Olden Company has a tax rate of 40 percent. Information for the company is as follows: \[\begin{array} { l r c } \text { Mortgage bonds } & \text { Amount } & \text { After-tax Cost } \\ \text { Unsecured bonds } & \$ 1,000,000 & 0.048 \\ \text { Common stock } & 3,000,000 & 0.050 \\ & 6,000,000 & 0.150 \end{array}\] What is the EVA if the before-tax operating income is $1,500,000?

A) $(198,000) B) $402,000 C) $534,000 D) $1,134,000 A) $(198,000) B) $402,000 C) $534,000 D) $1,134,000 A

Cornwall Company has two divisions, A and B. Information for each division is as follows: $\begin{array}{lrr}&A&B\\ \text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\ \text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\ \text { Target rate of return } & 15 \% & 18 \% \\ \text { Margin } & 10 \% & 20 \% \\ \text { Weighted average cost of capital } & 12 \% & 12 \% \end{array}$ What is the operating asset turnover for A?

A) 0.15 B) 0.10 C) 4.00 D) 2.50 A) 0.15 B) 0.10 C) 4.00 D) 2.50

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: $\begin{array}{lrr}&\text {Case 1 }&\text {Case } 2\\ \text { Division A: } & & \\ \text { Capacity in units } & 100,000 & 100,000 \\ \text { Number of units sold externally } & 100,000 & 60,000 \\ \text { Market selling price } & \$ 90 & \$ 75 \\ \text { Variable costs per unit } & 73 & 58 \\ \text { Fixed costs per unit based on capacity } & 10 & 10\\\\ \text { Division } B:\\ \text { Number of units needed for production } & 40,000 & 40,000 \\ \text { Purchase price per unit from external supplier } & \$ 91 & \$ 74 \end{array}$ The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 2?

A) $75 B) $68 C) $74 D) $58 A) $75 B) $68 C) $74 D) $58

Mako Division had the following information: \[\begin{array} { l r } \text { Asset base in Mako Division } & \$ 400,000 \\ \text { Net income in Mako Division } & \$ 50,000 \\ \text { Weighted average cost of capital } & 12 \% \\ \text { Target ROI } & 15 \% \\ \text { Margin for Mako Division } & 20 \% \end{array}\] What is the turnover ratio for Mako Division?

A) 0.200 B) 0.625 C) 0.125 D) 8.000 A) 0.200 B) 0.625 C) 0.125 D) 8.000

Gunnison Furniture had the following historical accounting data, per hundred board feet, concerning one of its products: $\begin{array}{lr} \text { Finished shelving: } \\ \text { Direct materials } & \$ 30 \\ \text { Direct labor } & 16 \\ \text { Variable overhead } & 10 \\ \text { Fixed overhead }& 12 \\ \text { Variable selling expenses }& 8 \\ \text { Fixed selling expenses }& 4 \end{array}$ The shelving is normally transferred internally from the Cutting Division to the Finishing Division. It also may be sold externally for $110 per hundred board feet. The minimum profit level accepted by the company is a markup of 20 percent. If the negotiated price is used, Gunnison Furniture's transfer price should be a

A) maximum of $100.80. B) minimum of $84.00. C) minimum of $80.00. D) maximum of $110.00. A) maximum of $100.80. B) minimum of $84.00. C) minimum of $80.00. D) maximum of $110.00.

Cornwall Company has two divisions, A and B. Information for each division is as follows: $\begin{array}{lrr}&A&B\\ \text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\ \text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\ \text { Target rate of return } & 15 \% & 18 \% \\ \text { Margin } & 10 \% & 20 \% \\ \text { Weighted average cost of capital } & 12 \% & 12 \% \end{array}$ What is the total sales amount for B?

A) $666,667 B) $800,000 C) $1,300,000 D) $1,200,000 A) $666,667 B) $800,000 C) $1,300,000 D) $1,200,000

The Engine Division provides engines for the Final Assembly Division of a company. The standard unit costs for the Engine Division are as follows: $\begin{array} { l } \text {Direct materials }&\$600\\ \text { Direct labor}&1,200\\ \text {Variable overhead }&300\\ \text {Fixed overhead }&150\\ \text { Market price per unit}&2,730\\ \end{array}$ What is the transfer price based on variable product costs plus a fixed fee of $210?

A) $210 B) $1,800 C) $2,100 D) $2,310 A) $210 B) $1,800 C) $2,100 D) $2,310

Exam 10: Decentralization: Responsibility Accounting, Performance

Olden Company has a tax rate of 40 percent. Information for the company is as follows: Mortgage bonds Amount After-tax Cost Unsecured bonds \ 1,000,000 0.048 Common stock 3,000,000 0.050 6,000,000 0.150 What is the EVA if the before-tax operating income is $1,500,000?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

A

Which of the following would NOT be a reason for decentralization?

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

A

Which of the following is a disadvantage of income-based compensation for managers?

