Exam 11: Responsibility Accounting, Investment Centres, and Transfer Pricing

Return on investment (ROI) is a very popular tool to evaluate performance. The measurement of ROI is dependent, in part, on whether fixed assets are valued at acquisition cost or net book value. List several advantages of acquisition cost and net book value as ways to value long-lived assets.

Badger Limited had a sales margin of 7%, sales of $8,000,000, and invested capital of $4,000,000. The company's ROI was:

Thatcher Corporation has an after-tax operating income of $4,200,000 and an 8% weighted-average cost of capital. Assets total $8,000,000 and current liabilities total $1,500,000. On the basis of this information, Thatcher's economic value added is:

A cost object is:

Laissez Faire has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is $2, shipping cost is $0.10, and the external sales price is $3. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $2.60. 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: