Exam 11: Reporting for Control

Geneva Corporation has a Castings Division that does casting work of various types.The company's Machine Products Division has asked the Castings Division to provide it with 10,000 special castings each year on a continuing basis.The special castings would require $20 per unit in variable production costs.The Machine Products Division has a bid from an outside supplier of $30 per unit for the castings. In order to have time and space to produce the new casting,the Castings Division would have to cut back production of another casting: the NW2,which it presently is producing.The NW2 sells for $40 per unit,and requires $25 per unit in variable production costs.Boxing and shipping costs of the NW2 are $4 per unit.Boxing and shipping costs for the new special casting would be only $2 per unit.The company is now producing and selling 100,000 units of the NW2 each year.Production and sales of this casting would drop by 10% if the new casting were produced. Required: a)What is the range of transfer prices,if any,within which both the divisions' profits would increase as a result of agreeing to the transfer of 10,000 castings per year from the Castings Division to the Machine Products Division? b)Is it in the best interests of Geneva Corporation for this transfer to take place? Explain.

Which of the following would be classified as an external failure cost on a quality cost report?

Which of the following would be classified as an internal failure cost on a quality cost report?

Process time is the only value-added component of throughput time.

Which of the following is a correct definition of operating income?

Estes Company has assembled the following data for its divisions for the past year: -What was Division A's residual income?

Which of the following would be classified as an external failure cost on a quality cost report?

Fabri Company's quality cost report is to be based on the following data: -What will be the total external failure cost appearing on the quality cost report?

In responsibility accounting,each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.

Consider the following three statements: I.A profit centre has control over both cost and revenue. II)An investment centre has control over invested funds,but not over costs and revenue. III)A cost centre has no control over sales. Which statement(s)is/are correct?

A company had the following results last year: sales,$700,000; return on investment,28%; and margin,8%.What were the average operating assets last year?

The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2. -What was the margin in Year 2?

Eade Company's quality cost report is to be based on the following data: -What will be the total external failure cost appearing on the quality cost report?

The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1. -What was the operating income for Year 1?

Allocations of corporate headquarters expenses to divisions used in return on investment calculations should be limited to the cost of those actual services provided by central headquarters,which the divisions otherwise would have to provide for themselves.

Which of the following would be classified as an internal failure cost on a quality cost report?

The cost of which one of the following business functions making up the value chain is included in product costs for financial reporting purposes under generally accepted accounting principles?

The Northern Division of the Smith Company had average total operating assets of $150,000 last year.Its minimum required rate of return was 12%.The division reported operating income of $20,000.What was the residual income for the Northern Division last year?

Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment.

Falstaff Company's quality cost report is to be based on the following data: Quality data gathering, analysis, and reporting \ 49,000 Supervision of testing and inspection activities \ 46,000 Liability arising from defective products \ 35,000 Technical support provided to suppliers \ 50,000 Disposal of defective products \ 75,000 Amortization of test equipment \ 56,000 Downtime caused by quality problems \ 99,000 Test and inspection of in-process goods \ 70,000 Cost of field servicing and handling complaints \ 54,000 Required: Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs.