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Exam 23: Decentralized Operations

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Question 31

True/False

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The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business.

A) True
B) False

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Question 32

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Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the

A) cost price approach
B) negotiated price approach
C) revenue price approach
D) market price approach

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

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Question 33

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Match each of the following phrases as describing (a) an advantage, (b) a disadvantage, or (c) neither of decentralization. -Internal price wars

Two divisions of Oregano Company (Divisions TX and OY) have the same profit margins. Division TX's investment turnover is larger than that of Division OY (1) 2 to 1.0) . Income from operations for Division TX is $55,000, and income from operations for Division OY is $43,000. Division TX has a higher return on investment than Division OY by

The profit center income statement should include only controllable revenues and expenses.

In a cost center, the manager has responsibility and authority for making decisions that affect

The profit margin for Division C is 6%, and the investment turnover is 1.2. What is the return on investment for Division C?

The negotiated price approach allows the managers of decentralized units to agree on the transfer price.

How much will Square Yard Products Inc.'s total income from operations increase?

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. (a)If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase? (b)Assuming a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division A increase? (c)Assuming a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division B increase? (d)If the negotiated price approach is used, what would be the range of acceptable transfer prices?​

Which of the following formulas is the investment turnover factor as used in determining the return on investment?

Using the data from Terrace Industries, determine the divisional income from operations for Districts 1 and 2.​ Allocate service department expenses proportionally to the sales of each district.

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

The formula for the return on investment is

Responsibility accounting reports that are given to lower-level managers are usually very detailed; in turn, higher-level managers will be given a summary report.

Use this information for ABC Corporation to answer the questions that follow. ​ 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 is as follows: ​ -What will the income of the Super Division be after all service department allocations?

The excess of divisional income from operations over a minimum acceptable amount of divisional income from operations is

In return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets.

Sales commission expense for a department store is an example of a direct expense.

The major advantage of the return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.