Deck 12: Performance Evaluation and Decentralization

Question 1

In which of the following responsibility centres is a manager responsible for both revenues and costs?

A)a cost centre
B)a revenue centre
C)a profit centre
D)an investment centre

Answer 1

C

Question 2

Last year,Western Division had a ROI of 15%.The manager of the Western Division is considering an additional investment for the coming year.What step will the manager likely choose to take?

A)accept the investment as long as it provides positive operating income
B)accept the investment as long as its ROI is positive
C)reject the investment if it returns more than 15% ROI
D)reject the investment if it returns less than 15% ROI

Answer 2

D

Question 3

SkyJet Airways has three divisions,the Western Division,the Eastern Division,and the Northern Division.The manager of the Western Division had wanted to purchase replacement airplanes for the division.However,he decided against it because,although revenues would increase and the new planes would be less expensive to operate,the initial cost of the planes was quite large.What centre is most probably used to account for the Western Division?

A)a cost centre
B)an investment centre
C)a profit centre
D)a revenue centre

Answer 3

B

Question 4

In which of the following responsibility centres is a manager responsible only for sales?

A)a cost centre
B)a revenue centre
C)a profit centre
D)an investment centre

Question 5

Which responsibility centre designation would be used for a production manager?

A)an investment centre
B)a revenue centre
C)a profit centre
D)a cost centre

Question 6

Which of the following is NOT a reason for decentralization?

A)ease of gathering and using local information
B)focusing of central management
C)allows all decisions to be made at the top
D)exposing segments to market forces

Question 7

In which of the following responsibility centres is a manager responsible for revenues,cost,and investment?

A)a cost centre
B)a revenue centre
C)a profit centre
D)an investment centre

Question 8

Which of the following positive results does the use of return on investment (ROI)encourage managers to focus on?

A)the relationship between expenses and investment
B)exclusively expenses
C)operating efficiency
D)the efficient use of resources in generating income

Question 9

How is return on investment (ROI)calculated?

A)operating income/average operating assets
B)average operating assets/operating income
C)operating income/sales
D)sales/average operating assets

Question 10

Along which of the following lines are divisions in a decentralized company NOT created?

A)geographical
B)types of goods or services produced
C)type of responsibility given to divisional manager
D)alphabetical by product line

Question 11

Ding Company had operating income of $140,000,sales of $437,500,and turnover of 0.5.What is Ding's ROI?

A)16%
B)32%
C)50%
D)64%

Question 12

Suppose the margin of 0.2 stayed the same and the turnover ratio of 4.0 increased by 10%.What would be the effect on the ROI?

A)It would decrease by 10%.
B)It would remain the same.
C)It would increase by 10%.
D)It would increase by 15%.

Question 13

The manager of a division is displeased with the ROI of the division.Which of the following steps would increase ROI (holding everything else constant)?

A)increasing investment
B)increasing sales
C)increasing costs
D)decreasing operating income

Question 14

Sentenal Company had income of $20,000,average assets of $200,000,and sales of $80,000.What is Sentenal's ROI?

A)0.4%
B)10%
C)20%
D)25%

Question 15

What is the decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility?

A)responsibility accounting
B)controllable accounting
C)decentralization
D)optimal strategic accounting

Question 16

Suppose the International Division of National Products Company had a turnover ratio of 5.2 and a margin of 0.10.What would be the return on investment?

A)23.8%
B)42.0%
C)38.0%
D)420.0%

Question 17

What is the term for the practice of delegating decision-making authority to the lower levels of management in a company?

A)centralization
B)decentralization
C)hierarchy flattening
D)authorization

Question 18

Alpha Division had the following information: Suppose the asset base is decreased by $200,000,with no other changes.What would be the return on investment of Alpha Division?
$$\begin{array} { l r } \text { Asset base in Alpha Division } & \$ 800,000 \\\text { Net income in Alpha Division } & \$ 100,000 \\\text { Cost of capital } & 12 \% \\\text { Target ROI } & 15 \% \\\text { Margin for Alpha Division } & 20 \%\end{array}$$

A)16.7%
B)62.5%
C)100.0%
D)600.0%

Question 19

Why is decentralization frequently chosen by companies?

