ACCT 202 Ch. 11

Given a margin of 12% sales of $150,000 and average operating assets of $90,000, the ROI is ______%.

20%

Which of the following statements are correct? a) Fixed service department costs are based entirely on budgeted data. b) Variable service department costs are charged to operating divisions based on the budgeted rate and budgeted activity. c) Fixed service department costs are based on actual cost and budgeted activity. d) Variable service department costs are charged to operating divisions based on the budgeted rate and actual activity.

a) Fixed service department costs are based entirely on budgeted data. d) Variable service department costs are charged to operating divisions based on the budgeted rate and actual activity.

Operating assets include: a) equipment b) investments in bonds c) land held for investment d) inventory e) accounts receivable

a) equipment d) inventory e) accounts receivable

Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true? a) the department manager may not want to accept the project because it will lower the overall ROI for the department b) the project should be accepted because the residual income will help push the project's ROI above the projected 12% c) the project should be rejected by the company because its ROI is lower than the current departmental ROI d) the project should be accepted by the company because it increases overall residual income

a) the department manager may not want to accept the project because it will lower the overall ROI for the department c) the project should be accepted by the company because it increases overall residual income

Managers of cost centers are evaluated on ________ in their responsibility center. a) their ability to control costs b) revenues and costs incurred c) revenues, costs and the use of investment funds

a) their ability to control costs

Production Dept. B uses 40% of the Maintenance Dept. resources and budgeted 90,000 machine hours for the year. Actual machine hours used were 85,000. The Maintenance Dept. variable cost rate per machine hour was $5. Fixed costs were budgeted to be $400,000. Actual fixed costs were $450,000. Total Maintenance Dept. cost assigned to Dept. B for the year equals: a) $605,000 b) $585,000 c) $610,000 d) $630,000

b) $585,000 85000*5+400000*.40

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be __________ likely to pursue projects that will benefit the entire company. a) equally b) more c) less

b) more

When the selling division has some idle capacity, but will have to interrupt current sales to supply the buying division, how is the lowest acceptable transfer price calculated? a)Variable cost per unit b) Total contribution margin on all transferred units ÷ Total units sold and transferred c) Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units) d) Variable cost per unit + (Total contribution margin on all transferred unit ÷ Total transferred units)

c) Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units)

The range of acceptable prices is the range of transfer prices within which the profits of ______. a) the selling division would increase and the buying division would decrease b) the selling division would decrease and the buying division would increase c) both the buying and the selling divisions participating in a transfer would increase d) both the buying and the selling divisions participating in a transfer would decrease

c) both the buying and the selling divisions participating in a transfer would increase

The range of acceptable prices is the range of transfer prices within which the profits of: a) both the buying and the selling divisions participating in a transfer would decrease b) the selling division would decrease and the buying division would increase c) both the buying and the selling divisions participating in a transfer would increase d) the selling division would increase and the buying division would decrease

c) both the buying and the selling divisions participating in a transfer would increase

ROI is a method used to evaluate: a) cost, profit, and investment centers b) profit and investment centers, but not cost centers c) investment centers, but not cost or profit centers d) cost and profit centers, but not investment centers

c) investment centers, but not cost or profit centers

In order for the buying division to agree to a transfer price when an outside supplier does not exist, the transfer price must be ______ the profit per unit not including the transfer price. a) equal to b) more than or equal to c) less than equal to

c) less than equal to

When a manager is evaluated on residual income, an investment is acceptable when: a) it generates any positive net operating income b) the return on investment of the new project equals or exceeds current ROI c) net operating income for the investment is above the minimum required return on average operating assets d) net operating income for the new investment is above the current return on average operating assets

c) net operating income for the investment is above the minimum required return on average operating assets

Return on investment = a) segment revenue/net operating income b) net operating income/segment revenue c) net operating income/average operating assets d) average operating assets/net operating income

c) net operating income/average operating assets

ROI can be calculated as: a) average operating assets/net operating income b) margin/turnover c) net operating income/average operating assets d) margin x turnover

c) net operating income/average operating assets d) margin x turnover

When a department has enough idle capacity to supply a part to another division within the company without interrupting current sales, the lowest price the selling division will accept is the ______. a) full absorption cost per unit b) selling price per unit charged to outside buyers c) variable cost per unit d) cost per unit buying division pays to outside suppliers

c) variable cost per unit

Service departments, such as the accounting department, are generally considered _________ centers, while sales offices are often considered ___________ centers.

cost; profit

Residual income is a measure used to evaluate managers of ______ centers. a) profit & investment b) profit c) cost d) investment

d) investment

Net operating income/average operating assets = a) turnover b) residual income c) margin d) return on investment

d) return on investment

When a department has no idle capacity and will interrupt their current level of sales to regular customers, the lower acceptable transfer price to supply to another division is: a) price charged by an outside supplier b) variable costs c) contribution margin on lost sales d) selling price

d) selling price

Last year, Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average operating assets of $400,000. The company is considering the purchase of equipment that will reduce expenses by $20,000. The equipment will increase average operating assets by $100,000 and be purchased by issuing notes payable. Sales will remain unchanged. If Valley accepts the project, its return on investment (ROI) after the purchase is projected to ____________ from the current level of ____________% to a new return on investment (ROI) of _________%.

increase; 10; 12

the net operating income that an investment center earns above the minimum required return on its average operating assets is its _______ income.

residual

Net operating income - averaging operating assets*minimum required rate of return = _______ _______.

residual income

When a manger accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on ________ ________.

residual income

Fill in the blank question. Division B wants to purchase a part from Division A. Division A's variable cost per unit is $18. Allocated fixed costs are $5 per unit. Division A's normal selling price for the part is $30 per unit. Division A has enough idle capacity to be able to supply the needed parts without interrupting its regular sales. The lowest transfer price per unit that Division A might accept is $_______.

