Exam 9: Evaluating Decentralized Operations

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much will Division 6's income from operations increase?

Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

The Creative Division of the Barry Company reported the following results for December: Invested assets                     $1,200,000 Profit margin                                  25% Return on investment                      30% Based on this information, what were sales?

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum rate of return of 3%. The rate of return on investment for Marshall is

Data for Divisions A, B, C, D, and E are as follows: (a) Determine the missing items, identifying each by letter (a-o). Round percentage and turnover values to one decimal point. (b) Which division is most profitable in terms of income from operations? (c) Which division is most profitable in terms of rate of return on investment?

The costs of services charged to a profit center on the basis of its use of those services are

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.

In a cost center, the manager has responsibility and authority for making decisions that affect

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The net income for Train Corporation is

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2.

Investment centers differ from profit centers in that they

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

The profit center income statement should include only revenues and expenses that are controlled by the manager.

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much will Division 3's income from operations increase?

The manager of the furniture department of a leading retailer does not control the salaries of departmental personnel.

The balanced scorecard measures four areas of financial and nonfinancial performance of a business. Identify one of the following that is not included as a performance measurement.

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 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. How much will Division C's income from operations increase?