Exam 9: Responsibility Accounting

The Electronics Division of Anton Company reports the following results for the current year: Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's return on investment is: Revenues \ 800,000 Operating expenses \ 720,000 Operating income \ 144,000 Operating assets \ 1,200,000

Fairpoint Products provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was: Desired ROI 8\% Net Income \ 100,000 Residual Income \ 60,000

Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as:

For Year 1, one division of Apex Company reported operating assets of $5,000,000 and operating income of $750,000. Apex has established a target return on investment (ROI) of 14% for the division.Required: 1) Calculate the division's ROI for Year 1. Did it achieve the target set by the company? 2) Assuming that operating assets for Year 2 increase by 10%, by how much would operating income have to increase to reach the target of 14%?

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

When using residual income as a project-screening tool, management should accept a project if the residual income is:

Which of the following would increase residual income? (Assume all other things are equal)

Responsibility reports should be simple, show variances between the budgeted and actual amounts of controllable revenue and expense items, and be timely.

Decentralization encourages upper level management to concentrate on short-term decisions.

Select the incorrect statement concerning responsibility reports.

Payne Company reported the following information for the current year: The company's residual income was: Sales \ 1,600,000 Average Operating Assets \ 500,000 Desired ROI 14\% Net Income \ 85,000

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

The Cineplex Movie Theater has invested in a snack bar for its store, where individual pizzas would be prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Cineplex charge as the selling price per pizza?

Belfield Corporation includes two divisions, Motor Division and Lawnmower Division. The Motor Division makes specialized motors, including one that could be used by the Lawnmower Division. Costs for the motor are: variable costs, $16; fixed costs, $20. The Motor Division has capacity to make 20,000 of the motors, and it is operating at capacity. It sells the motors to other companies for $52 each. If a sale was made to the Lawnmower Division, variable costs would be reduced by $4 per motor on those units. The Lawnmower Division needs 8,000 motors per year, and it has been purchasing them from another company for $45 each.Required: 1) If a transfer were to occur between Motor Division and Lawnmower Division, what is the maximum that Lawnmower Division should be willing to pay for the motors? 2) If a transfer were to occur between Motor Division and Lawnmower Division, what is the minimum price that Motor Division should be willing to accept? 3) Do you recommend that a transfer occur between Motor Division and Lawnmower Division? If the transfer did occur, what would be the effect on the overall profits of Belfield Corporation?

A decentralized company should try to minimize autonomy among the managers of its divisions and departments.

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

The preferred method for establishing transfer prices for transactions between divisions of the same firm is to base the transfer price on some form of competitive market price.

A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

The Family Restaurant chain had a 12% return on a $60,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 3% of the increase in sales. The increase in sales was: