Young Company has a tax rate of 40 percent. Information for the company is as follows: \[\begin{array} { l r r } & \text { Amount } & \text { After-Tax Cost } \\ \text { Mortgage bonds } & \$ 1,000,000 & 0.048 \\ \text { Unsecured bonds } & 3,000,000 & 0.050 \\ \text { Comman stock } & 6,000,000 & 0.150 \end{array}\] -Refer to the figure.What is the EVA if the before-tax operating income is $1,500,000?

A) $(198,000) B) $402,000 C) $534,000 D) $1,134,000 A) $(198,000) B) $402,000 C) $534,000 D) $1,134,000

Beta Division had the following information: $\begin{array}{lr} \text { Asset base in Beta Division } & \$ 400,000 \\ \text { Net income in Beta Division } & \$ 50,000 \\ \text { Weighted average cost of capital } & 12 \% \\ \text { Target ROI } & 15 \% \\ \text { Margin for Beta Division } & 20 \% \end{array}$ What is the residual income for Beta Division?

A) $(10,000) B) $7,500 C) $48,000 D) $60,000 A) $(10,000) B) $7,500 C) $48,000 D) $60,000

Beta Division had the following information: \[\begin{array} { l r } \text { Asset base in Beta Division } & \$ 400,000 \\ \text { Net income in Beta Division } & \$ 50,000 \\ \text { Weighted average cost of capital } & 12 \% \\ \text { Target ROI } & 15 \% \\ \text { Margin for Beta Division } & 20 \% \end{array}\] -Refer to the figure.What is the return on investment of Beta Division?

A) 12.5% B) 20.0% C) 62.5% D) 800.0% A) 12.5% B) 20.0% C) 62.5% D) 800.0%

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: $\begin{array}{lrr} \text { Division A: }&\text { Case } 1&\text { Case } 2\\ \text { Capacity in units } & 100,000 & 100,000 \\ \text { Number of units sold externally } & 100,000 & 60,000 \\ \text { Market selling price } & \$ 90 & \$ 75 \\ \text { Variable costs per unit } & 73 & 58 \\ \text { Fixed costs per unit based on capacity } & 10 & 10\\ \\ \text { Division B: }\\ \text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74 \end{array}$ -Refer to the figure.The company uses the opportunity cost approach to transfer pricing.Which case should be transferred internally?

A) Case 1 B) Case 2 C) neither D) both A) Case 1 B) Case 2 C) neither D) both

Sprint Company has the following data for the current year: $\begin{array}{lrr} &\text { Division } A&\text { Division } B\\ \text { Sales } & \$ 400,000 & \$ 300,000 \\ \text { Contribution margin } & 160,000 & 125,000 \\ \text { Operating income } & 80,000 & 30,000 \\ \text { Average operating assets } & 320,000 & 200,000 \\ \text { Weighted average cost of capital } & 15 \% & 15 \% \end{array}$ Sprint Company has a target ROI of 20 percent. Calculate the following amounts for each division: a.Margin ratio b.Turnover ratio c.ROI d.Residual income e.EVA

Division A: a.Margin ratio = $80,000/$40

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: $\begin{array}{lrr} \text { Division A: }&\text { Case } 1&\text { Case } 2\\ \text { Capacity in units } & 100,000 & 100,000 \\ \text { Number of units sold externally } & 100,000 & 60,000 \\ \text { Market selling price } & \$ 90 & \$ 75 \\ \text { Variable costs per unit } & 73 & 58 \\ \text { Fixed costs per unit based on capacity } & 10 & 10\\ \\ \text { Division B: }\\ \text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74 \end{array}$ -Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the maximum transfer price in Case 2?

A) $58 B) $68 C) $74 D) $75 A) $58 B) $68 C) $74 D) $75

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows: \[\begin{array} { l r } \text { Direct materals }&\$600 \\ \text { Direct labour } & 1,200 \\ \text { Variable overhead } & 300 \\ \text { Fixed overhead } & 150 \\ \text { Market price per unit } & 2,730 \end{array}\] -Refer to the figure.What is the transfer price based on variable product costs plus a fixed fee of $210?

