Question 1

Residual income is calculated as

Accepted Answer

A)  Operating income - (required rate of return × average operating assets) 
B)  Net income - (required rate of return × average operating assets) 
C)  Operating income - (required rate of return × average equity) 
D)  Net income - (required rate of return × average equity) 
A)  Operating income - (required rate of return × average operating assets) 
B)  Net income - (required rate of return × average operating assets) 
C)  Operating income - (required rate of return × average equity) 
D)  Net income - (required rate of return × average equity)

Question 2

Use the following information for the next 4 questions.
Teresa's Taco Co. 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 operating (pretax) income was

Accepted Answer

A)  $30,500 
B)  $192,500 
C)  $35,000 
D)  $16,250 
A)  $30,500 
B)  $192,500 
C)  $35,000 
D)  $16,250

Question 3

Transfer prices are used to value all of the following except

Accepted Answer

A)  Internal transfers of products 
B)  Internal transfers of services 
C)  Transfers to unrelated businesses 
D)  Transfers to other divisions in the same company 
A)  Internal transfers of products 
B)  Internal transfers of services 
C)  Transfers to unrelated businesses 
D)  Transfers to other divisions in the same company

Question 4

Use the following information for the next 2 questions.
Division A of Sibley, Inc. has operating data as follows:   Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
-If Division A has capacity available to meet B's requirements, what is the minimum price it should charge?

Accepted Answer

A)  $40 
B)  $75 
C)  $20 
D)  $60 
A)  $40 
B)  $75 
C)  $20 
D)  $60

Question 5

An ideal transfer price would be the opportunity cost of internal transfers.

Accepted Answer

A) True 
 B)False

Question 6

(CMA) The segment operating margin less imputed (estimated) interest on the assets used by the investment center is known as

Accepted Answer

A)  Return on investment 
B)  Residual income 
C)  Operating income 
D)  Return on assets 
A)  Return on investment 
B)  Residual income 
C)  Operating income 
D)  Return on assets

Question 7

Use the following information for the next 2 questions.
The Machining Division has a capacity of 2,000 units. Its sales and cost data are:  
-The Machining Division is currently selling 1,900 units to outside customers, and the Assembly Division wants to purchase 300 units from Machining. If the transaction takes place, the variable administrative costs per unit on the units transferred to Assembly will be $2/unit, not $5/unit. What should be the transfer price?

Accepted Answer

A)  $73.67 
B)  $76.67 
C)  $97.00 
D)  $100.00 
A)  $73.67 
B)  $76.67 
C)  $97.00 
D)  $100.00

Question 8

Return on Investment is

Accepted Answer

A)  The same as residual income 
B)  Net operating income divided by average operating assets 
C)  A nonfinancial measure of performance 
D)  Net operating income minus average operating assets X cost of capital 
A)  The same as residual income 
B)  Net operating income divided by average operating assets 
C)  A nonfinancial measure of performance 
D)  Net operating income minus average operating assets X cost of capital

Question 9

Which of the following is an advantage of cost-based transfer prices? I. Managers do not have much incentive to reduce fixed costs
II. Managers may be motivated to purchase goods and services from outside the company
III. Contribution margins may be split between buying and selling divisions

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  None of the above (I, II, and III are all disadvantages) 
A)  I only 
B)  II only 
C)  III only 
D)  None of the above (I, II, and III are all disadvantages)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is most likely to be the lowest transfer price?

Accepted Answer

A)  Variable cost 
B)  Dual rate 
C)  Market price 
D)  Activity based cost 
A)  Variable cost 
B)  Dual rate 
C)  Market price 
D)  Activity based cost

Question 12

Aiden's operating income was $100,000 and its ROI was 20%. What are Aiden's average operating assets?

Accepted Answer

A)  $20,000 
B)  $200,000 
C)  $500,000 
D)  None of the above 
A)  $20,000 
B)  $200,000 
C)  $500,000 
D)  None of the above

Question 13

Which of the following responsibility centers can be evaluated using residual income?

Accepted Answer

A)  Cost centers 
B)  Profit centers 
C)  Revenue centers 
D)  Investment centers 
A)  Cost centers 
B)  Profit centers 
C)  Revenue centers 
D)  Investment centers

Question 14

A transfer pricing policy based on market price

Accepted Answer

A)  Maximizes total organizational profit. 
B)  Is best because the market price is always objective and easily obtainable. 
C)  May result in suboptimal decision making for the company as a whole. 
D)  Is the only alternative accepted by the Internal Revenue Service. 
A)  Maximizes total organizational profit. 
B)  Is best because the market price is always objective and easily obtainable. 
C)  May result in suboptimal decision making for the company as a whole. 
D)  Is the only alternative accepted by the Internal Revenue Service.

Question 15

Which type of knowledge is most costly to transfer within an organization?

