Accounting 202 chapter 11

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

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

20

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 $ .

4000

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 ______.

495000

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 ______.

585000

Which of the following statements are correct?

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.

Residual income = ______.

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

Return on investment = ______

Net Operating Income / 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

Which of the following business segments would not be considered a cost center?

Retail outlet

Which of the following is NOT a service department?

Sales

Which of the following ratios are part of the ROI formula?

Sales ÷ Average operating assets Net operating income ÷ Sales

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?

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

The ROI formula typically uses ______

average operating assets for the year

Operating divisions are charged for ______ service department costs

budgeted variable and fixed

Operating assets include ______.

cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes

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 if its profits (increase/decrease) as a result of the transfer.

increase, increase

ROI is a method used to evaluate ______.

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.

less than or equal to

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

operating

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

profit

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

responsibility

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

responsibility

Net operating income ÷ Average operating assets =

return on investment

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

Managers of cost centers are evaluated on ______ in their responsibility center.

their ability to control costs

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

transfer