Exam 22: Responsibility Accounting and Transfer Pricing

Responsibility income statement-preparation Gameland Village is segmented into two sales departments: software and video games.During April,these two departments reported the following operating results: In addition,fixed costs common to both departments amounted to $42,000. Complete the following segmented income statement for Gameland Village.Follow the contribution margin approach,and show percentages as well as dollar amounts.Conclude your income statement with the company's income from operations. GAMELAND VILLAGE Income Statement Segmented by Product Lines For the Month Ended April 30,20__

If a company wanted to evaluate the manager's ability to control costs,the company would probably look at the:

All of the following costs are traceable to specific sales departments except:

A cost that is directly traceable to a particular center must be a variable cost.

Division X supplies partially completed units of product to division Y.The divisions negotiated a price of $30 per unit.Assuming Division X completed and transferred 3,000 units to division Y,the total transfer price on this transaction is:

A responsibility accounting system measures the performance of each of the following centers except:

The bookstore of a university would be considered:

When an external market exists for a transferred product or service,most companies use either negotiated transfer prices or cost-plus transfer prices.

The cost of heating and air conditioning the store should be:

Sloan Sporting Goods has stores in four geographic regions.Each region has at least 20 stores.In the company's responsibility accounting system,sales are recorded separately for each sales department within each store.The total sales for a particular region are determined by:

Evaluating the performance of cost centers involves subjective judgments as to the value of the services rendered by these centers.

Using a responsibility income statement Shown below is the current monthly income statement of Metro Video,by profit centers: METRO VIDEO Income Statement by Profit Centers For the Month Ended April 30,20__ On the basis of this information,compute the increase in monthly income from operations that may be expected to result from each of the following actions: (a)Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%.$________ (b)Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month.This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month.$________

Common fixed costs jointly benefit several parts of the business and would not change significantly even if one of the parts of the business were discontinued.

Company MHF operates subsidiaries in two countries.One of the subsidiaries consumes the output of the other in the production of a good for sale to the public.The company could increase cash flows by:

Successful operation of a responsibility accounting system requires all of the following except:

Division managers at Colonial Company are paid a bonus based on the responsibility margin of their respective responsibility centers.Division A sells goods to Division B and to outside customers.The manager of Division B would most likely prefer that transfer prices be based on:

Carrier Corporation produces heating and air conditioning equipment at a number of plants throughout the United States including one in Syracuse,New York.Carrier should evaluate its Syracuse plant as:

Responsibility income statement-cost classification Milton's,a large department store,prepares income statements by sales department.These statements follow the contribution margin approach,showing contribution margin and responsibility margin for each profit center as well as monthly income from operations for the store.Indicate the classification of each of the costs listed below by inserting the appropriate code letters in the space provided. Costs ________ (a)The cost of merchandise sold in the Women's Sportswear Department. ________ (b)Advertising a sale in the Housewares Department (classify as a fixed cost). ________ (c)Depreciation on equipment used in the Automotive Service Department. ________ (d)Depreciation on the store's heating and air conditioning system. ________ (e)Monthly salary of the manager of the Toy Department. ________ (f)Sales taxes collected from customers and paid to local tax authorities. ________ (g)Monthly salaries of store security guards.

Evaluation of responsibility centers Shown below are the current-year data for two investment centers of Chelsea Trading,Inc.The total assets utilized by each of these investment centers during the year amount to $1,500,000: (a)Compute the following measures for each investment center: (b)Assume that a $3,000 monthly expenditure for advertising could increase the monthly sales of either investment center by $20,000.Which center should the company advertise to receive the maximum benefit from its advertising expenditure? Center ________.Explain your reasoning:

A common cost may become a traceable cost as it moves up to larger responsibility centers.