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 variable manufacturing cost transfer price method is used without a fixed fee, Gunnison Furniture's transfer price will be

A) $56 B) $84 C) $64 D) $68 A) $56 B) $84 C) $64 D) $68

Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its product to Division Y. Standard costs for Division X are as follows: $\begin{array}{lr} \text { Direct materials } & \$ 4 \text { per unit } \\ \text { Direct labor } & 2 \text { per unit } \\ \text { Variable overhead } & 5 \text { per unit } \\ \text { Fixed overhead } & 3 \text { per unit } \\ \text { Total } & \$ 14 \text { per unit } \end{array}$ What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?

A) $11.00 B) $17.50 C) $13.75 D) $7.50 A) $11.00 B) $17.50 C) $13.75 D) $7.50

The following information pertains to the three divisions of Merrymount Company: $\begin{array}{lrrr}&\text { Division } X& \text { Division } Y& \text { Division } Z\\ \text { Sales } & ? & ? & 1,250,000 \\ \text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 7,000 \\ \text { Average operating assets } & 300,000 & ? & ? \\ \text { Retum on investment } & ? & 20 \% & 15 \% \\ \text { Margin } & 0.10 & 0.05 & ? \\ \text { Turnover } & 1.5 & ? & ? \\ \text { Target ROI } & 15 \% & 12 \% & 10 \% \end{array}$ What are the average operating assets for Division Z?

A) $75,000 B) $500,000 C) $1,250,000 D) $187,500 A) $75,000 B) $500,000 C) $1,250,000 D) $187,500

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: Division $A$ : Case $1 \quad$ Case 2 Capacity in units Number of units sold externally Market selling price $\begin{array} { r r } 100,000 & 100,000 \\ 100,000 & 60,000 \\ \$ 90 & \$ 75 \\ 73 & 58 \\ 10 & 10 \end{array}$ Fixed costs per unit based on capacity Division $\mathrm { B }$ : Number of units needed for production Purchase price per unit from external supplier 40,000 $\$ 86$ 40,000 $\$ 74$ The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 2?

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

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 residual income for A?

A) $25,000 B) $28,000 C) $15,000 D) $40,000 A) $25,000 B) $28,000 C) $15,000 D) $40,000

Exam 10: Decentralization: Responsibility Accounting, Performance

The transfer pricing problem concerns finding a system that simultaneously satisfies the three objectives of the transfer pricing system.

(True/False)

4.7/5

(38)

Question 21

Patron Corporation had sales of $350,000, income of $10,000, and an asset base of $100,000. The turnover is

(Multiple Choice)

4.7/5

(29)

Question 22

Cognitive limitations mean it is difficult for central managers to be fully knowledgeable about all products and markets.

(True/False)

4.8/5

(50)

Question 23

Which of the following managerial rewards is NOT a short-term reward?

(Multiple Choice)

4.9/5

(31)

Question 24

Comparison of an international division's ROI can potentially be misleading because of

(Multiple Choice)

4.9/5

(36)

Question 25

The after-tax operating profit minus the total annual cost of capital equals the:

(Multiple Choice)

4.9/5

(40)

Question 26

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 variable manufacturing cost transfer price method is used without a fixed fee, Gunnison Furniture's transfer price will be

(Multiple Choice)

4.9/5

(37)

Question 27

Lowellson Company had sales of $200,000, net income of $10,000, and an asset base of $300,000. Its margin is

(Multiple Choice)

4.8/5

(30)

Question 28

Responsibility accounting is defined as a system that

(Multiple Choice)

4.8/5

(36)

Question 29

Worldwide Inc., is a multinational company with divisions around the world. Division A in the United States purchases a part from Division G in China. There is no outside market for the part because it is used to manufacture another product. The manufacturing cost for the part is $5. Transportation is $1 and commissions are $.5 but do not need to be paid. What is the transfer price using the cost-plus method?

(Multiple Choice)

4.9/5

(38)

Question 30

How are accountability, information, and responsibility, related?

(Essay)

4.9/5

(36)

Question 31

Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its product to Division Y. Standard costs for Division X are as follows: Direct materials \ 4 per unit Direct labor 2 per unit Variable overhead 5 per unit Fixed overhead 3 per unit Total \ 14 per unit What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?

(Multiple Choice)

4.9/5

(31)

Question 32

The transfer price is revenue to the selling division and cost to the buying division.

(True/False)

4.8/5

(43)

Question 33

The following information pertains to the three divisions of Merrymount Company: Division X Division Y Division Z Sales ? ? 1,250,000 Net operating income \ 36,000 \ 25,000 \ 7,000 Average operating assets 300,000 ? ? Retum on investment ? 20\% 15\% Margin 0.10 0.05 ? Turnover 1.5 ? ? Target ROI 15\% 12\% 10\% What are the average operating assets for Division Z?

(Multiple Choice)

4.8/5

(40)

Question 34

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: Division $A$ : Case $1 \quad$ Case 2 Capacity in units Number of units sold externally Market selling price 100,000 100,000 100,000 60,000 \ 90 \ 75 73 58 10 10 Fixed costs per unit based on capacity Division $\mathrm { B }$ : Number of units needed for production Purchase price per unit from external supplier 40,000 $\$ 86$ 40,000 $\$ 74$ The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 2?

(Multiple Choice)

4.8/5

(35)

Question 35

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 residual income for A?

(Multiple Choice)

4.8/5

(29)

Question 36

Local managers can make better decisions using distant information and outside managers can provide more timely responses to changing conditions.

(True/False)

4.9/5

(41)

Question 37

If the turnover increased by 30 percent and the margin decreased by 30 percent, the ROI would

(Multiple Choice)

4.8/5

(33)

Question 38

Which of the following is true of economic value added (EVA)?

(Multiple Choice)

4.9/5

(40)

Question 39

_____ are a type of fringe benefit received over and above salary.

(Multiple Choice)

4.9/5

(38)

Question 40

The transfer pricing problem concerns finding a system that simultaneously satisfies the three objectives of the transfer pricing system.

Patron Corporation had sales of $350,000, income of $10,000, and an asset base of $100,000. The turnover is

Cognitive limitations mean it is difficult for central managers to be fully knowledgeable about all products and markets.

Which of the following managerial rewards is NOT a short-term reward?

Comparison of an international division's ROI can potentially be misleading because of

The after-tax operating profit minus the total annual cost of capital equals the:

Lowellson Company had sales of $200,000, net income of $10,000, and an asset base of $300,000. Its margin is

Responsibility accounting is defined as a system that

How are accountability, information, and responsibility, related?

The transfer price is revenue to the selling division and cost to the buying division.

Local managers can make better decisions using distant information and outside managers can provide more timely responses to changing conditions.

If the turnover increased by 30 percent and the margin decreased by 30 percent, the ROI would

Which of the following is true of economic value added (EVA)?

_____ are a type of fringe benefit received over and above salary.

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