Exam 11: Responsibility Accounting Systems

The Hum Division of the Ho Company reported the following data for last year: The residual income for the Hum Division last year was:

Mittan Products, Incorporated, has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below: The Aircraft Products Division is currently purchasing 4,000 of these antennaes per year from an overseas supplier at a cost of $66 per antennae. 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?

Residual income should be used to evaluate an investment center rather than a cost or profit center.

Craycraft Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: Required: 1. What was last year's margin? (Round to the nearest 0.1%.) 2. What was last year's turnover? (Round to the nearest 0.01.) 3. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 4. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.) 5. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.) 6. 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%.)

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.For performance evaluation purposes, how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?

Delemos Products, Incorporated has a Transmitter Division that manufactures and sells a number of products, including a standard transmitter. Data concerning that transmitter appear below: The Remote Devices Division of Delemos Products, Incorporated needs 6,000 special heavy-duty transmitters per year. The Transmitter Division's variable cost to manufacture and ship this special transmitter would be $66 per unit. Because these special transmitters require more manufacturing resources than the standard transmitter, the Transmitter Division would have to reduce its production and sales of standard transmitters to outside customers from 83,000 units per year to 76,400 units per year. From the standpoint of the Transmitter Division, what is the minimal acceptable transfer price for the special transmitters for the Remote Devices Division?

Wollan Corporation has two operating divisions-an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $50 per shipment. The Logistics Department's fixed costs are budgeted at $349,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $377,476 and fixed costs totaled $364,000. The East Division had a total of 2,440 shipments and the West Division had a total of 5,020 shipments for the year.How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year?

Whenever possible, service department costs should be separated into fixed and variable costs and charged separately to operating departments.

Ricardo 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 Ricardo Products, Incorporated needs 10,000 special heavy-duty motors per year. The Motor Division's variable cost to manufacture and ship this special motor would be $35 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 87,000 units per year to 69,000 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?

Zumsteg Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump. Data concerning that pump appear below: The company has a Pool Products Division that could use this pump in one of its products. The Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas supplier at a cost of $81 per pump. Required: Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?

Setting transfer prices at full cost can lead to bad decisions because, among other reasons, full cost does not take into account opportunity costs.

Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation.Assume that the Plastics Division is currently operating at full capacity. Also assume that the Components Division wants to increase the number of parts it purchases from Plastics. In order to maintain its current level of profitability, the Plastics Division should not accept any transfer price on these additional parts that is below the:

Minar 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: If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:

The transfer price used for internal transfers between divisions of the same company cannot affect the divisions' reported profits.

Ranallo 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: The company's minimum required rate of return is 14%. Required: 1. What was last year's margin? (Round to the nearest 0.1%.) 2. What was last year's turnover? (Round to the nearest 0.01.) 3. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 4. What is the margin related to this year's investment opportunity? (Round to the nearest 0.1%.) 5. What is the turnover related to this year's investment opportunity? (Round to the nearest 0.01.) 6. What is the return on investment related to this year's investment opportunity? (Round to the nearest 0.1%.) 7. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.) 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.) 9. 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%.) 10. If Westerville's chief executive officer earns a bonus only if the return on investment for this year exceeds the return on investment for last year, would the chief executive officer pursue the investment opportunity? Would the owners of the company want the chief executive officer to pursue the investment opportunity? 11. What was last year's residual income? 12. What is the residual income of this year's investment opportunity? 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall residual income this year? 14. If Westerville's chief executive officer earns a bonus only if residual income for this year exceeds residual income for last year, would the chief executive officer pursue the investment opportunity?

Ganus Products, Incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below: The Electronics Division is currently purchasing 4,550 of these relays per year from an overseas supplier at a cost of $22 per relay.Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Relay and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier?

A segment of a business responsible for both revenues and expenses would be called:

Toldness Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below: The Transmission Division is currently purchasing 11,000 of these connectors per year from an overseas supplier at a cost of $58 per connector. What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?

Eady Wares is a division of a major corporation. The following data are for the latest year of operations: Required:a. What is the division's margin?b. What is the division's turnover?c. What is the division's return on investment (ROI)?d. What is the division's residual income?

Nanke 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 3,000 of these sensors per year from an overseas supplier at a cost of $59 per sensor. Assume that the Sensor Division is selling all of the sensors it can produce to outside customers. What should be the minimum acceptable transfer price for the sensors from the standpoint of the Sensor Division?