A)It allows higher management to make all decisions.
B)It allows higher management to gather local information to make better decisions.
C)It protects segments of the company from competitive pressures.
D)It allows for training and motivation of local managers.

Question 20

A segment of Syntex,Inc.manufactures and sells blankets.The various models of blankets are produced in a single factory using stable technology.They are sold by the sales department,which is also located in the factory.What centre is most probably used to account for this segment?

A)a cost centre
B)a revenue centre
C)a profit centre
D)an investment centre

Question 21

Suppose the operating asset turnover ratio increased by 35% and the margin increased by 25%.What would be the effect on the divisional ROI?

A)It would increase by 69%.
B)It would decrease by 60%.
C)It would increase by 20%.
D)It would decrease by 50%.

Question 22

What is the variable set by top management when calculating residual income?

A)the average operating assets
B)the operating income
C)the hurdle rate
D)the actual operating assets

Question 23

Which of the following is NOT an advantage of ROI?

A)It encourages managers of departments with high ROIs to invest in average ROI projects.
B)It encourages managers to pay careful attention to the relationships among sales, expenses, and investment.
C)It encourages cost efficiency.
D)It discourages excessive investment in operating assets.

Question 24

How is residual income calculated?

A)operating income − (ROI × average operating assets)
B)operating income/(ROI × average operating assets)
C)operating income/(minimum rate of return × average operating assets)
D)operating income − (minimum rate of return × average operating assets)

Question 25

Which of the following performance measures uses after-tax operating income and the actual cost of capital employed?

A)return on investment (ROI)
B)residual income
C)economic value added (EVA)
D)margin

Question 26

The following information pertains to the three divisions of Zorro Company: What is the residual income for Division A?
$\begin{array}{lrrr} & \text { Division A } & \text { Division B } & \text { Division C } \\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 40,000 & \$ 25,000 & \$ 75,000\\\text { Average operating assets } & 400,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Tumover } & 1.2 & ? & ? \\\text { Target ROI } & 14 \% & 12 \% & 10 \%\end{array}$

A)($36,000)
B)($16,000)
C)$36,000
D)$45,000

Question 27

Suppose the operating asset turnover increased by 75% and the margin increased by 50%.What would be the percentage increase in the ROI?

A)25.0%
B)75.0%
C)100.0%
D)162.5%

Question 28

Economic value added is residual income with the cost of capital equal to which of the following?

A)the firm's budgeted cost of capital
B)the firm's average cost of capital
C)the firm's standard cost of capital
D)the firm's actual cost of capital

Question 29

The Seasonal Division of The Hudson Bay Department Store had a net income of $660,000,a net asset base of $5,000,000,and a required rate of return of 10%.Sales for the period totalled $4,00,000.What was the residual income for the period?

A)$80,000
B)$160,000
C)$360,000
D)$480,000

Question 30

What is the price the selling division charges for a component purchased by the buying division of the same company?

A)transfer price
B)economic value added price
C)market price
D)cost-based price

Question 31

Which of the following is a disadvantage of a focus on return on investment?

A)It can encourage managers to focus on cost-cutting efforts.
B)It can produce a narrow focus on divisional profitability at the expense of profitability for the overall firm.
C)It can encourage managers to cut inventories and reduce overall investment.
D)It can encourage managers to focus on the long run at the expense of the short run.

Question 32

Which of the following is an absolute dollar measure rather than a percentage?

A)return on investment
B)percentage of sales
C)division return on investment
D)economic value added (EVA)

Question 33

What is the formula for calculating economic value added (EVA)?

A)margin - total annual cost of capital
B)operating income - average cost of capital
C)operating income - total annual cost of capital
D)operating income - taxes and the total annual cost of capital

Question 34

Which of the following is an advantage of the ROI performance measure?

A)It encourages managers to focus on the relationship among revenues, expenses, and investment.
B)It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole.
C)It encourages managers to focus on the short run at the expense of the long run.
D)It produces a narrow focus on divisional profitability at the expense of the profitability of the overall firm.

Question 35

When using economic value added (EVA)to calculate residual income,what is the formula for the cost of capital employed?

A)the standard percentage cost of capital × the average capital employed
B)the actual percentage cost of capital × the average capital employed
C)the standard percentage cost of capital × the total capital employed
D)the actual percentage cost of capital × the total capital employed

Question 36

Games R Us Company makes children's board games.One popular game requires three hours of processing time,seven hours of waiting time,and five hours of moving time.What is the manufacturing cycle efficiency (MCE)for Games R Us Company?

A)16.7%
B)20.0%
C)25.0%
D)33.0%

Question 37

How is turnover calculated?

A)operating income/average operating assets
B)average operating assets/operating income
C)operating income/sales
D)sales/average operating assets

Question 38

What is the best transfer price when the transferred product has a competitive outside market?

A)the cost-based price
B)the negotiated price
C)the market price
D)the price set by central management

Question 39

How is margin calculated?

A)operating income/sales
B)average operating assets/operating income
C)operating income/average operating assets
D)sales/average operating assets

Question 40

Why can the level of the transfer price affect the overall company?

A)The higher the transfer price, the higher the operating income.
B)It may affect the taxes paid by the multinational company.
C)The lower the transfer price, the lower the total costs.
D)It may affect the company's accounts receivable.

Question 41

What is the definition of a testable strategy?

A)a set of linked objectives aimed at an overall goal
B)a means of providing managers with information about the effectiveness of strategy implementation and the validity of the assumptions underlying the strategy
C)a means of specifying objectives, measures, targets, and initiatives for each perspective of the Balanced Scorecard
D)a strategic management system that defines a strategic-based responsibility accounting system

Question 42

The Machine Division provides engines for the ATV Division of a company.The standard unit costs for Machine Division are as follows: The engine department has excess capacity.What is the best transfer price to avoid transfer price problems?
$$\begin{array} { l r } \text { Direct materials } & \$ 500 \\\text { Direct labour } & 1,100 \\\text { Variable overhead } & 200 \\\text { Fixed overhead } & 100 \\\text { Market price per unit } & 3,000\end{array}$$

A)$300
B)$900
C)$1,350
D)$1,800

Question 43

The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are as follows: What is the transfer price that is based on full cost plus a markup of 35%?
$$\begin{array} { l r } \text { Direct materials } & \$ 700 \\\text { Direct labour } & 1,300 \\\text { Variable overhead } & 400 \\\text { Fixed overhead } & 350 \\\text { Market price per unit } & 2,730\end{array}$$

A)$585.00
B)$2,730.50
C)$2,760.00
D)$3,577.50

Question 44

Ruter Company had the following historical accounting data per unit: The units are normally transferred internally from Division X to Division Y.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30%.There was no beginning or ending inventories.
Suppose Division X uses full cost plus markup.What would be the transfer price?
$\begin{array}{lr}\text { Direct materials } & \$ 70 \\\text { Direct labour } & 40 \\\text { Variable overhead } & 25 \\\text { Fixed overhead } & 34 \\\text { Variable selling expenses } & 55 \\\text { Fixed selling expenses } & 19\end{array}$

A)$129.00
B)$136.50
C)$167.00
D)$219.70

Question 45

Which Balanced Scorecard perspective defines the capabilities that an organization needs to create long-term improvement?

A)the learning and growth perspective
B)the process perspective
C)the customer perspective
D)the financial perspective

Question 46

Which Balanced Scorecard perspective details the internal processes needed to provide value for customers and owners?

A)the customer perspective
B)the process perspective
C)the learning and growth perspective
D)the financial perspective

Question 47

Division A produces a component and wants to sell it to Division B.Which of the following best describes the relationship of the transfer price to Division A and Division B?

A)revenue to Division A and a cost to Division B
B)revenue to Division B and a cost to Division A
C)revenue to Division A and no effect on Division B
D)a cost to Division B and no effect on Division A

Question 48

What does the difference between realization and sacrifice define?

A)target objectives
B)reliability
C)single-loop feedback
D)customer value

Question 49

Which Balanced Scorecard perspective details the economic consequences of actions taken in the other three perspectives?

A)the customer perspective
B)the process perspective
C)the learning and growth perspective
D)the financial perspective

Question 50

Suppose the selling division is operating at less than full capacity.Where would the floor of the bargaining range most probably be set at?

A)the market price
B)the full manufacturing cost
C)the average price of all products sold by the selling division
D)the variable cost of manufacturing

Question 51

What does the process value chain consist of?

