Question 1

The basic idea behind residual income is to have a division maximize its:

Accepted Answer

A) earnings per share. 
B) income in excess of a corporate imputed interest charge. 
C) cost of capital. 
D) cash flows. 
E) invested capital. 
A) earnings per share. 
B) income in excess of a corporate imputed interest charge. 
C) cost of capital. 
D) cash flows. 
E) invested capital. B

Question 2

Sales margin shows:

Accepted Answer

A) the amount of income generated by each dollar of capital investment. 
B) the number of sales dollars generated by each dollar of capital investment. 
C) the percentage of each sales dollar that remains as profit after all expenses are covered. 
D) the amount of capital investment generated by each sales dollar. 
E) the amount of capital investment generated by each dollar of incomE. 
A) the amount of income generated by each dollar of capital investment. 
B) the number of sales dollars generated by each dollar of capital investment. 
C) the percentage of each sales dollar that remains as profit after all expenses are covered. 
D) the amount of capital investment generated by each sales dollar. 
E) the amount of capital investment generated by each dollar of incomE. C

Question 3

The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division.Using the general rule,the transfer price from the Bottle Division to the Cologne Division would be:

Accepted Answer

A) $2.00. 
B) $2.10. 
C) $2.60. 
D) $2.90. 
E) $3.00. 
A) $2.00. 
B) $2.10. 
C) $2.60. 
D) $2.90. 
E) $3.00. A

Question 4

A division's return on investment may be improved by increasing sales margin and cost of capital.

Accepted Answer

A) True 
 B)False

Question 5

ROI is most appropriately used to evaluate the performance of:

Accepted Answer

A) cost center managers. 
B) revenue center managers. 
C) profit center managers. 
D) investment center managers. 
E) both profit center managers and investment center managers. 
A) cost center managers. 
B) revenue center managers. 
C) profit center managers. 
D) investment center managers. 
E) both profit center managers and investment center managers.

Question 6

New England Corporation has two divisions,Providence and Buffalo,and evaluates management on the basis of return on investment.Providence currently makes a part that it sells to both Buffalo and outsiders.Selected data follow.  
Providence is seeking an increase in its selling price to $28 per unit because of rising costs.Buffalo can obtain comparable units from an outside supplier for $23;however,if Buffalo uses the supplier,Providence will have idle capacity because of an inability to increase sales to outsiders.From the perspective of New England Corporation:

Accepted Answer

A) Providence should continue to do business with Buffalo and charge $28 per unit. 
B) Providence should continue to do business with Buffalo and charge $25 per unit. 
C) Providence should continue to do business with Buffalo because Providence's variable cost per unit is only $18. 
D) Buffalo should do business with the outside supplier. 
E) Buffalo should split its business between Providence and the outside supplier. 
A) Providence should continue to do business with Buffalo and charge $28 per unit. 
B) Providence should continue to do business with Buffalo and charge $25 per unit. 
C) Providence should continue to do business with Buffalo because Providence's variable cost per unit is only $18. 
D) Buffalo should do business with the outside supplier. 
E) Buffalo should split its business between Providence and the outside supplier.

Question 7

Standard costs rather than actual costs should be used in transfer-pricing methods because:

Accepted Answer

A) financial accounting rules (GAAP)require the use of standard costs. 
B) tax rules require the use of standard costs. 
C) standard costs are more readily available than actual costs. 
D) standard costs facilitate a professionally negotiated,amicable settlement between the buying and selling divisions. 
E) inefficient producing divisions could pass on their inefficiencies to buying divisions in the transfer pricE. 
A) financial accounting rules (GAAP)require the use of standard costs. 
B) tax rules require the use of standard costs. 
C) standard costs are more readily available than actual costs. 
D) standard costs facilitate a professionally negotiated,amicable settlement between the buying and selling divisions. 
E) inefficient producing divisions could pass on their inefficiencies to buying divisions in the transfer pricE.

Question 8

Return on investment (ROI)and residual income (RI)are popular measures of divisional performance.Like any measure,there are disadvantages or weaknesses that are an inherent part of these tools.Briefly discuss a major weakness associated with each tool.

