Question 1

Eureka Corp. has a hurdle rate of 8%. Calculate the missing values on each line. (Each line is independent of the others).

Accepted Answer

a. 15% = $105,000/$700,000
b. $49,000 =

Question 2

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?

Accepted Answer

A)  8% 
B)  10% 
C)  16% 
D)  20% 
A)  8% 
B)  10% 
C)  16% 
D)  20%

Question 3

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

Accepted Answer

A)  cost center. 
B)  investment center. 
C)  profit center. 
D)  revenue center. 
A)  cost center. 
B)  investment center. 
C)  profit center. 
D)  revenue center.

Question 4

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 maximum transfer price Tulip would pay internally?

Accepted Answer

A)  $6.00 
B)  $9.35 
C)  $12.50 
D)  $13.00 
A)  $6.00 
B)  $9.35 
C)  $12.50 
D)  $13.00

Question 5

Residual income is the difference between:

Accepted Answer

A)  net operating income and the minimum profit the organization must earn to cover the ROI. 
B)  net operating income and the minimum acceptable profit. 
C)  net operating income and the hurdle rate. 
D)  net operating income times the hurdle rate, less average invested assets. 
A)  net operating income and the minimum profit the organization must earn to cover the ROI. 
B)  net operating income and the minimum acceptable profit. 
C)  net operating income and the hurdle rate. 
D)  net operating income times the hurdle rate, less average invested assets.

Question 6

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?

Accepted Answer

A)  $60 
B)  $96 
C)  $105 
D)  $175 
A)  $60 
B)  $96 
C)  $105 
D)  $175

Question 7

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 has excess capacity, what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Accepted Answer

A)  $4.00 
B)  $5.00 
C)  $7.00 
D)  $12.00 
A)  $4.00 
B)  $5.00 
C)  $7.00 
D)  $12.00

Question 8

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?

Accepted Answer

A)  $25 
B)  $27 
C)  $38 
D)  $50 
A)  $25 
B)  $27 
C)  $38 
D)  $50

Question 9

One of the most important concepts in responsibility accounting is the:

Accepted Answer

A)  balanced scorecard. 
B)  controllability principle. 
C)  related-party transactions. 
D)  transfer price. 
A)  balanced scorecard. 
B)  controllability principle. 
C)  related-party transactions. 
D)  transfer price.

Question 10

In a decentralized organization, lower-level managers are given a great deal of autonomy in decision-making

Accepted Answer

A) True 
 B)False

Question 11

Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. How much profit will Gold receive from the transfer if a transfer price of $22.50 is agreed upon?

Accepted Answer

A)  $225,000 
B)  $275,000 
C)  $500,000 
D)  $725,000 
A)  $225,000 
B)  $275,000 
C)  $500,000 
D)  $725,000

Question 12

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?

Accepted Answer

A)  $0 
B)  $700,000 
C)  $800,000 
D)  $1,200,000 
A)  $0 
B)  $700,000 
C)  $800,000 
D)  $1,200,000

Question 13

Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. If the internal transfer is made, what would be the impact on Tiffany Company's overall profits?

Accepted Answer

A)  $625,000 increase 
B)  $1,125,000 increase 
C)  $225,000 decrease 
D)  No change in profits 
A)  $625,000 increase 
B)  $1,125,000 increase 
C)  $225,000 decrease 
D)  No change in profits

Question 14

Which of the following statements is correct about the connection between cost centers and revenue?

Accepted Answer

A)  Cost centers directly generate revenue from customers. 
B)  Cost centers do not directly generate revenue from customers, and they have no impact on the customer experience. 
C)  Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality. 
D)  Cost centers are the primary driver of revenue from customers. 
A)  Cost centers directly generate revenue from customers. 
B)  Cost centers do not directly generate revenue from customers, and they have no impact on the customer experience. 
C)  Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality. 
D)  Cost centers are the primary driver of revenue from customers.

Question 15

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 plus 20%. If Bark purchases the widgets from Fern, what will be the transfer price?

Accepted Answer

A)  $72.00 
B)  $115.20 
C)  $126.00 
D)  $210.00 
A)  $72.00 
B)  $115.20 
C)  $126.00 
D)  $210.00

Question 16

Which of the following is a disadvantage of decentralization?

Accepted Answer

A)  Develops managerial expertise 
B)  Managers have specialized knowledge 
C)  Potential duplication of resources 
D)  Allows top managers to focus on strategic issues 
A)  Develops managerial expertise 
B)  Managers have specialized knowledge 
C)  Potential duplication of resources 
D)  Allows top managers to focus on strategic issues

Question 17

Coral has a profit margin of 16% based on revenues of $400,000 and an investment turnover is 2. What is the residual income when the cost of capital is 10%?

Accepted Answer

A)  $44,000 
B)  $20,000 
C)  $40,000 
D)  $64,000 
A)  $44,000 
B)  $20,000 
C)  $40,000 
D)  $64,000

Question 18

The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

Accepted Answer

A)  cost center. 
B)  investment center. 
C)  profit center. 
D)  revenue center. 
A)  cost center. 
B)  investment center. 
C)  profit center. 
D)  revenue center.

Question 19

The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:

Accepted Answer

A)  market price method. 
B)  cost-based method. 
C)  negotiation. 
D)  balanced scorecard methoD.
The cost-based method uses cost as a basis for setting the transfer price. 
A)  market price method. 
B)  cost-based method. 
C)  negotiation. 
D)  balanced scorecard methoD.
The cost-based method uses cost as a basis for setting the transfer price.

Question 20

Devon Inc. has a profit margin of 12% and an investment turnover of 2.5. Sales revenue is $600,000. What is the operating income?

Accepted Answer

A)  $180,000 
B)  $28,800 
C)  $72,000 
D)  $240,000 
A)  $180,000 
B)  $28,800 
C)  $72,000 
D)  $240,000

Eureka Corp. has a hurdle rate of 8%. Calculate the missing values on each line. (Each line is independent of the others).

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?

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

Residual income is the difference between:

One of the most important concepts in responsibility accounting is the:

In a decentralized organization, lower-level managers are given a great deal of autonomy in decision-making

Which of the following statements is correct about the connection between cost centers and revenue?

Which of the following is a disadvantage of decentralization?

Coral has a profit margin of 16% based on revenues of $400,000 and an investment turnover is 2. What is the residual income when the cost of capital is 10%?

The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:

Devon Inc. has a profit margin of 12% and an investment turnover of 2.5. Sales revenue is $600,000. What is the operating income?

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

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Exam 10: Decentralized Performance Evaluation

Eureka Corp. has a hurdle rate of 8%. Calculate the missing values on each line. (Each line is independent of the others).

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?

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

Residual income is the difference between:

One of the most important concepts in responsibility accounting is the:

In a decentralized organization, lower-level managers are given a great deal of autonomy in decision-making

Which of the following statements is correct about the connection between cost centers and revenue?

Which of the following is a disadvantage of decentralization?

Coral has a profit margin of 16% based on revenues of $400,000 and an investment turnover is 2. What is the residual income when the cost of capital is 10%?

The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:

Devon Inc. has a profit margin of 12% and an investment turnover of 2.5. Sales revenue is $600,000. What is the operating income?

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

Filters