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Exam 10: Responsibility Accounting,performance Evaluation,and Transfer Pricing

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Question 1

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What defines the bargaining range?

A) market price and the minimum transfer price
B) market price and the maximum transfer price
C) the minimum transfer price and the maximum transfer price
D) the negotiated transfer price and the market price

E) A) and C)
F) A) and D)

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Question 2

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What exists when the major functions of an organization are controlled by top management?

A) decentralization
B) centralization
C) optimization
D) participation

E) A) and D)
F) B) and C)

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Question 3

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Bernie Manufacturing Company has two divisions,X and Y.Division X prepares the steel for processing.Division Y processes the steel into the final product.No inventories exist in either division at the beginning or end of the current year.During the year,Division X prepared 80,000 kgs.of steel at a cost of $800,000.All the steel was transferred to Division Y where additional operating costs of $5 per kg.were incurred.The final product was sold for $3,000,000. a.Determine the gross profit for each division and for the company as a whole if the transfer price is $8 per kg. b.Determine the gross profit for each division and for the company as a whole if the transfer price is $12 per kg.

Which of the following is an example of an investment centre?

The Auto Division of Big Department Store had a net income of $560,000,a net asset base of $4,000,000,and a required rate of return of 12 percent.Sales for the period totalled $3,000,000.What is the residual income for the period?

Under what conditions are multiple measures of performance beneficial?

O'Neil Company requires a return on capital of 15 percent.The following information is available for the current year: a.Compute return on investment using both book and current values for each division.(Round answer to three decimal places.) b.Compute residual income for both book and current values for each division. c.Does book value or current value provide the better basis for performance evaluation? d.Which division do you consider the most successful?

The following information pertains to the three divisions of Marlow Company: $\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$ What is the residual income for Division X?

Which of the following would be a reason for decentralization?

If the National Division of Canadian Products Company had a turnover ratio of 4.2 and a margin of 0.10,what would be the return on investment?

What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?

What type of responsibility centre would a manufacturing division of a company most likely be evaluated as?

Provide the missing data in the following situations: $\begin{array}{lrrr}&\text { Sigma } & \text { Tau } & \text { Gamma } \\&\text { Division } & \text { Division } & \text { Division }\\\text { Sales } & \$(\mathrm{a}) & \$ 250,000 & \$(\mathrm{~g}) \\\text { Operating assets } & \$(\mathrm{~b}) & \$(\mathrm{~d}) & \$ 800,000 \\\text { Net operating income } & \$ 400,000 & \$ 10,000 & \$ 144,000 \\\text { Margin } & 0.08 & (\mathrm{e}) & 0.12 \\\text { Turnover } & (\mathrm{c}) & (\mathrm{f}) & 1.5 \\\text { Return on investment } & 16 \% & 10 \% & (\mathrm{~h})\end{array}$

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows: $\begin{array} { l r } \text { Direct materals }&\$600 \\\text { Direct labour } & 1,200 \\\text { Variable overhead } & 300 \\\text { Fixed overhead } & 150 \\\text { Market price per unit } & 2,730\end{array}$ -Refer to the figure. The Engine Division has excess capacity.What is the best transfer price to avoid transfer price problems?

What is an example of goal incongruence?

It is important to separate the evaluation of a manager from the evaluation of his or her division in a multinational firm.What should be omitted from manager's evaluation?

How is return on investment (ROI) calculated?

Which of the following is a disadvantage of ROI?

Why might it be misleading to compare the ROI of international divisions?

Stevens Company has two divisions that report on a decentralized basis.Their results for the current year were as follows: $\begin{array} { l c c } & \text { Halmet } & \text { Ball } \\\text { Sales } & \$ 150,000 & \$ 300,000 \\\text { Income } & \$ 15,000 & \$ 45,000 \\\text { Asset base } & \$ 7,000 & \$ 150,000 \\\text { Weighted average cost of capital }& 12 \% & 12 \%\end{array}$ Compute the following amounts for each division: a.Return on investment (ROI)if the desired rate of return is 12 percent. b.Residual income if the desired rate of return is 20 percent. c.EVA. d.Turnover. e.Margin for each division.