cost allocations, sales dollars should be used as an allocation base whenever possible.

A) True
B) False

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Question 162

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A profit center is responsible for generating revenue, but it is not responsible for controlling costs.

A) True
B) False

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Question 163

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Cabell Products is a division of a major corporation. Last year the division had total sales of $28,770,000, net operating income of $1,611,120, and average operating assets of $5,754,000. The company's minimum required rate of return is 10%.The division's residual income is closest to:

Criner Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,800,000 investment opportunity with the following characteristics: Required: 1.What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 2. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall return on investment will this year? (Round to the nearest 0.1%.)

Chavin Company had the following results during August: net operating income, $270,000; turnover, 9; and return on investment (ROI) 15%. Chavin Company's average operating assets were:

Financial data for Beaker Company for last year appear below: The company paid dividends of $170,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.Required:a. Compute the company's margin, turnover, and return on investment for last year.b. The Board of Directors of Beaker Company has set a minimum required return of 35%. What was the company's residual income last year?

Parsa Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,100,000 investment opportunity with the following characteristics: If the company pursues the investment opportunity and otherwise performs the same as last year, the combined return on investment for the entire company will be closest to:

The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1.The average operating assets for Year 2 were:

Weafer Incorporated reported the following results from last year's operations: Last year's turnover was closest to:

The selling division in a transfer pricing situation should want the transfer price to cover at least the full cost per unit plus the lost contribution margin per unit on outside sales.

In November, the Universal Solutions Division of Keaffaber Corporation had average operating assets of $480,000 and net operating income of $46,200. The company uses residual income, with a minimum required rate of return of 11%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in November?

Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow: The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.How much Housekeeping Department cost should be charged to Rehabilitation at the end of September?

Starcic Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below: The company has a Transmission Division that needs 6,000 special heavy-duty connectors per year. The Connector Division's variable cost to manufacture and ship this special connector would be $62 per unit. Making these special connectors would require more manufacturing resources. Therefore, the Connector Division would have to reduce its production and sales of regular connectors to outside customers from 45,000 units per year to 38,400 units per year. Required: As far as the Connector Division is concerned, what is the lowest acceptable transfer price for the special connectors?

Cichy Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 5,000 of these valves per year from an overseas supplier at a cost of $85 per valve. What is the maximum price that the Pump Division should be willing to pay for valves transferred from the Valve Division?

Yearout Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 9,000 of these valves per year from an overseas supplier at a cost of $53 per valve.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Does there exist a transfer price that would make both the Valve and Pump Division financially better off than if the Pump Division were to continue buying its valves from the outside supplier?

When a dispute arises over a transfer price, top managers should intervene to keep divisional managers from making a costly mistake, even though the divisions are evaluated as profit centers.

Selma Incorporated reported the following results from last year's operations: Last year's margin was closest to:

Bonilla Incorporated has a $700,000 investment opportunity with the following characteristics: The margin for the investment opportunity is closest to:

An advantage of using return on investment (ROI) to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

Suppose a company evaluates divisional performance using both return on investment (ROI) and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its return on investment is less than 12%.