A) $210 B) $1,800 C) $2,100 D) $2,310 A) $210 B) $1,800 C) $2,100 D) $2,310

The Bat Division of Baseball Company has just revised its actual cost data for the current year.Bat Division transfers goods to the Sport Division.Sport Division can buy the same goods in the open market for $122 each.Bat's new cost data are as follows: $\begin{array}{llr} \text { Direct materials } &\$40\\ \text {Direct labour } &30\\ \text { Variable overhead } &10\\ \text { Fixed overhead} &16\\ \text {Variable selling expenses } &6\\ \text { Fixed selling and administrative expenses } &12\\ \text { Total costs } &\$114\\ \text {Desired return } &20\\ \text { Sales price } &\$134\\ \end{array}$ Current production is 200,000 units,and the Bat Division has a capacity of 300,000 units. a.What is the lowest price the Bat Division should charge for the internal transfers of its goods? b.What is the highest price the Sport Division should pay for the units? c.Give the primary reason that the Bat Division should reduce its price.

a.Lowest price would be total variable c

Correll Company has two divisions, A and B. Information for each division is as follows: $\begin{array}{lcc} & \underline{\text { A}}& \underline{\text { B}}\\ \text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\ \text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\ \text { Target rate of return } & 15 \% & 18 \% \\ \text { Margin } & 10 \% & 20 \% \\ \text { Weighted average cost of capital } & 12 \% & 12 \% \end{array}$ -Refer to the figure.What is the total sales amount for B?

A) $666,667 B) $800,000 C) $1,200,000 D) $1,300,000 A) $666,667 B) $800,000 C) $1,200,000 D) $1,300,000

Colora Furniture had the following historical accounting data, per hundred board metres, concerning one of its products: $\text { Finished shelving: }$ $\begin{array}{llr} \text { Direct materials } &\$30\\ \text { Direct labour } &16\\ \text { Variable overhead} &10\\ \text { Fixed overhead } &12\\ \text { Vaniable selling expenses } &8\\ \text { Fixed selling expenses} &4\\ \end{array}$ The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board metres.The minimum profit level accepted by the company is a markup of 20 percent. -Refer to the figure.If the negotiated price is used,what should be Colora Furniture's transfer price?

A) a minimum of $80.00 B) a minimum of $84.00 C) a maximum of $100.80 D) a maximum of $110.00 A) a minimum of $80.00 B) a minimum of $84.00 C) a maximum of $100.80 D) a maximum of $110.00

Exam 10: Responsibility Accounting,performance Evaluation,and Transfer Pricing

Young Company has a tax rate of 40 percent. Information for the company is as follows: Amount After-Tax Cost Mortgage bonds \ 1,000,000 0.048 Unsecured bonds 3,000,000 0.050 Comman stock 6,000,000 0.150 -Refer to the figure.What is the EVA if the before-tax operating income is $1,500,000?

(Multiple Choice)

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(86)

Question 61

Beta Division had the following information: Asset base in Beta Division \ 400,000 Net income in Beta Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Beta Division 20\% What is the residual income for Beta Division?

(Multiple Choice)

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(87)

Question 62

What is the term for the right to buy a certain number of shares of a company's stock at a particular price?

(Multiple Choice)

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(90)

Question 63

What two separate components can return on investment be divided into?

(Multiple Choice)

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(74)

Question 64

Beta Division had the following information: Asset base in Beta Division \ 400,000 Net income in Beta Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Beta Division 20\% -Refer to the figure.What is the return on investment of Beta Division?

(Multiple Choice)

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Question 65

Which department would be classified as a cost centre?

(Multiple Choice)

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Question 66

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Division A: Case 1 Case 2 Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price \ 90 \ 75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier \8 6 \7 4 -Refer to the figure.The company uses the opportunity cost approach to transfer pricing.Which case should be transferred internally?

(Multiple Choice)

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Question 67

If the margin of 0.3 stayed the same and the turnover ratio of 5.0 increased by 10 percent,how would the ROI respond?

(Multiple Choice)

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(72)

Question 68

Sprint Company has the following data for the current year: Division A Division B Sales \ 400,000 \ 300,000 Contribution margin 160,000 125,000 Operating income 80,000 30,000 Average operating assets 320,000 200,000 Weighted average cost of capital 15\% 15\% Sprint Company has a target ROI of 20 percent. Calculate the following amounts for each division: a.Margin ratio b.Turnover ratio c.ROI d.Residual income e.EVA

(Essay)

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(85)

Question 69

Pautner Company had the following historical accounting data per unit: Direct materials \6 0 Direct labour 30 Variable overhead 15 Fixed overhead 24 Variable selling expenses 45 Fixed selling expenses 9 The units are normally transferred internally from Division A to Division B.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30 percent.There were no beginning or ending inventories. What would be the transfer price if Division X uses full cost plus markup?

(Multiple Choice)

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(68)

Question 70

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Division A: Case 1 Case 2 Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price \ 90 \ 75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier \8 6 \7 4 -Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the maximum transfer price in Case 2?

(Multiple Choice)

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Question 71

What formula is used to calculate economic value added?

(Multiple Choice)

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Question 72

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows: Direct materals \6 00 Direct labour 1,200 Variable overhead 300 Fixed overhead 150 Market price per unit 2,730 -Refer to the figure.What is the transfer price based on variable product costs plus a fixed fee of $210?

(Multiple Choice)

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(75)

Question 73

The Bat Division of Baseball Company has just revised its actual cost data for the current year.Bat Division transfers goods to the Sport Division.Sport Division can buy the same goods in the open market for $122 each.Bat's new cost data are as follows: Direct materials \4 0 Direct labour 30 Variable overhead 10 Fixed overhead 16 Variable selling expenses 6 Fixed selling and administrative expenses 12 Total costs \1 14 Desired return 20 Sales price \1 34 Current production is 200,000 units,and the Bat Division has a capacity of 300,000 units. a.What is the lowest price the Bat Division should charge for the internal transfers of its goods? b.What is the highest price the Sport Division should pay for the units? c.Give the primary reason that the Bat Division should reduce its price.

(Essay)

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Question 74

If the operating asset turnover ratio increased by 30 percent and the margin increased by 20 percent,how would the divisional ROI react?

(Multiple Choice)

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Question 75

Correll Company has two divisions, A and B. Information for each division is as follows: Net earnings for division \ 40,000 \ 260,000 Asset base for division \ 100,000 \ 1,200,000 Target rate of return 15\% 18\% Margin 10\% 20\% Weighted average cost of capital 12\% 12\% -Refer to the figure.What is the total sales amount for B?

(Multiple Choice)

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Question 76

Which department is likely to be an investment centre?

(Multiple Choice)

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(86)

Question 77

Colora Furniture had the following historical accounting data, per hundred board metres, concerning one of its products: $\text { Finished shelving: }$ Direct materials \3 0 Direct labour 16 Variable overhead 10 Fixed overhead 12 Vaniable selling expenses 8 Fixed selling expenses 4 The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board metres.The minimum profit level accepted by the company is a markup of 20 percent. -Refer to the figure.If the negotiated price is used,what should be Colora Furniture's transfer price?

(Multiple Choice)

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(77)

Question 78

What is the term for the transfer price that would leave the selling division no worse off if the good is sold to an internal division?

(Multiple Choice)

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Question 79

Which of the following is an advantage of the ROI performance measure?

(Multiple Choice)

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Question 80

Young Company has a tax rate of 40 percent. Information for the company is as follows: Amount After-Tax Cost Mortgage bonds \ 1,000,000 0.048 Unsecured bonds 3,000,000 0.050 Comman stock 6,000,000 0.150 -Refer to the figure.What is the EVA if the before-tax operating income is $1,500,000?

Beta Division had the following information: Asset base in Beta Division \ 400,000 Net income in Beta Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Beta Division 20\% What is the residual income for Beta Division?

What is the term for the right to buy a certain number of shares of a company's stock at a particular price?

What two separate components can return on investment be divided into?

Beta Division had the following information: Asset base in Beta Division \ 400,000 Net income in Beta Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Beta Division 20\% -Refer to the figure.What is the return on investment of Beta Division?

Which department would be classified as a cost centre?

If the margin of 0.3 stayed the same and the turnover ratio of 5.0 increased by 10 percent,how would the ROI respond?

What formula is used to calculate economic value added?

If the operating asset turnover ratio increased by 30 percent and the margin increased by 20 percent,how would the divisional ROI react?

Which department is likely to be an investment centre?

What is the term for the transfer price that would leave the selling division no worse off if the good is sold to an internal division?

Which of the following is an advantage of the ROI performance measure?

A: Basic Cost Management Concepts

B: Basic Cost Management Concepts

Cost Behaviour

Cost-Volume-Profit Analysis

Job-Order Costing Systems

Process Costing

Activity-Based Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Tactical Decision Making

Pricing and Profitability Analysis

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Inventory Management: Economic Order Quantity,jit,and the Theory of Constraints

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