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Exam 11: Responsibility Accounting Systems

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Question 131

True/False

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Return on investment (ROI) and residual income are tools used to evaluate managerial performance in investment centers.

A) True
B) False

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Question 132

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Shrewsbury Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%.The residual income for this year's investment opportunity when considered alone is closest to:

A) $124,000
B) $12,000
C) $0
D) $108,800

E) A) and B)
F) All of the above

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Question 133

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Manni Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump. Data concerning that pump appear below: The company has a Pool Products Division that needs 7,000 special heavy-duty pumps per year. The Pump Division's variable cost to manufacture and ship this special pump would be $43 per unit. Making these special pumps would require more manufacturing resources. Therefore, the Pump Division would have to reduce its production and sales of regular pumps to outside customers from 68,000 units per year to 56,100 units per year. Required: As far as the Pump Division is concerned, what is the lowest acceptable transfer price for the special pumps?

Koppenhaver Products, Incorporated has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below: The Electronics Division is currently purchasing 15,000 of these relays per year from an overseas supplier at a cost of $57 per relay. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $10 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per unit, the company as a whole will be:

Boespflug Incorporated has a $1,000,000 investment opportunity that involves sales of $900,000, fixed expenses of $225,000, and a contribution margin ratio of 30% of sales. The margin for this investment opportunity is closest to:

Wetherald Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Gauntlett Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,300,000 investment opportunity with the following characteristics: Last year's turnover was closest to:

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

Financial data for Beaker Company for last year appear below: The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.Required:a. Compute the company's margin, turnover, and return on investment for last year.b. The Board of Directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year?

Prejean Products, Incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay. Data concerning that relay appear below: The company has a Electronics Division that could use this relay in one of its products. The Electronics Division is currently purchasing 9,000 of these relays per year from an overseas supplier at a cost of $74 per relay. Required: a. Assume that the Relay Division has enough idle capacity to handle all of the Electronics Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions? b. Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $13 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Blitch Products, Incorporated, has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below: The Home Security Division is currently purchasing 2,000 of these screens per year from an overseas supplier at a cost of $50 per screen. Assume that the Screen Division has enough idle capacity to handle all of the Home Security Division's needs. Does there exist a transfer price that would make both the Screen and Home Security Division financially better off than if the Home Security Division were to continue buying its screens from the outside supplier?

Parsa Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,100,000 investment opportunity with the following characteristics: The Return on investment for this year's investment opportunity considered alone is closest to:

Sauseda Corporation has two operating divisions-an Inland Division and a Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $38 per order. The Customer Service Department's fixed costs are budgeted at $433,200 for the year. The fixed costs of the Customer Service Department are determined based on the peak-period orders. At the end of the year, actual Customer Service Department variable costs totaled $303,240 and fixed costs totaled $450,280. The Inland Division had a total of 2,430 orders and the Coast Division had a total of 5,170 orders for the year.Required:a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year.b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's return on investment (ROI) is closest to:

Robichau Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 20%.If the company pursues the investment opportunity and otherwise performs the same as last year, the combined return on investment for the entire company will be closest to:

Ebbs Products, Incorporated, has a Motor Division that manufactures and sells a number of products, including a standard motor. Data concerning that motor appear below: The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year. The Motor Division's variable cost to manufacture and ship this special motor would be $46 per unit. Because these special motors require more manufacturing resources than the standard motor, the Motor Division would have to reduce its production and sales of standard motors to outside customers from 86,000 units per year to 72,500 units per year.From the standpoint of the Motor Division, what is the minimal acceptable transfer price for the special motors for the Automotive Division?

Gabritz, Incorporated has a maintenance department that provides services to the company's two operating departments. The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $7.50 per maintenance hour and actual variable maintenance costs were $7.80 per maintenance hour.The budgeted and actual maintenance hours for each operating department for last year appear below: Required: a. Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes.b. Compute the amount of actual variable maintenance department cost that should NOT have been charged to the operating departments at the end of the year for performance evaluation purposes.

Levar Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $73 per order. The Order Fulfillment Department's fixed costs are budgeted at $470,400 for the year. The fixed costs of the Order Fulfillment Department are determined based on the peak period orders. At the end of the year, actual Order Fulfillment Department variable costs totaled $621,600 and fixed costs totaled $473,970. The Consumer Division had a total of 1,840 orders and the Commercial Division had a total of 6,560 orders for the year. For purposes of evaluation performance, how much Order Fulfillment Department cost should be charged to the Commercial Division at the end of the year?

Shrewsbury Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%.If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to: