Question 1

Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

Accepted Answer

A) True 
 B)False

Question 2

The budget for Department 6 of Cardinal Company for the current month ending March 31 is as follows: $$\begin{array} { l l } 
\text { Materials } & \$ 208,000 \
\text { Factory wages } & 265,000 \
\text { Supervisory salaries } & 67,800 \
\text { Depreciation of plant and equipment } & 35,000 \
\text { Power and light } & 22,500 \
\text { Insurance and property taxes } & 15,500 \
\text { Maintenance } & 9,700
\end{array}$$ During March, the costs incurred in Department 6 of Cardinal Company were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456.
a) Prepare a budget performance report for the supervisor of Department 6 of Cardinal Company for the month of March.
b) Are there any significant variances 5% or greater) of the budgeted amounts that should be examined by the supervisor?

Accepted Answer

@#IMG-DLM& b) The factory wages, supervi

Question 3

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h).
-Allocated equally among divisions

Accepted Answer

A) Purchasing 
B) Payroll accounting 
C) Human resources 
D) Maintenance 
E) Information systems
F)Marketing
G)President's Office
H)Transportation 
A) Purchasing 
B) Payroll accounting 
C) Human resources 
D) Maintenance 
E) Information systems
F)Marketing
G)President's Office
H)Transportation

Question 4

Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000.
Use the DuPont formula to calculate the rate of return on investment, and show a) the profit margin, b) the investment turnover, and c) rate of return on investment. Round the profit margin percentage to two decimal places and the investment turnover to three decimal places.

Accepted Answer

a) Profit margin = $75,000/$79

Question 5

In a cost center, the manager has responsibility and authority for making decisions that affect

Accepted Answer

A)  revenues 
B)  investments in assets 
C)  both costs and revenues 
D)  costs 
A)  revenues 
B)  investments in assets 
C)  both costs and revenues 
D)  costs

Question 6

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

Accepted Answer

A) True 
 B)False

Question 7

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets. If management has set a minimum acceptable rate of return of 11%, the residual income is

Accepted Answer

A)  $99,000 
B)  $691,000 
C)  $209,000 
D)  $11,000 
A)  $99,000 
B)  $691,000 
C)  $209,000 
D)  $11,000

Question 8

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

Accepted Answer

A)  1.5% 
B)  12.5% 
C)  0.67% 
D)  6.67% 
A)  1.5% 
B)  12.5% 
C)  0.67% 
D)  6.67%

Question 9

The profit margin for Chicks is

Accepted Answer

A)  25% 
B)  22% 
C)  15% 
D)  27.5% 
A)  25% 
B)  22% 
C)  15% 
D)  27.5%

Question 10

Match each definition that follows with the term a-e) it defines.
-Income from operations minus minimum acceptable income from operations

Accepted Answer

A) Controllable revenues 
B) Profit margin 
C) Investment turnover 
D) Rate of return on investments 
E) Residual income 
A) Controllable revenues 
B) Profit margin 
C) Investment turnover 
D) Rate of return on investments 
E) Residual income

Question 11

Property tax expense for a department store's store equipment is an example of a direct expense.

Accepted Answer

A) True 
 B)False

Question 12

The profit center income statement should include only controllable revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 13

The investment turnover is the ratio of

Accepted Answer

A)  income from operations to sales 
B)  income from operations to invested assets 
C)  assets to liabilities 
D)  sales to invested assets 
A)  income from operations to sales 
B)  income from operations to invested assets 
C)  assets to liabilities 
D)  sales to invested assets

Question 14

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called an)

Accepted Answer

A)  profit center 
B)  investment center 
C)  volume center 
D)  cost center 
A)  profit center 
B)  investment center 
C)  volume center 
D)  cost center

Question 15

The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the rate of return on investment, is called

Accepted Answer

A)  profit margin 
B)  indirect expenses 
C)  investment turnover 
D)  cost 
A)  profit margin 
B)  indirect expenses 
C)  investment turnover 
D)  cost

Question 16

Income from operations for Division H is $220,000, and income from operations before service department charges is $975,000. As a result,

Accepted Answer

A)  total operating expenses are $565,000 
B)  total manufacturing expenses are $565,000 
C)  direct materials, direct labor, and factory overhead total $565,000 
D)  total service department charges are $755,000 
A)  total operating expenses are $565,000 
B)  total manufacturing expenses are $565,000 
C)  direct materials, direct labor, and factory overhead total $565,000 
D)  total service department charges are $755,000

Question 17

If income from operations for a division is $30,000, sales are $263,750, and invested assets are $187,500, the investment turnover is 1.3.

Accepted Answer

A) True 
 B)False

Question 18

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

Accepted Answer

A) True 
 B)False

Question 19

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Accepted Answer

A) True 
 B)False

Question 20

ABC Corporation has three service departments with the following costs and activity base:   ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: $$\begin{array} { | l | l | l | l | } 
\hline & \text { Micro } & \text { Macro } & \text { Super } \
\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \
\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \
\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \
\hline \text { Number of invoices processed } & 700 & 800 & 500 \
\hline \text { Number of employees } & 130 & 145 & 125 \
\hline
\end{array}$$
-How much service department cost would be allocated to the Super Division?

Accepted Answer

A)  $350,000 
B)  $100,000 
C)  $125,000 
D)  $550,000 
A)  $350,000 
B)  $100,000 
C)  $125,000 
D)  $550,000

Exam 23: Performance Evaluation for Decentralized Operations

Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h). -Allocated equally among divisions

In a cost center, the manager has responsibility and authority for making decisions that affect

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets. If management has set a minimum acceptable rate of return of 11%, the residual income is

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

The profit margin for Chicks is

Match each definition that follows with the term a-e) it defines. -Income from operations minus minimum acceptable income from operations

Property tax expense for a department store's store equipment is an example of a direct expense.

The profit center income statement should include only controllable revenues and expenses.

The investment turnover is the ratio of

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called an)

The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the rate of return on investment, is called

Income from operations for Division H is $220,000, and income from operations before service department charges is $975,000. As a result,

If income from operations for a division is $30,000, sales are $263,750, and invested assets are $187,500, the investment turnover is 1.3.

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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