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Exam 11: Responsibility Accounting Systems

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Question 21

True/False

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If transfer prices are to be based on cost, then the costs should be actual costs rather than standard costs.

A) True
B) False

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Question 22

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Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an return on investment (ROI) of 15%?

A) 2.00%
B) 15.00%
C) 9.99%
D) 7.50%

E) None of the above
F) A) and B)

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Question 23

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Cabell Products is a division of a major corporation. Last year the division had total sales of $25,320,000, net operating income of $1,924,320, and average operating assets of $6,000,000. The company's minimum required rate of return is 10%.The division's turnover is closest to:

Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).

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 Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division?

Frame Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined by the number of cases produced by the operating departments during the peak-period. Data appear below: How much actual Maintenance Department cost should not be allocated to the operating divisions at the end of the year?

Bacot Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.Assume that the Valve Division is selling all of the valves it can produce to outside customers. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Pankey Incorporated has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:

The West Division of Cecchetti Corporation had average operating assets of $693,000 and net operating income of $102,500 in August. The minimum required rate of return for performance evaluation purposes is 16%.What was the West Division's minimum required return in August?

Babak Industries is a division of a major corporation. Last year the division had total sales of $19,560,000, net operating income of $1,877,760, and average operating assets of $6,000,000.The division's return on investment (ROI) is closest to:

The Casket Division of Saal Corporation had average operating assets of $950,000 and net operating income of $135,200 in January. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 13%.Required:What was the Casket Division's residual income in January?

Which of the following measures of performance encourages continued expansion by an investment center so long as it is able to earn a return in excess of the minimum required return on average operating assets?

Using the formula in the text, if the lowest acceptable transfer price from the viewpoint of the selling division is $73 and the opportunity cost per unit on outside sales is $29, then the variable cost per unit must be:

Lank Products, Incorporated, has a Transmitter Division that manufactures and sells a number of products, including a standard transmitter. Data concerning that transmitter appear below: The company has a Remote Devices Division that could use this transmitter in one of its products. The Remote Devices Division is currently purchasing 11,000 of these transmitters per year from an overseas supplier at a cost of $53 per transmitter. Required: The Transmitter Division is selling all of the transmitters it can produce to outside customers. Also assume that $6 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?

Salvey Incorporated reported the following results from last year's operations: The company's average operating assets were $3,000,000.At the beginning of this year, the company has a $300,000 investment opportunity that involves sales of $480,000, fixed expenses of $100,800, and a contribution margin ratio of 30% of sales. If the company pursues the investment opportunity and otherwise performs the same as last year, the combined return on investment (ROI) for the entire company will be closest to:

The Downstate Block Company has a trucking department that delivers crushed stone from the company's quarry to its two cement block production facilities-the West Plant and the East Plant. Budgeted costs for the trucking department are $700,000 per year in fixed costs and $0.50 per ton variable cost. Last year, 75,000 tons of crushed stone were budgeted to be delivered to the West Plant and 90,000 tons of crushed stone to the East Plant. During the year, the trucking department actually delivered 74,000 tons of crushed stone to the West Plant and 92,000 tons to the East Plant. Its actual costs for the year were $81,000 variable and $708,000 fixed. The level of budgeted fixed costs is determined by peak-period requirements. The West Plant requires 45% of the peak-period capacity and the East Plant requires 55%. The company allocates fixed and variable costs separately.How much fixed trucking department cost should be charged to the West Plant at the end of the year?

Zeilinger 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 8,000 of these screens per year from an overseas supplier at a cost of $58 per screen.What is the maximum price that the Home Security Division should be willing to pay for screens transferred from the Screen Division?

Under a responsibility accounting system, fewer expenses are charged against managers the higher one moves upward in an organization.

Runyon Incorporated reported the following results from last year's operations: The company's average operating assets were $7,000,000.Last year's turnover was closest to:

Nealon Corporation's Maintenance Department provides services to the company's two operating divisions--the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak-period. Data appear below: Required:a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Maintenance 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?