Exam 16: Responsibility Accounting, Performance Evaluation and Transfer Pricing

How are research and development costs treated for financial reporting and for economic value added (EVA) calculations? a. Capitalised Capitalised b. Expensed Expensed c. Capitalised Expensed d. Expensed Capitalised

Return on investment is typically calculated as net profit divided by total sales.

The Herbert Division of PNY reported net profit of $2,500, operating profit of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Herbert's required rate of return is 12%, its residual income was:

Choices about decision-making authority and about organisational structure are often related.

Responsibility accounting includes: I Monitoring primarily for mistakes II Assigring authority to divisional maragers III Mearuring the performance of divisional managers

In a dual-rate transfer pricing system, the selling department is credited for the market price and the buying department is charged the product's variable cost.

Winzel Ltd has 2 divisions, Diodes and Boards. The diode can be sold internally or externally. If sold externally, the sales price is $15 per diode. The Boards division needs 3 diodes for each electronic board it produces. The external sales prices and costs are: Sales price per unit \ 15.00 \ 16.50 Variable costs (direct) per unit 6.00 9.00 Fixed costs per unit 3.00 6.00 If Diodes can sell all of its production externally, what is the minimum price at which it would be willing to sell internally, and what is the maximum price the Board Division would be willing to pay? Diodes Boards a. $\$ 15 \quad \quad \quad \quad \quad \quad \quad\$ 2.50$ b. $\$ 15 \quad \quad \quad \quad \quad \quad \quad \$ 7.50$ c. $\$ 15 \quad \quad \quad \quad \quad \quad \quad\$ 15.00$ d. $\$ 27 \quad \quad \quad \quad \quad \quad \quad \$ 27.00$

Dual-rate transfer pricing systems are appropriate when the:

Which prices are recorded by departments under a dual-rate transfer pricing system? Selling Purchasing a. Variable cost Variable cost b. Variable cost Market price c. Market price Full cost d. Market price Variable cost

The Venus Division of Heinz Ltd produces dilithium crystals. One-third of its output is sold to the Bruno Division, and the remainder is sold externally. Venus's estimated sales and cost data for the coming year are: Units 12,500 25,000 Sales \ 18,750 \ 50,000 Variable costs 12,500 25,000 Fixed costs 3,750 7,500 Assume that Venus cannot sell any additional crystals externally. If the Bruno Division has an opportunity to buy from an outside supplier at $1.40 per crystal and Venus refuses to meet this price, the company as a whole will be:

Specific knowledge is: I More detailed tharn general knowledge I More costly to transfer than general kuowledge III An exarnple of an agency cost

The Sliver Coast Division of Harvey Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: Outside salesprice \6 40 Direct materials 105 Direct labour 250 Fixed overhead 180 If the Silver Coast Division has excess capacity available to meet an internal order, what transfer price should be set?

Division S sold a part to both Division P and outside customers last year. The revenues from these sales were $30,000 (1,000 units) and $35,000 (1,000 units), respectively. Next year, S plans to increase the unit sales price to $42 and wants a proportionate increase in the sales price to Division P. The unit costs are $9 variable and $15 fixed. If Division P does not agree to the price increase, 50% of Division S's fixed costs will be eliminated. What is the highest price Division P would be willing to pay for external purchases?

When decision making is decentralised:

Responsibility accounting is the process of using financial information to justify pay increases and promotions for managers.

The Bright Division of the Wingbury Pty Ltd requires a 12% rate of return. During a recent year Grant had a net profit of $400,000 and a residual income of $250,000. What was its ROI?

In a profit centre, managers' primary goal is to maximise revenues.

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organisations' owners.

The Silver Coast Division of Harvey Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: Outside salesprice \6 40 Direct materials 105 Direct labour 250 Fixed overhead 180 If the Silver Coast division is operating at full capacity and selling solely to outside customers, what price should another division pay for Silver Coast's product?

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The capital investment was: