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Exam 9: Evaluating Decentralized Operations

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Question 51

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Income from operations for Division L is $250,000, total service department charges are $400,000 and operating expenses are $2,750,000. What are the revenues for Division L?

A) $650,000
B) $3,000,000
C) $3,400,000
D) $2,750,000

E) A) and D)
F) B) and D)

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Question 52

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

Premises

Responses

Allocated equally among divisions

Maintenance

Number of work orders

Human resources

Number of miles

Payroll accounting

Number of advertising campaigns

Marketing

Number of employees

Information systems

Number of payroll checks

Transportation

Number of purchase requisitions

President's Office

Number of computers in department

Purchasing

Premises

Allocated equally among divisions

Number of work orders

Number of miles

Number of advertising campaigns

Number of employees

Number of payroll checks

Number of purchase requisitions

Number of computers in department

Responses

Maintenance

Human resources

Payroll accounting

Marketing

Information systems

Transportation

President's Office

Purchasing

Show Answer

Correct Answer

Premises

Responses

Allocated equally among divisions

Number of work orders

Number of miles

Number of advertising campaigns

Number of employees

Number of payroll checks

Number of purchase requisitions

Number of computers in department

Premises

Allocated equally among divisions

Number of work orders

Number of miles

Number of advertising campaigns

Number of employees

Number of payroll checks

Number of purchase requisitions

Number of computers in department

Responses

Question 53

Short Answer

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A department store apportions payroll costs on the basis of the number of payroll checks issued. Accounting costs are apportioned on the basis of the number of reports. The payroll costs for the year were $231,000, and the accounting costs for the year totaled $75,500. The departments and the number of payroll checks and accounting reports for each are as follows: Determine the amount of: (a) payroll costs (b) accounting costs to be apportioned to each department.

The profit margin for Central Division is 20% and the investment turnover is 2.8. What is the rate of return on investment for Central Division?

What additional information is needed to calculate the rate of return on investment if income from operations is known?

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's residual income?

The following financial information was summarized from the accounting records of Buddy Corporation for the current year ended December 31: Calculate: (a) The gross profit for the Dalmatian Division. (b) The income from operations from the Dalmatian Division. (c) The gross profit for the Beagle Division. (d) The income from operations from the Beagle Division. (e) The net income for the Buddy Corporation.

The International Boot Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,525,000. What is the investment turnover?

The Nelson Company's radio division currently is purchasing transistors from the Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units.  The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. What should be the range of a possible transfer price?

Paduka Industries has several divisions. The Eastern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $151,000.  Determine the minimum acceptable rate of return on divisional assets.

The cost price approach for transfer pricing is most often used between responsibility centers organized as cost centers that are not concerned with the revenue.

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

Which of the following is not a measure that management can use in evaluating and controlling investment center performance?

Three measures of investment center performance are income from operations, rate of return on investment, and residual income.

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The investment turnover for Chicks is

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

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

The minimum accepted divisional income from operations is set by top management by establishing a maximum rate of return considered acceptable for invested assets.

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the year ended December 31, are as follows: (a) Prepare condensed income statements for the past year for each division. (b) Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division. Round the profit margin percentage to two decimal places and investment turnover to four decimal places.