Accepted Answer

A)  Centralized 
B)  Decentralized 
C)  Financial 
D)  Specific 
A)  Centralized 
B)  Decentralized 
C)  Financial 
D)  Specific

Question 16

Use the following information for the next 2 questions.
Division A of Sibley, Inc. has operating data as follows:   Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
-If Division A is operating at capacity, what is the minimum price it should charge?

Accepted Answer

A)  $40 
B)  $75 
C)  $20 
D)  $60 
A)  $40 
B)  $75 
C)  $20 
D)  $60

Question 17

Use the following information for the next 3 questions.
Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows.  
-What was the Chicago Division ROI for 20x5 (rounded to nearest 0.1%)?

Accepted Answer

A)  11.2% 
B)  13.2% 
C)  15.5% 
D)  16.0% 
A)  11.2% 
B)  13.2% 
C)  15.5% 
D)  16.0%

Question 18

Use the following information for the next 3 questions.
Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows.  
-What was the Chicago Division EVA for 20x5?

Accepted Answer

A)  $3,960 
B)  $11,960 
C)  $20,460 
D)  $27,800 
A)  $3,960 
B)  $11,960 
C)  $20,460 
D)  $27,800

Question 19

A segment with an ROI of 30% has an income of $84,000. The company's required rate of return on segment investments is 18%. The segment's residual income is

Accepted Answer

A)  $50,400 
B)  $25,200 
C)  $26,712 
D)  $33,600 
A)  $50,400 
B)  $25,200 
C)  $26,712 
D)  $33,600

Question 20

Use the following information for the next 3 questions.
Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per pound of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of the flour. Each loaf of bread uses one-half pound of flour.
-What is the operating income per loaf for Division Y if the transfer price is set at $0.625 per pound for flour?

Accepted Answer

A)  $0.6250 
B)  $0.9375 
C)  $1.2500 
D)  $0.8750 
A)  $0.6250 
B)  $0.9375 
C)  $1.2500 
D)  $0.8750

Residual income is calculated as

Use the following information for the next 4 questions. Teresa's Taco Co. 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 operating (pretax) income was

Transfer prices are used to value all of the following except

An ideal transfer price would be the opportunity cost of internal transfers.

(CMA) The segment operating margin less imputed (estimated) interest on the assets used by the investment center is known as

Return on Investment is

Which of the following is an advantage of cost-based transfer prices? I. Managers do not have much incentive to reduce fixed costs II. Managers may be motivated to purchase goods and services from outside the company III. Contribution margins may be split between buying and selling divisions

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

Which of the following is most likely to be the lowest transfer price?

Aiden's operating income was $100,000 and its ROI was 20%. What are Aiden's average operating assets?

Which of the following responsibility centers can be evaluated using residual income?

A transfer pricing policy based on market price

Which type of knowledge is most costly to transfer within an organization?

Use the following information for the next 3 questions. Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows. -What was the Chicago Division EVA for 20x5?

A segment with an ROI of 30% has an income of $84,000. The company's required rate of return on segment investments is 18%. The segment's residual income is

The Role of Accounting Information in Management Decision Making

The Cost Function

Cost-Volume-Profit Analysis

Relevant Costs for Nonroutine Operating Decision

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Joint Management of Revenues and Costs

Measuring and Assigning Costs for Income Statements

Strategic Performance Measurement

Sustainability Accounting

Filters

Exam 15: Performance Evaluation and Compensation

Residual income is calculated as

Use the following information for the next 4 questions. Teresa's Taco Co. 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 operating (pretax) income was

Transfer prices are used to value all of the following except

An ideal transfer price would be the opportunity cost of internal transfers.

(CMA) The segment operating margin less imputed (estimated) interest on the assets used by the investment center is known as

Return on Investment is

Which of the following is an advantage of cost-based transfer prices? I. Managers do not have much incentive to reduce fixed costs II. Managers may be motivated to purchase goods and services from outside the company III. Contribution margins may be split between buying and selling divisions

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

Which of the following is most likely to be the lowest transfer price?

Aiden's operating income was $100,000 and its ROI was 20%. What are Aiden's average operating assets?

Which of the following responsibility centers can be evaluated using residual income?

A transfer pricing policy based on market price

Which type of knowledge is most costly to transfer within an organization?

Use the following information for the next 3 questions. Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows. -What was the Chicago Division EVA for 20x5?

A segment with an ROI of 30% has an income of $84,000. The company's required rate of return on segment investments is 18%. The segment's residual income is

The Role of Accounting Information in Management Decision Making

The Cost Function

Cost-Volume-Profit Analysis

Relevant Costs for Nonroutine Operating Decision

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Joint Management of Revenues and Costs

Measuring and Assigning Costs for Income Statements

Strategic Performance Measurement

Sustainability Accounting

Filters