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Exam 11: Responsibility Accounting Systems

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Question 51

Multiple Choice

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Tabarez Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below: For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year?

A) $989,002
B) $1,041,416
C) $967,920
D) $1,019,520

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

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Question 52

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Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently.If outside customers demand only 50,000 units per year, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A) $35 per unit
B) $33 per unit
C) $28 per unit
D) $23 per unit

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

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Question 53

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The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.

Stibbins Products, Incorporated, has a Receiver Division that manufactures and sells a number of products, including a standard receiver. Data concerning that receiver appear below: The company has a Industrial Products Division that could use this receiver in one of its products. The Industrial Products Division is currently purchasing 6,000 of these receivers per year from an overseas supplier at a cost of $79 per receiver. Required: a. Assume that the Receiver Division is selling all of the receivers it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions? b. Assume again that the Receiver Division is selling all of the receivers it can produce to outside customers. Also assume that $13 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

The medical services department of Fischer Company budgeted $25 of variable medical expenses per employee for May, based on 2,000 employees in operating departments. During May an average of 1,980 employees were employed in operating departments. Actual variable medical expenses totaled $50,700 for the month. How much variable medical expenses should be charged to operating departments at the end of May for performance evaluation purposes?

Chiodini Incorporated has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales. The return on investment (ROI) for this year's investment opportunity considered alone is closest to:

Wengert Products, Incorporated, has a Motor Division that manufactures and sells a number of products, including a standard motor. Data concerning that motor appear below: The Automotive Division of Wengert Products, Inc needs 8,000 special heavy-duty motors per year. The Motor Division's variable cost to manufacture and ship this special motor would be $20 per unit. Because these special motors require more manufacturing resources than the standard motor, the Motor Division would have to reduce its production and sales of standard motors to outside customers from 40,000 units per year to 27,200 units per year.What is the total contribution margin on sales to outside customers that the Motor Division would give up if it were to make the special motors for the Automotive Division?

Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's turnover is closest to:

Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's turnover is closest to:

Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided.Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

Brull Products, Incorporated, has a Sensor Division that manufactures and sells a number of products, including a standard sensor. Data concerning that sensor appear below: The Safety Products Division of Brull Products, Inc needs 6,000 special heavy-duty sensors per year. The Sensor Division's variable cost to manufacture and ship this special sensor would be $60 per unit. Because these special sensors require more manufacturing resources than the standard sensor, the Sensor Division would have to reduce its production and sales of standard sensors to outside customers from 56,000 units per year to 46,400 units per year.What is the total contribution margin on sales to outside customers that the Sensor Division would give up if it were to make the special sensors for the Safety Products Division?

Robichau Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 20%.Last year's residual income was closest to:

Germano Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: The Pool Products Division is currently purchasing 11,000 of these pumps per year from an overseas supplier at a cost of $62 per pump.Assume that the Pump Division is selling all of the pumps it can produce to outside customers. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?

Steinhoff Products, Incorporated, has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below: The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.Assume that the Valve Division is selling all of the valves it can produce to outside customers. From the standpoint of the Valve Division, what is the lost contribution margin if the valves are transferred internally rather than sold to outside customers?

Beery Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 12%. If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:

Largo Company recorded for the past year sales of $730,000 and average operating assets of $292,000. What is the margin that Largo Company needed to earn in order to achieve an return on investment (ROI) of 32.5%?

From the buying division's perspective, when a transferred item can be purchased from an outside supplier, the price charged by the outside supplier represents an upper bound on the charge that should be made on transfers between the selling and buying divisions.

Serie Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $2,100,000 investment opportunity with the following characteristics: Last year's margin was closest to:

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment?

Cabell Products is a division of a major corporation. Last year the division had total sales of $25,320,000, net operating income of $1,924,320, and average operating assets of $6,000,000. The company's minimum required rate of return is 10%.The division's residual income is closest to: