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Exam 23: Performance Evaluation for Decentralized Operations

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Question 31

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Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

A) True
B) False

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Question 32

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Property tax expense for a department store's store equipment is an example of a direct expense.

A) True
B) False

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Question 33

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Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000. 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 the profit margin percentage to two decimal places and the investment turnover to three decimal places.

Match each definition that follows with the term a-e) it defines. -Income from operations minus minimum acceptable income from operations

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the rate of return on investment, is called

The investment turnover is the ratio of

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

If income from operations for a division is $30,000, sales are $263,750, and invested assets are $187,500, the investment turnover is 1.3.

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

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets. If management has set a minimum acceptable rate of return of 11%, the residual income is

Income from operations for Division H is $220,000, and income from operations before service department charges is $975,000. As a result,

The profit margin for Chicks is

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: $\begin{array} { | l | l | l | l | } \hline & \text { Micro } & \text { Macro } & \text { Super } \\\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \\\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \\\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \\\hline \text { Number of invoices processed } & 700 & 800 & 500 \\\hline \text { Number of employees } & 130 & 145 & 125 \\\hline\end{array}$ -How much service department cost would be allocated to the Super Division?

The budget for Department 6 of Cardinal Company for the current month ending March 31 is as follows: $\begin{array} { l l } \text { Materials } & \$ 208,000 \\\text { Factory wages } & 265,000 \\\text { Supervisory salaries } & 67,800 \\\text { Depreciation of plant and equipment } & 35,000 \\\text { Power and light } & 22,500 \\\text { Insurance and property taxes } & 15,500 \\\text { Maintenance } & 9,700\end{array}$ During March, the costs incurred in Department 6 of Cardinal Company were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456. a) Prepare a budget performance report for the supervisor of Department 6 of Cardinal Company for the month of March. b) Are there any significant variances 5% or greater) of the budgeted amounts that should be examined by the supervisor?

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called an)

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

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

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h) . -Allocated equally among divisions