Exam 11: Segment Reporting, Transfer Pricing, and Balanced Scorecard

One of the greatest disadvantages of the balanced scorecard is that it is difficult to harmonize it with the corporate strategy.

Tinley Division has the capacity to make 1,500 units of an intermediate good that is sold both internally and on the open market for a price of $28 each. To make the product, Tinley incurs $6 of variable cost per unit and $12 of fixed costs per unit. What is the minimum price Tinley would accept for an internal transfer of 1,000 units of the product if the division is operating at 50% capacity?

If the international division of Latin American Products had an investment turnover of 1.4 and a return on sales of 0.12, the return on investment would be:

What is residual income?

Which of the following statements about segment reporting is not true?

Provide the missing data for the following divisions.

Which of the following would normally not be included in an investment center's asset base?

Ideally, the price established for a transfer of goods or services between two decentralized organizational units within a company would be one that would always motivate the managers of both units to act in a way that is in the best interest of the company as a whole.

Costs that would not be incurred if the segment were discontinued are called:

Segment reports are a feature of responsibility accounting systems and generally are not applicable to other reporting criteria. R

Wisconsin Company's Division X had the following historical accounting data per unit based on 5,000 units per period: Fixed manufacturing costs were $10,000. Wisconsin transfers internally from Division X to Division Y. Wisconsin may also sell the transferred units externally for $43 per unit. If Division X transfers 5,000 units this period at absorption cost plus 10% markup, what would be the unit transfer price?

Brick City Company has the following information pertaining to its Brick division for this year: Corporate expenses allocated to the brick division are $24,000. Calculate the brick division's division margin.

If both the investment turnover and the return on sales ratio increased by 13 percent, the ROI would increase by: (Hint: Assume that each component of the ROI computation is 1.00 prior to the increase.)

All of the following reasons are legitimate potential disadvantages of using a market-based transfer price except:

Magnus Division earns a contribution margin of $200,000 and has a division margin of $75,000. If Magnus Division is closed, the firm can eliminate all of the direct division expenses and $110,000 of common expenses. How will closing the division affect the firm's operating income?

Landscape Manufacturing Company has three divisions. Engine components are transferred from Components to Assembly. Assembled engines are transferred from Assembly to the Mower Division. Costs for each division are given below. Mowers are sold on in a competitive outside market for $250. All transfers are made at 130% of variable cost. This period, Components sends Assembly 10,000 packages of engine components. What is the transfer price Assembly pays Components for engine components?

Residual income is more similar to Economic Value Added than it is to return on investment.

The balanced scorecard approach for evaluating managerial performance is designed to overcome the limits of single measure performance systems, such as ROI or EVA, by evaluating performance on several key dimensions.

Tristar Company has the following information pertaining to its Brick Division for this year: Corporate expenses allocated to the brick division are $24,000. Calculate the brick division's contribution margin.

Discuss the advantage and disadvantage of using residual income as opposed to ROI as an investment center performance measure.