Accepted Answer

Division managers will often reject oppo

Question 9

Deborah Lewis,general manager of the Northwest Division of Berkshire Enterprises,has significant authority over pricing decisions as well as programs that involve cost reduction/control.The data that follow relate to upcoming divisional operations:
Average invested capital: $15,000,000
Annual fixed costs: $3,900,000
Variable cost per unit: $80
Number of units expected to be sold: 120,000
Required:
A.A 14% return on investment will require the Division to produce income of $2,100,000 ($15,000,000 * 14%).If X = selling price,then:
120,000X - (120,000 * $80)- $3,900,000 = $2,100,000
120,000X - $9,600,000 - $3,900,000 = $2,100,000
120,000X = $15,600,000
X = $130
A.Top management will promote Lewis if she can earn a 14% return on investment for the year.What unit selling price should she establish to get her promotion?
B.If X = fixed cost,then:
[($132 - $80)* 120,000] X - ($15,000,000 * 16%)= $200,000
$6,240,000 - X - $2,400,000 = $200,000
X = $3,640,000
To achieve her promotion,Lewis must reduce fixed costs by $260,000 ($3,900,000 - $3,640,000).
B.Independent of part "A," assume the unit selling price is $132 and that Berkshire has a 16% imputed interest charge.Top management will promote Lewis to corporate headquarters if her division can generate $200,000 of residual income.If Lewis desires to move to corporate,what must the division do to the amount of annual fixed costs incurred? Show your calculations.

Accepted Answer

A.A 14% return on investment will requir

Question 10

Nevada,Inc.has two divisions,one located in Las Vegas and the other located in Reno.Las Vegas sells selected goods to Reno for use in various end-products.Assume that the transfer between the two divisions takes place irregardless of the transfer price set by Las Vegas.Which of the following correctly describes the impact of the transfer prices on divisional profits and overall company profit?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Question 11

Consider the following statements about residual income:
I.Residual income incorporates a firm's cost of acquiring investment capital.
II.Residual income is a percentage measure,not a dollar measure.
III.If used correctly,residual income may result in division managers making decisions that are in their own best interest and not in the best interest of the entire firm.
Which of the above statements is (are)true?

Accepted Answer

A) I only. 
B) II only. 
C) I and II. 
D) II and III. 
E) I and III. 
A) I only. 
B) II only. 
C) I and II. 
D) II and III. 
E) I and III.

Question 12

Given that ROI measures performance over a period of time,invested capital would most appropriately be figured by using:

Accepted Answer

A) beginning-of-year assets. 
B) average assets. 
C) end-of-year assets. 
D) total assets. 
E) only current assets. 
A) beginning-of-year assets. 
B) average assets. 
C) end-of-year assets. 
D) total assets. 
E) only current assets.

Question 13

McKenna's Florida Division is currently purchasing a part from an outside supplier.The company's Alabama Division,which has excess capacity,makes and sells this part for external customers at a variable cost of $22 and a selling price of $34.If Alabama begins sales to Florida,it (1)will use the general transfer-pricing rule and (2)will be able to reduce variable cost on internal transfers by $4.If sales to outsiders will not be affected,Alabama would establish a transfer price of:

Accepted Answer

A) $18. 
B) $22. 
C) $30. 
D) $34. 
E) some other amount. 
A) $18. 
B) $22. 
C) $30. 
D) $34. 
E) some other amount.

Question 14

Weston Company had sales revenue and operating expenses of $5,000,000 and $4,200,000,respectively,for the year just ended.If invested capital amounted to $6,000,000,the firm's ROI was:

Accepted Answer

A) 13.33%. 
B) 83.33%. 
C) 120.00%. 
D) 750.00%. 
E) some other figurE. 
A) 13.33%. 
B) 83.33%. 
C) 120.00%. 
D) 750.00%. 
E) some other figurE.

Question 15

Imputed interest can best be described as:

Accepted Answer

A) the company's weighted average cost of capital. 
B) the prime interest rate on the date of the transaction. 
C) the interest rate charged for the company's bonds. 
D) the minimum required rate of return on invested capital. 
E) the after-tax cost of the interest payments on debt. 
A) the company's weighted average cost of capital. 
B) the prime interest rate on the date of the transaction. 
C) the interest rate charged for the company's bonds. 
D) the minimum required rate of return on invested capital. 
E) the after-tax cost of the interest payments on debt.

Question 16

Thurmond,Inc.has two divisions,one located in New York and the other located in Arizona.New York sells a specialized circuit to Arizona and just recently raised the circuit's transfer price.This price hike had no effect on either the volume of circuits transferred or on Arizona's decision of whether to acquire the circuit from either New York or from an external supplier.On the basis of this information,which of the following correctly shows the effect of the transfer price on divisional profit and overall company profit?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Question 17

A company's sales margin:

Accepted Answer

A) must,by definition,be greater than the firm's net sales. 
B) has basically the same meaning as the term "contribution margin." 
C) is computed by dividing sales revenue by income. 
D) is computed by dividing income by sales revenue. 
E) shows the sales dollars generated from each dollar of incomE. 
A) must,by definition,be greater than the firm's net sales. 
B) has basically the same meaning as the term "contribution margin." 
C) is computed by dividing sales revenue by income. 
D) is computed by dividing income by sales revenue. 
E) shows the sales dollars generated from each dollar of incomE.

