Question 1

The Post Division of the M.T. Woodhead Company produces basic posts that can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, the Lamp Division bought all of its 25,000 posts from the Post Division at $1.50 each. The following data are available for last year's activities of the Post Division:

The total fixed costs would be the same for all the alternatives considered below.
-Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?

Accepted Answer

A)  $1,000 decrease. 
B)  $1,250 decrease. 
C)  $10,250 increase. 
D)  $13,750 decrease.

Question 2

Hatch Company has two divisions: O and E. During the year just ended, Division O had a segment margin of $9,000 and variable costs equal to 70% of sales. Traceable fixed costs for Division E were $19,000. Hatch Company as a whole had a contribution margin of 40%, a segment margin of $25,000, Common costs of $10,000 and sales of $200,000. Given this data, prepare segmented income statements showing the Total as well as amounts for Division 0 and E.

Accepted Answer

The answer of Hatch Company has two divisions: O and...

Question 3

The following information is available on Company A:

-What is Company A's residual income?

Accepted Answer

A)  $9,000. 
B)  $21,000. 
C)  $24,000. 
D)  $45,000.

Question 4

Canon Company has two sales areas: North and South. During last year, the contribution margin in the North was $50,000, or 20% of sales. The segment margin in the South was $15,000, or 8% of sales. Traceable fixed costs were $15,000 in the North and $10,000 in the South. During last year, the company reported total operating income of $26,000.
-What were the variable costs for the South area for the year?

Accepted Answer

A)  $65,000. 
B)  $162,500. 
C)  $185,000. 
D)  $230,000.

Question 5

The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers.The following data were gathered on activities last month:

$\begin{array}{lccc}
\text { Sales in units } & \text { Sleds } & \underline { \text { Saucers } } \
\text { Selling price per unit } & 2,000 & 9,000 \
\text { Variable production costs per unit } & \$ 50 & \$ 20 \
\text { Traceable fixed production costs } & \$ 12,000 & \$ 33,000 \
\text { Variable selling expenses per unit } & \$ 2 & \$ 1 \
\text { Traceable fixed selling expenses } & \$ 2,000 & \$ 3,000 \
\text { Allocated division administrative expenses } & \$ 40,000 & \$ 72,000
\end{array}$

Required:

a. Prepare a segmented income statement in the contribution format for last month, showing both "Amount" and "Percent" columns for the division as a whole and for each product.
b. Why might it be very difficult to calculate separate break-even sales for each product?
c. Refer to the original data and, if necessary, the results of the segmented income statement prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that none of the fixed production costs and fixed selling expenses is traceable. Allocate the total break-even sales between the two products.
d. Again, refer to the original data and, if necessary, the results of the segmented income statement prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that the "allocated" amounts of the division's administrative expenses are fixed and actually traceable. Allocate the total break-even sales between the two products.
e. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) given the actual results for last month?

Accepted Answer

The answer of The Winter Products Division of American Sports...

Question 6

The following data have been extracted from the year-end reports of two companies: Company X and Company Y:

$\begin{array}{lccc}
& \text { Company X } & \text { Company Y } \
 \text { Sales } & \$ 2,700,000 & ? \
\text { Operating Income } & \$ 256,000 & ? \
\text { Average Operating Assets } & ? & \$ 1,725,000 \
\text { Margin } & ? & 8.0 \% \
\text { Turnover } & ? & 2.0 \
\text { Return on Investment } & 16 \% & ?
\end{array}$

Required: Fill in the missing data on the above table.

Accepted Answer

The answer of The following data have been extracted from...

Question 7

When an intermediate market price for a transferred item exists,it represents a lower limit on the charge that should be made on transfers between divisions.

Accepted Answer

A) True 
 B)False

Question 8

The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month's operations for the Vega Division:

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.
-Suppose that Vega can sell 9,000 wheels each month to outside consumers,so transfers to the Walsh Division cut into outside sales.What should be the lowest acceptable transfer price from the perspective of the Vega Division?

Accepted Answer

A)  $28.00. 
B)  $31.75. 
C)  $41.00. 
D)  $42.00.