Free

(Multiple Choice)

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Question 3

Correct Answer:

Verified

D

EVA encourages the right kind of behavior from divisions because of its emphasis on

(Multiple Choice)

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Question 4

Transfer prices are the prices charged

(Multiple Choice)

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Question 5

Provide the missing data for the following divisions. $\begin{array}{lrrr}&\text { Epsilon } & \text { Chi } & \text { Lambda } \\&\text { Division } & \text { Division } & \text { Division }\\\hline\text { Sales } & \$ 300,000 & \$(\mathrm{~d}) & \$ 800,000 \\\text { Income } & \$ 22,500 & 100,000 & \$(\mathrm{~g}) \\\text { Asset base } & \$(\mathrm{a}) & \$(\mathrm{e}) & \$ 200,000 \\\text { Return on investment } & 10 \% & 20 \% & (\mathrm{~h}) \\\text { Operating income margin } & (\mathrm{b}) & 0.10 & 0.12 \\\text { Operating asset tumover } & (\mathrm{c}) & (\mathrm{f}) & 4.0\end{array}$

(Essay)

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Question 6

Which of the following changes would NOT change return on investment (ROI)?

(Multiple Choice)

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Question 7

Cornwall Company has two divisions, A and B. Information for each division is as follows: A B Net earnings for division \ 40,000 \ 260,000 Asset base for division \ 100,000 \ 1,200,000 Target rate of return 15\% 18\% Margin 10\% 20\% Weighted average cost of capital 12\% 12\% What is the operating asset turnover for A?

(Multiple Choice)

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Question 8

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price \ 90 \ 75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier \ 91 \ 74 The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 2?

(Multiple Choice)

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Question 9

Mako Division had the following information: Asset base in Mako Division \ 400,000 Net income in Mako Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Mako Division 20\% What is the turnover ratio for Mako Division?

(Multiple Choice)

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Question 10

Gunnison Furniture had the following historical accounting data, per hundred board feet, concerning one of its products: Finished shelving: Direct materials \ 30 Direct labor 16 Variable overhead 10 Fixed overhead 12 Variable selling expenses 8 Fixed selling expenses 4 The shelving is normally transferred internally from the Cutting Division to the Finishing Division. It also may be sold externally for $110 per hundred board feet. The minimum profit level accepted by the company is a markup of 20 percent. If the negotiated price is used, Gunnison Furniture's transfer price should be a

(Multiple Choice)

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Question 11

The __________ transfer price is the minimum price acceptable when transferring a product.

(Short Answer)

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Question 12

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

(Multiple Choice)

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Question 13

Which of the following changes would increase return on investment (ROI)?

(Multiple Choice)

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Question 14

When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is

(Multiple Choice)

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Question 15

Which of the following is an example of nonfinancial operating measures?

(Multiple Choice)

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Question 16

Cornwall Company has two divisions, A and B. Information for each division is as follows: A B Net earnings for division \ 40,000 \ 260,000 Asset base for division \ 100,000 \ 1,200,000 Target rate of return 15\% 18\% Margin 10\% 20\% Weighted average cost of capital 12\% 12\% What is the total sales amount for B?

(Multiple Choice)

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Question 17

The Engine Division provides engines for the Final Assembly Division of a company. The standard unit costs for the Engine Division are as follows: Direct materials \6 00 Direct labor 1,200 Variable overhead 300 Fixed overhead 150 Market price per unit 2,730 What is the transfer price based on variable product costs plus a fixed fee of $210?

(Multiple Choice)

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Question 18

Compare and discuss the advantages and disadvantages of the following performance measures: ROI, EVA, and Residual Income.

(Essay)

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Question 19

managers can make better decisions using information.

(Short Answer)

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Question 20

Olden Company has a tax rate of 40 percent. Information for the company is as follows: Mortgage bonds Amount After-tax Cost Unsecured bonds \ 1,000,000 0.048 Common stock 3,000,000 0.050 6,000,000 0.150 What is the EVA if the before-tax operating income is $1,500,000?

Which of the following would NOT be a reason for decentralization?

Which of the following is a disadvantage of income-based compensation for managers?

EVA encourages the right kind of behavior from divisions because of its emphasis on

Transfer prices are the prices charged

Which of the following changes would NOT change return on investment (ROI)?

Mako Division had the following information: Asset base in Mako Division \ 400,000 Net income in Mako Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Mako Division 20\% What is the turnover ratio for Mako Division?

The __________ transfer price is the minimum price acceptable when transferring a product.

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

Which of the following changes would increase return on investment (ROI)?

When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is

Which of the following is an example of nonfinancial operating measures?

Compare and discuss the advantages and disadvantages of the following performance measures: ROI, EVA, and Residual Income.

managers can make better decisions using information.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 10: Decentralization: Responsibility Accounting, Performance

Olden Company has a tax rate of 40 percent. Information for the company is as follows: Mortgage bonds Amount After-tax Cost Unsecured bonds \ 1,000,000 0.048 Common stock 3,000,000 0.050 6,000,000 0.150 What is the EVA if the before-tax operating income is $1,500,000?

Which of the following would NOT be a reason for decentralization?

Which of the following is a disadvantage of income-based compensation for managers?

EVA encourages the right kind of behavior from divisions because of its emphasis on

Transfer prices are the prices charged

Which of the following changes would NOT change return on investment (ROI)?

Mako Division had the following information: Asset base in Mako Division \ 400,000 Net income in Mako Division \ 50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Mako Division 20\% What is the turnover ratio for Mako Division?

The __________ transfer price is the minimum price acceptable when transferring a product.

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

Which of the following changes would increase return on investment (ROI)?

When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is

Which of the following is an example of nonfinancial operating measures?

Compare and discuss the advantages and disadvantages of the following performance measures: ROI, EVA, and Residual Income.

__________ managers can make better decisions using __________ information.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

managers can make better decisions using information.