Exam 23: Decentralized Operations

Heart Company has two divisions. Division A is interested in purchasing 10,000 units from Division B. Capacity is available for Division B to produce these units. The per-unit market price is $30 per unit, with a variable cost of $25. The manager of Division A has offered to purchase the units at $22 per unit. In an effort to make this transfer price beneficial for the company as a whole, what range of prices should be used during negotiations between the two divisions?

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.

Use this information for ABC Corporation to answer the questions that follow. ​ 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 is as follows: ​ -How much service department cost would be allocated to the Macro Division?

Which of the following expenses incurred by the Sporting Goods Department of a department store is a direct expense?

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

Data for Divisions A, B, C, D, and E are as follows:? (a)Determine the missing items, identifying each by letter (a-o).Round percentage and turnover values to one decimal place. (b)Which division is most profitable in terms of income from operations? (c)Which division is most profitable in terms of return on investment??

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department (a-h). -Number of work orders

The following financial information was summarized from the accounting records of Buddy Corporation for the current year ended December 31:​ Calculate: (a) The gross profit for the Dalmatian Division. (b) The income from operations from the Dalmatian Division. (c) The gross profit for the Beagle Division. (d) The income from operations from the Beagle Division. (e) The net income for Buddy Corporation.​

The costs of services charged to a profit center on the basis of its use of those services are

The term used to describe expenses that are incurred by a specific department is

Match each definition that follows with the term (a-e) it defines. -Earned by profit centers

The Central Division of Nebraska Company has a return on investment of 28% and a profit margin of 14%. What is the investment turnover?

The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

What is the return on investment for Division D?

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

Use this information for Train Corporation to answer the questions that follow. ​ The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: ​ -The income from operations for the Locomotive Division is

Nelson Company's Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units. The $4.00 is made up of $3.25 in variable costs and $0.75 in allocated fixed costs. What should be the range of a possible transfer price?

Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales of $786,000. Use the DuPont formula to calculate the return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment. Round the profit margin percentage to two decimal places, the investment turnover to three decimal places, and the return on investment to two decimal places.

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