Exam 7: Cost Allocation and Responsibility Accounting

WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating below its capacity?

Which of the following perspectives of the balanced scorecard focuses on revenue growth and productivity?

Which of the following would most likely be treated as an activity in an activity-based costing system?

In many cases, the amount of the transfer price does not affect the overall company profits.

To evaluate the performance of an investment center, a business needs key performance indicators that measure:

Which of the following four perspectives of the balanced score card enables the management to answer the question: "How can we continue to improve and create value?"

Smaller variances signal that operations are close to target and do not require management's immediate attention.

ROI (Return on Investment) measures the profitability of an investment center, not efficiency.

Zhongfang Consumer Products has a small car division that operates as a profit center. Below is a partially completed performance report for the first quarter. Actual Flexible Budget Flexible Budget Variance U/F \% Variance U/F Sales Revenue \ 688,000 \ 700,000 Variable expenses 309,000 320,000 Contribution margin 379,000 380,000 Traceable fixed expenses 371,000 368,000 Division margin \ 8,000 \ 12,000 -How much is the percentage flexible budget variance for traceable fixed expenses?

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It provides the following information for the year 2014. Agriculture Division Industrial Division Sales revenue \ 140,000 \ 1,040,000 Operating income \ 16,400 \ 218,400 Average assets \ 300,000 \ 5,540,000 Calculate the profit margin ratio for the Industrial Division of the company.

WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating at capacity?

A good balanced scorecard focuses only on lead indicators, because lag indicators are not important for the scorecard.

Opportunity cost means:

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit was as follows: Per unit Standard Heavy Direct material cost \ 200.00 \ 245.00 Manufacturing overhead cost 124.00 93.00 Total manufacturing cost \ 324.00 \ 338.00 Price per unit Gross profit per unit \ 26.00 \ 32.00 Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach. Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown below: Activities: Estimated Cost Metal fabrication \ 420,000 Machine processing \ 152,000 Packaging \ 17,000 Total overhead costs \5 89,000 Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis was as given below: Standard Heavy Kilos per unit 2.00 4.00 Machine hours per unit 80.00 60.00 Using the data above, calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of standard bearings. (Round your intermediate calculations to two decimal places).

If a company allows division managers to negotiate a cost-based transfer price, it is better to use actual costs rather than standard costs. Otherwise, the selling division has no motivation to control costs.

Parkinson Company provides the following financial information: Income from operations \ 200,000 Interest expense 45,000 Gains/(losses) on sale of equipment (2,500) Net income 152,500 Total assets at Jan 1 2,600,000 Total assets at Dec 31 3,200,000 Calculate return on investment based on the information given above.

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

Which of the following is the correct formula for calculating residual income?