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Exam 8: Performance Evaluation for Decentralized Operations

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Question 71

True/False

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It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

A) True
B) False

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Question 72

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Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

A) True
B) False

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Question 73

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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 are as follows: What is the service department charge rate for the Accounting Department?

Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the investment turnover for Division A?

The ratio of sales to invested assets is termed the investment turnover component of the rate of return on investment.

If divisional income from operations is $75,000, invested assets are $737,500, and the minimum rate of return on invested assets is 6%, the residual income is $36,750.

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000. Required: Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places.

Office salaries expense for a department store is an indirect expense.

Which of the following is NOT a disadvantage of decentralized operation?

It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue.

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

The sales, income from operations, and invested assets for each division of Grosbeak Company are as follows:

Which of the following is a disadvantage of decentralization?

Responsibility accounting reports for profit centers will include

Data for Divisions A, B, C, D, and E are as follows:

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division C's income from operations increase?

The profit center income statement should include only revenues and expenses that are controlled by the manager.

A manager is responsible for costs only in a(n) :

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.