Question 1

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

Accepted Answer

The residual income is calculated by subtracting the product of the minimum acceptable return rate and the invested assets from the operating income. Here, it's $110,000 - (11% of $900,000) = $110,000 - $99,000 = $11,000.

Question 2

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3.00 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.​
-Division 6's operating income will increase by

Accepted Answer

The increase in Division 6's operating income is calculated by the difference between the transfer price and the variable cost, multiplied by the number of units transferred. This is ($3.20 - $3.00) * 40,000 = $0.20 * 40,000 = $8,000.

Question 3

Which of the following is a measure of performance for the manager of an investment center?

Accepted Answer

All of these choices are measures of performance for the manager of an investment center. ROI and residual income are financial metrics used to assess the efficiency and profitability of investments. Divisional income statements provide a detailed breakdown of financial performance by division, which is crucial for evaluating the performance of managers overseeing different investment centers.

Question 4

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.​
-The return on investment (ROI) for Division D is

Accepted Answer

ROI is calculated as (Net Income / Invested Assets) * 100. Net Income = Sales - Cost of Goods Sold - Operating Expenses = $350,000 - $120,000 - $58,000 = $172,000. ROI = ($172,000 / $150,000) * 100 = 114.7%.

Question 5

Which of the following is not​ a commonly used approach to setting transfer prices?

Accepted Answer

The revenue price approach is not a commonly used approach to setting transfer prices. The other three options (market price, negotiated price, and cost price) are all commonly used approaches.

Question 6

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

Accepted Answer

The market price approach is used to determine the transfer price based on the price at which an identical or similar product or service could be sold to outside buyers. This method ensures that the transfer price is fair and reflects the true market value of the product or service being transferred.

Question 7

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​
-The return on investment (ROI) for Division A is

Accepted Answer

ROI is calculated as (Net Income / Invested Assets) * 100. Net Income for Division A is Sales - Cost of Goods Sold - Operating Expenses = $140,000 - $83,000 - $43,000 = $14,000. Thus, ROI = ($14,000 / $150,000) * 100 = 9.3%.

Question 8

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000.
-The profit margin for International Boot Company is

Accepted Answer

The profit margin is calculated as (Operating Income / Sales) * 100. So, for International Boot Company, it's ($80,000 / $1,525,000) * 100 = 5.2%.

Question 9

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.​
-Division C's operating income will increase by

Accepted Answer

The answer of Materials used by Jefferson Company in producing...

Question 10

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determining the return on investment (ROI), is called

Accepted Answer

The ratio of sales to invested assets is known as investment turnover. It is a component of the DuPont formula that helps in analyzing the return on investment (ROI) by showing how effectively a company uses its assets to generate sales.

Question 11

Investment centers differ from profit centers in that they

Accepted Answer

Investment centers are responsible for not only generating net income, but also for managing their own assets and making investment decisions. Profit centers, on the other hand, are only responsible for generating net income.

Question 12

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​
-The investment turnover for Division A is

Accepted Answer

Investment turnover = Sales / Invested assets = $140,000 / $150,000 = 0.93

Question 13

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000.
-The investment turnover for International Boot Company is

Accepted Answer

Investment turnover is calculated as sales divided by invested assets. Therefore, for International Boot Company, it is $1,525,000 / $500,000 = 3.05.

Question 14

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​
-The profit margin for Division A is

Accepted Answer

The answer of Division A of Chacha Company has sales...

Question 15

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.​
-Jefferson Company's total operating income will increase by

Accepted Answer

The transfer price of $9.50 per unit is higher than the variable cost of $8.50 per unit, so Division A will make a profit of $1.00 per unit on the transfer. This will increase Division A's operating income by $25,000 (25,000 units * $1.00 per unit). Division C will save $1.50 per unit on the purchase of materials, which will increase its operating income by $37,500 (25,000 units * $1.50 per unit). Therefore, Jefferson Company's total operating income will increase by $37,500 + $25,000 = $62,500.

Question 16

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3.00 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.​
-Division 3's operating income will increase by

Accepted Answer

Division 3's operating income increases by $72,000 because they save $1.80 per unit ($5.00 - $3.20) on 40,000 units, which equals $72,000 (40,000 units * $1.80 savings per unit).

Question 17

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.​
-The profit margin for Division D is

Accepted Answer

The profit margin is calculated as (Net Income / Sales) * 100. Net Income for Division D is Sales - Cost of Goods Sold - Operating Expenses = $350,000 - $120,000 - $58,000 = $172,000. Therefore, the profit margin is ($172,000 / $350,000) * 100 = 49.1%.

Question 18

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. The return on investment (ROI) is

Accepted Answer

ROI is calculated as (Net Income / Invested Assets) * 100. For Tom's Tool Factory, this is ($275,000 / $475,000) * 100 = 57.9%.

Question 19

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3.00 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.​
-Square Yard Products Inc.'s total operating income will increase by

Accepted Answer

The total operating income increases by $80,000 because Division 3 saves $1.80 per unit ($5.00 - $3.20) on 40,000 units, which equals $72,000, and Division 6 makes a profit of $0.20 per unit ($3.20 - $3.00) on 40,000 units, which equals $8,000. The total increase is $72,000 + $8,000 = $80,000.

Question 20

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.​
-Division A's operating income will increase by

Accepted Answer

The answer of Materials used by Jefferson Company in producing...

Quiz 24: Evaluating Decentralized Operations

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

Which of the following is a measure of performance for the manager of an investment center?

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. -The return on investment (ROI) for Division D is

Which of the following is not a commonly used approach to setting transfer prices?

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

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The return on investment (ROI) for Division A is

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000. -The profit margin for International Boot Company is

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determining the return on investment (ROI) , is called

Investment centers differ from profit centers in that they

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The investment turnover for Division A is

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000. -The investment turnover for International Boot Company is

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The profit margin for Division A is

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. -The profit margin for Division D is

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. The return on investment (ROI) is

Quiz 24: Evaluating Decentralized Operations

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

Which of the following is a measure of performance for the manager of an investment center?

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.​ -The return on investment (ROI) for Division D is

Which of the following is not​ a commonly used approach to setting transfer prices?

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

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​ -The return on investment (ROI) for Division A is

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000. -The profit margin for International Boot Company is

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determining the return on investment (ROI) , is called

Investment centers differ from profit centers in that they

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​ -The investment turnover for Division A is

International Boot Company has operating income of $80,000, invested assets of $500,000, and sales of $1,525,000. -The investment turnover for International Boot Company is

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​ -The profit margin for Division A is

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.​ -The profit margin for Division D is

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. The return on investment (ROI) is

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. -The return on investment (ROI) for Division D is

Which of the following is not a commonly used approach to setting transfer prices?

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The return on investment (ROI) for Division A is

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The investment turnover for Division A is

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The profit margin for Division A is

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. -The profit margin for Division D is