Question 18

Underwood Company uses cost-based transfer pricing.Its Food Processing Division has a standard variable cost of $8.50 per case and allocated fixed overhead of $2.25.The Processing Division,which has excess capacity,sells its output to external customers for $12.00 per case.If Underwood uses full (or absorption)cost as its base,the transfer price charged to its Retail Division should be:

Accepted Answer

A) $14.25. 
B) $12.00. 
C) $10.75. 
D) $8.50 plus a markup. 
E) negotiated between the managers of the Processing and Retail Divisions. 
A) $14.25. 
B) $12.00. 
C) $10.75. 
D) $8.50 plus a markup. 
E) negotiated between the managers of the Processing and Retail Divisions.

Question 19

The following data pertain to Corkscrew Corporation:

Accepted Answer

@#IMG-DLM& 
Required:
Calculate Corkscrew Corporat

Question 20

Which of the following measures of performance is,in part,based on the weighted-average cost of capital?

Accepted Answer

A) Return on investment. 
B) Capital turnover. 
C) Book value. 
D) Economic value added (EV
A) . 
E) Gross margin. 
A) Return on investment. 
B) Capital turnover. 
C) Book value. 
D) Economic value added (EV
A) . 
E) Gross margin.

The basic idea behind residual income is to have a division maximize its:

Sales margin shows:

The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division.Using the general rule,the transfer price from the Bottle Division to the Cologne Division would be:

A division's return on investment may be improved by increasing sales margin and cost of capital.

ROI is most appropriately used to evaluate the performance of:

Standard costs rather than actual costs should be used in transfer-pricing methods because:

Return on investment (ROI)and residual income (RI)are popular measures of divisional performance.Like any measure,there are disadvantages or weaknesses that are an inherent part of these tools.Briefly discuss a major weakness associated with each tool.

Given that ROI measures performance over a period of time,invested capital would most appropriately be figured by using:

Weston Company had sales revenue and operating expenses of $5,000,000 and $4,200,000,respectively,for the year just ended.If invested capital amounted to $6,000,000,the firm's ROI was:

Imputed interest can best be described as:

A company's sales margin:

The following data pertain to Corkscrew Corporation:

Which of the following measures of performance is,in part,based on the weighted-average cost of capital?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts and Accounting for Mass Customization Operations

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis,cost Behavior,and Cost Estimation

Appendix I: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Cost-Volume-Profit Analysis

Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing,Operational Performance Measures,and the Balanced Scorecard

Flexible Budgeting and the Management of Overhead and Support Activity Costs

Responsibility Accounting, Quality Control, and Environmental Cost Management

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 13: Investment Centers and Transfer Pricing

The basic idea behind residual income is to have a division maximize its:

Sales margin shows:

The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division.Using the general rule,the transfer price from the Bottle Division to the Cologne Division would be:

A division's return on investment may be improved by increasing sales margin and cost of capital.

ROI is most appropriately used to evaluate the performance of:

Standard costs rather than actual costs should be used in transfer-pricing methods because:

Return on investment (ROI)and residual income (RI)are popular measures of divisional performance.Like any measure,there are disadvantages or weaknesses that are an inherent part of these tools.Briefly discuss a major weakness associated with each tool.

Given that ROI measures performance over a period of time,invested capital would most appropriately be figured by using:

Weston Company had sales revenue and operating expenses of $5,000,000 and $4,200,000,respectively,for the year just ended.If invested capital amounted to $6,000,000,the firm's ROI was:

Imputed interest can best be described as:

A company's sales margin:

The following data pertain to Corkscrew Corporation:

Which of the following measures of performance is,in part,based on the weighted-average cost of capital?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts and Accounting for Mass Customization Operations

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis,cost Behavior,and Cost Estimation

Appendix I: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Cost-Volume-Profit Analysis

Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing,Operational Performance Measures,and the Balanced Scorecard

Flexible Budgeting and the Management of Overhead and Support Activity Costs

Responsibility Accounting, Quality Control, and Environmental Cost Management

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

compound Interest and the Concept of Present Value

Inventory Management

Filters