Question 9

The following information is available on Company A:

-What is Company A's return on investment (ROI)?

Accepted Answer

A)  4%. 
B)  15%. 
C)  20%. 
D)  36%.

Question 10

For the past year,Largo Company recorded sales of $750,000 and average operating assets of $375,000.What margin did Largo Company need to earn to achieve an ROI of 15%?

Accepted Answer

A)  2.00% 
B)  7.50% 
C)  9.99% 
D)  15.00%

Question 11

Harvie Company's quality cost report is to be based on the following data:

$\begin{array}{ll}
\text { Lost sales due to poor quality } & \$ 50,000 \
\text { Quality engineering } & \$ 66,000 \
\text { Test and inspection of incoming materials } & \$ 88,000 \
\text { Re-entering data because of keying errors } & \$ 36,000 \
\text { Net cost of scrap } & \$ 46,000 \
\text { Test and inspection of in-process goods } & \$ 62,000 \
\text { Warranty repairs and replacements } & \$ 32,000 \
\text { Net cost of spoilage } & \$ 89,000 \
\text { Technical support provided to suppliers } & \$ 70,000
\end{array}$

Required: Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs.

Accepted Answer

The answer of Harvie Company's quality cost report is to...

Question 12

Harstin Corporation has provided the following data:

-What was the turnover for the past year?

Accepted Answer

A)  1.40. 
B)  2.50. 
C)  2.98. 
D)  6.94.

Question 13

The Holmes Division recorded operating data as follows for the past year:

-For the past year,what was the return on investment?

Accepted Answer

A)  15.75%. 
B)  20.50%. 
C)  25.00% 
D)  31.25%.

Question 14

Segmented statements for internal use should be prepared in the contribution format.

Accepted Answer

A) True 
 B)False

Question 15

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?

Accepted Answer

A)  Variable cost of producing a unit of product. 
B)  The full absorption cost of producing a unit of product. 
C)  The market price charged to outside customers,less any costs saved by transferring internally. 
D)  The amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.

Question 16

In computing the margin in a ROI analysis,which of the following is used?

Accepted Answer

A)  Sales in the denominator. 
B)  Operating income in the denominator. 
C)  Average operating assets in the denominator. 
D)  Residual income in the denominator.

Question 17

There is a growing trend toward greater centralization for effective control as more businesses go global.

Accepted Answer

A) True 
 B)False

Question 18

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:

-If Axle sells 16,000 units per year,what would be the return on investment?

Accepted Answer

A)  12%. 
B)  15%. 
C)  16%. 
D)  18%.

Question 19

During April,Division D of Carney Company had a segment margin ratio of 15%,a variable expense ratio of 60% of sales,and traceable fixed expenses of $15,000.Division D's sales were closest to which of the following?

Accepted Answer

A)  $22,500. 
B)  $33,333. 
C)  $60,000. 
D)  $100,000.

Question 20

The salary paid to a store manager is a traceable fixed expense of the store.

Accepted Answer

A) True 
 B)False

Exam 11: Reporting for Control

The following information is available on Company A: -What is Company A's residual income?

When an intermediate market price for a transferred item exists,it represents a lower limit on the charge that should be made on transfers between divisions.

The following information is available on Company A: -What is Company A's return on investment (ROI) ?

For the past year,Largo Company recorded sales of $750,000 and average operating assets of $375,000.What margin did Largo Company need to earn to achieve an ROI of 15%?

Harstin Corporation has provided the following data: -What was the turnover for the past year?

The Holmes Division recorded operating data as follows for the past year: -For the past year,what was the return on investment?

Segmented statements for internal use should be prepared in the contribution format.

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?

In computing the margin in a ROI analysis,which of the following is used?

There is a growing trend toward greater centralization for effective control as more businesses go global.

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: -If Axle sells 16,000 units per year,what would be the return on investment?

During April,Division D of Carney Company had a segment margin ratio of 15%,a variable expense ratio of 60% of sales,and traceable fixed expenses of $15,000.Division D's sales were closest to which of the following?

The salary paid to a store manager is a traceable fixed expense of the store.