$18

Division B wants to purchase a part from Division A. Division A's variable cost per unit is $18. Allocated fixed costs are $5 per unit. Division B can purchase the part from an outside supplier for $26 per unit. The highest transfer price per unit that Division B will be willing to pay is $__________.

$26

A company with no idle capacity has variable costs of $8 per unit and a contribution margin of $12 per unit. Fixed costs total $10,000 for 5,000 units produced. The lowest per unit price they will accept to supply another division with 500 units is $________.

20

Carlos Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has an average operating assets of $200,000 and a net operating income of $24,000. The department's residual income is $_________.

4,000

Toys, trinkets and more requires a minimum rate of return of 12% on its averaging operating assets. The toy department currently has average operating assets of $300,000 and a net operating income of $42,000. The department's residual income is $______.

6,000

The three methods commonly used for transfer pricing are: a) negotiation, full cost, market price b) variable cost, market price, arbitration c) negotiation, contribution margin, market price d) variable cost, full cost, arbitration

a) negotiation, full cost, market price

Which of the following is NOT a service department? a) sales b) purchasing c) human resources d) internal auditing

a) sales

Which of the following ratios are part of the ROI formula: a) sales/average operating assets b) sales on account/average accounts receivable c) net operating income/sales d) cost of goods sold/average inventory

a) sales/average operating assets c) net operating income/sales

Macey's inc. investment center had average operating assets of $350,000, revenues of $1,050,000 and net operating income of $70,000. Return on investment is: a) 10% b) 20% c) 6.7% d) 5%

b) 20% 70,000/350,000=.20

The manager of a(n) ________ center does not have control over revenues or the use of investment funds.

cost

Production Dept. A uses 30% of the Maintenance Dept. resources. Dept. A budgeted 70,000 machine hours and actually used 75,000 hours. The Maintenance Dept. variable cost rate was $5 per machine hour. Fixed costs were budgeted to be $400,000. Actual fixed costs were $450,000. Total Maintenance Dept. cost assigned to Dept. A for the year equals: a) $470,000 b) $485,000 c) $510,000 d) $495,000

d) $495,000

Which of the following methods is not commonly used to set transfer prices? a) market price b) negotiation c) variable cost d) arbitration cost

d) arbitration cost

operating divisions are charged service departments' variable costs, using: a) budgeted rate and budgeted activity b) actual rate and actual activity c) actual rate and budgeted activity d) budgeted rate and actual activity

d) budgeted rate and actual activity

Which of the following statements is incorrect regarding responsibility accounting? a) responsibility accounting links lower-level managers' decisions with the outcomes of those decisions b) responsibility accounting divides the organization into "responsibility centers" to evaluate managers' decisions c) responsibility accounting holds managers accountable for the revenues and expenses over which they have control d) responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers.

d) responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers

The selling division will agree to transfer price only if its profits _________ as a result of the transfer, and the buying division will agree to the transfer only if its profits ______ as a result of the transfer.

increase; increase

The buying division in a transfer will only agree to a transfer price if the inside supplier's price is _______ than or equal to the price offered by an outside supplier.

less

The central purpose of an organization are carried out in its ________ departments.

operating

Comparing actual net income to budgeted net income is often done to evaluate the manage of a(n) ________ center.

profit

Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n) _________ center.

profit

The manager of a(n) _________ center has control over both costs and revenues, but not over the use of investment funds.

profit

Any part of an organization whose manager has control over and is accountable for cost, profit, or investments is a(n) _________ center.

responsibility

Any part of an organization whose manager has control over and it accountable for cost, profit, or investment is a(n) ___________ center.

responsibility

Lower-level managers' decision making authority can be linked to the outcomes of those decisions through ________ accounting systems.

responsibility

The amount that one division charged when it sells goods or services to another division of the same company is called a(n) ________ price.

transfer

Which of the following is not one of the three primary types of responsibility centers? a) cost b) sales c) profit d) investment

b) sales

The ROI formula typically uses: a) end of year operating assets b) average operating and non-operating assets for the year c) average operating assets for the year d) end of year operating and non operating assets

c) average operating assets for the year

The price charged when one segment of a company provides goods or services to another segment of the same company is the _______ price. a) trade b) absorption c) transfer d) negotiated

c) transfer

Which of the following business segments would not be considered a cost center? a) manufacturing facilities b) accounting department c) personnel department d) retail outlet

d) retail outlet

When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on _______ ________.

residual income