Exam 22: Performance Measurement and Responsibility Accounting

Division X makes a part with the following characteristics: Division Y of the same company would like to purchase 10,000 units each period from Division X.Division Y now purchases the part from an outside supplier at a price of $17 each.Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers.If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier,the company as a whole will be:

Riu Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers.The company's Repair Division has asked the Parts Division to provide it with 2,000 special parts each year.The special parts would require $17.00 per unit in variable production costs.The Repair Division has a bid from an outside supplier for the special parts at $28.00 per unit.In order to have time and space to produce the special part,the Parts Division would have to cut back production of another part-the B83 that it presently is producing.The B83 sells for $34.00 per unit,and requires $22.00 per unit in variable production costs.Packaging and shipping costs of the B83 are $4.00 per unit.Packaging and shipping costs for the new special part would be only $0.50 per unit.The Parts Division is now producing and selling 10,000 units of the B83 each year.Production and sales of the B83 would drop by 10% if the new special part is produced for the Repair Division. Required: a.What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 2,000 special parts per year from the Parts Division to the Repair Division? b.Is it in the best interests of Riu Corporation for this transfer to take place? Explain.

A company produces two products,XX and YY,from a single raw material called Zub.Zub is purchased in 55-gallon drums,and the contents of one drum are sufficient to produce 30 gallons of XX and 15 gallons of YY.XX sells for $10.00 per gallon and YY sells for $30.00 per gallon.During the current period,the company used 400 drums of Zub to produce XX and YY.The cost of Zub was $90 per drum. Required: (1)If the cost of Zub is allocated to the XX and YY products on the basis of the number of gallons produced,how much of the total cost of the 400 drums should be charged to each product? (2)If the cost of Zub is allocated to the XX and YY products in proportion to their market values,how much of the total cost of the 400 drums should be charged to each product? (3)Which basis of allocating the cost is most likely to be used by the company?

A ________ incurs costs without directly generating revenues.

Canfield Technical School allocates administrative costs to its respective departments based on the number of students enrolled,while maintenance and utilities are allocated per square feet of the classrooms.Based on the information below, -What is the total amount of administrative cost to the Accounting Department (rounded to the nearest dollar)if administrative costs for the school were $50,000,maintenance fees were $12,000,and utilities were $6,000?

A useful measure used to evaluate the performance of an investment center is investment center residual income.

In the preparation of departmental income statements,the preparer completes the following steps in the following order:

What is a profit center and how is its performance evaluated?

Responsibility accounting performance reports:

Departmental income statements are prepared for operating departments (profit centers)but not service departments (cost centers).

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000.Assume a target income of 10% of average invested assets.Compute residual income for the division:

Use the Hamilton Company's investment center information below to calculate (a)return on total investment and (b)investment center residual income.

Costs that the manager has the power to determine or significantly affect are called:

The Mixed Nuts Division of Yummy Snacks,Inc.had the following operating results last year: Yummy expects identical operating results in the division this year.The Mixed Nuts Division has the ability to produce and sell 200,000 pounds of product annually.Assume that the Trail Mix Division of Yummy wants to purchase an additional 20,000 pounds of nuts from the Mixed Nuts Division.Mixed Nuts will be able to increase its profit by accepting any transfer price above:

Karl and Grady are managers of two product lines for Brewster Company.One of them is a candidate for promotion based on performance.Using the data below,determine who had the better performance using performance measures such as net income,profit margin,and return on investment.Show your calculations and support your answer.

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product M for this period's $660 of joint costs if the value basis is used.

Costs that the manager does not have the power to determine or at least significantly affect are:

Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $470,000; sales of $930,000; and income of $105,000.The investment center profit margin is:

Williams Co.operates three separate departments (R,S,T).The data below is provided for the current year: Total Sales………………….$120,000 ($40,000 from each department) Cost of Goods Sold………… $ 80,000 (50% from R; 25% from S; 25% from T) Direct Expense……………… $ 26,000 ($6,000 from R; $12,000 from S; $8,000 from T) Indirect Expenses…………… $ 9,000 Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

Nesbit Co.has two operating (production)departments supported by a number of service departments.The following information was collected for a recent period: Indirect costs are allocated as follows: salaries on the basis of sales,office expenses on the basis of the number of employees,and all other costs on the basis of square footage.Additional information about the production departments follows: Sales for the Machining Department are $724,404 and sales for the Assembly Department are $356,796.Determine the departmental contribution to overhead and the departmental net income for each production department.