ACCT202 CH 11 SB

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 ((5 / 30) + 18 = 18.1667 = 18)

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 __________.

$495,000 ((75,000 x $5) + ($400,000 x 30%) = $495,000)

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 hours 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 _______.

$585,000 ((85,000 x $5) + ($400,000 x 40%) = $585,000)

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

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

Macey, Inc.'s investment center had average operating assets of $350,000, revenues of $1,050,000, and net operating income of $70,000. Return on investment (ROI) is ________.

20% (net operating income / average operating assets)

Which of the following statements is CORRECT? - A manager night reject a proposal using ROI that the manager would accept using residual income. - A project is not acceptable using residual income calculations may be acceptable when ROI is calculated. - Managers will be more likely to pursue projects that will benefit the entire company when being evaluated on ROI instead of residual income.

A manager might reject a proposal using ROI that the manager would accept using residual income.

Operating divisions are charged for ______ service department costs. - actual variable and fixed - budgeted variable and actual fixed - budgeted variable and fixed - actual variable and budgeted fixed

budgeted variable and fixed

Residual income is a measure used to evaluate managers of _________ centers. - investment - profit - profit and investment - cost

investment

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. - less - equally - more

more

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

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

The central purpose of an organization are carried out in its _______ (operating/service) departments.

operating

Sales offices are often considered ________ centers.

profit

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

residual income

Any part of an organization whose manager has control over and is 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

When a department has no idle capacity and will interrupt their current level of sales to regular customers, the lowest acceptable transfer price to supply product to another division is ________. - selling price - variable costs - price charged by an outside supplier - contribution margin on lost sales

selling price

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

Division B wants to buy 500 units of a part from Division A. Division A's variable cost per unit for the part is $18. Division A has enough idle capacity to make 300 parts without interrupting regular sales. If Division A supplies the parts, it will lose sales of 200 units. The selling price per unit on the outside market is $38. The lowest transfer price per unit that Division A might accept is $_______.

$26

ROI can be calculated as: - Average operating assets / Net operating income - Margin x Turnover - Margin / Turnover - Net operating income / Average operating assets

- Margin x Turnover - Net operating income / Average operating assets

Which of the following ratios are part of the ROI formula? - Cost of goods sold / Average inventory - Net operating income / Sales - Sales / Average operating assets - Sales on account / Average accounts receivable

- Net operating income / Sales - Sales / Average operating assets

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

Responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers.

The three methods commonly used for transfer pricing are _________.

negotiation, full cost, market price

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 ___________. - full absorption cost per unit - selling price per unit charged to outside buyers - variable cost per unit - cost per unit buying division pays to outside suppliers

variable cost per unit

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

Operating assets include: - Inventory - Land held for investment - Investment in bonds - Accounts receivable - Equipment

- Inventory - Accounts receivable - Equipment

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? - Total contribution margin on all transferred units ÷ Total units sold and transferred - Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units) - Variable cost per unit + (Total contribution margin on all transferred unit ÷ Total transferred units) - Variable cost per unit

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 __________. - both the buying and the selling divisions participating in a transfer would increase - both the buying and the selling divisions participating in a transfer would decrease - the selling division would increase and the buying division would decrease - the selling division would decrease and the buying division would increase

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

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

$4,000 ($24,000 - ($20,000 x 10%) = $4,000)

Toys, Trinkets and More requires a minimum rate of return of 12% on its average 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 ($42,000 - ($300,000 x 12%) = $6,000)

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

20% ((12% x $150,000) / $90,000)

Which of the following is NOT commonly used to set transfer prices? - Market price - Arbitration cost - Negotiation - Variable cost

Arbitration cost

Residual income = _________. - NOI - (Average operating assets x Minimum rate of return) - Margin x Turnover - NOI / Sales - NOI / Average operating assets

NOI - (Average operating assets x Minimum rate of return)

Return on Investment (ROI) = - Net operating income / Average operating assets - Net operating income / Segment revenue - Segment revenue / Net operating income - Average operating assets / Net operating income

Net operating income / Average operating assets

Net operating income / Average operating assets =

Return on Investment (ROI)

Which of the following is NOT a service department? - Internal auditing - Purchasing - Human resources - Sales

Sales

Which of the following is NOT one of the three primary types of responsibility centers? - Profit - Cost - Investment - Sales

Sales

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? - Total contribution margin on all transferred units ÷ Total units sold and transferred - Variable cost per unit - Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units) - Variable cost per unit + (Total contribution margin on all transferred unit ÷ Total transferred units)

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

The ROI formula typically uses ________. - average operating and non-operating assets for the year - end of year operating and non-operating assets - end of year operating assets - average operating assets for the year

average operating assets for the year

Service departments, such as the accounting department, are generally considered __________ centers.

cost

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

cost

The selling division will agree to a transfer price only if its profits ___________ (increase/decrease) as a result of the transfer, and the buying division will agree to the transfer only of its profits ___________ (increase/decrease) as a result of the transfer.

increase; increase

ROI is a method used to evaluate ________. - cost, profit, and investment centers - profit and investment centers, but not cost centers - cost and profit centers, but not investment centers - investment centers, but not cost or profit centers

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. - more than or equal to - less than or equal to - equal to

less than or equal to

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

profit

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

residual

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

their ability to control costs

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

transfer

The price charged when one segment of a company provides goods or services to another segment of the same company is the _______ price.

transfer