A)value, operations, and objectives
B)satisfaction, innovation, and value
C)innovation, operations, and postsales service
D)design, production, and selling

Question 52

What is the term for the number of units of output that can be produced in a given period of time?

A)cycle time
B)unit process time
C)responsiveness
D)velocity

Question 53

Last night,Rebecca worked on her accounting homework for two and a half hours.During that time,she completed eight problems.What is Rebecca's velocity in problems per hour?

A)0.3125 per hour
B)4.0000 per hour
C)6.1250 per hour
D)10.0000 per hour

Question 54

Which formula is used to calculate MCE (manufacturing cycle efficiency)?

A)processing time/nonprocessing time
B)nonprocessing time/processing time
C)total time/processing time
D)processing time/total time

Question 55

What is the term for the strategic management system that translates an organization's mission and strategy into operational objectives and performance measures?

A)activity-based management
B)responsibility accounting
C)strategic accounting
D)Balanced Scorecard

Question 56

Several transfer pricing policies are used in practice.Which of the following transfer pricing policies is not used?

A)transfer at market price
B)transfer at negotiated price
C)transfer at cost
D)transfer at zero cost

Question 57

A hospital decided to streamline its surgical suite operation.The nurses in charge studied the amount of time patients actually spent in various activities.They found that,on average,a patient scheduled for an operation spent about 2 hours waiting and 2.5 hours moving from the lab to the X-ray to the operating room.The average operation takes 120 minutes.What is the MCE?

A)20.0%
B)30.8%
C)50.0%
D)60.8%

Question 58

Which Balanced Scorecard perspective defines the customer and market segments in which the business unit will compete?

A)the customer perspective
B)the process perspective
C)the learning and growth perspective
D)the financial perspective

Question 59

Which of the following statements is characteristic of Manufacturing Cycle Efficiency (MCE)?

A)MCE takes on values between 0 and 100.
B)The lower the MCE, the more efficient the firm.
C)MCE is used by manufacturing firms only.
D)As MCE improves, cycle time decreases.

Question 60

Last night,Rebecca worked on her accounting homework for two and a half hours.During that time,she completed eight problems.What is Rebecca's cycle time for one problem?

A)4.50 minutes
B)6.25 minutes
C)10.25 minutes
D)18.75 minutes

Question 61

The manager of Gamma Division projects the following for next year:
The manager can invest in an additional project that would require $30,000 investment in additional assets and would generate $4,200 of additional income. The company's minimum rate of return is 12%.
$\begin{array}{ll}\text { Sales } & \$ 100,000 \\\text { Operating income } & \$ 30,000 \\\text { Operating assets } & \$ 200,000\end{array}$

-Refer to the Figure.What will happen to Gamma Division if the manager invests in the additional project?

A)If the manager invests in the additional project, ROI of the division will increase.
B)If the manager uses ROI to decide to invest, residual income of the project is less than the residual income of the division without the project; therefore, the project will be rejected.
C)If the manager invests in the project, average investment for Alpha Division will decrease.
D)If the manager invests in the additional project, residual income of the division will increase.

Question 62

The following information pertains to the three divisions of Borraw Company:
$\begin{array}{lrr} & \text { Division A } & \text { Division B } \\\text { Sales } & ? & 1,250,000 \\\text { Net operating income } & \$ 25,000 & \$ 75,000\\\text { Average operating assets } & ? & ? \\\text { Return on investment } & 20 \% & 15 \% \\\text { Margin } & 0.05 & ? \\\text { Turnover } & ? & ? \\\text { Target ROI } & 12 \% & 10 \%\end{array}$

-Refer to the Figure.What are the average operating assets for Division B?

A)$75,000
B)$187,500
C)$500,000
D)$1,250,000

Question 63

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.23 \\\text { Total } & \$ 1.23\end{array}$$

-Refer to the Figure.Assume that Corrugated,Inc.allows division managers to negotiate the transfer price.The Box Division is producing 500,000 boxes.Suppose the Box Division and the Candy Division agree to transfer boxes.What would be the floor of the bargaining range and which division sets it?

A)$1.23; Box Division
B)$1.23; Candy Division
C)$1.40; Box Division
D)$1.40; Candy Division

Question 64

Condor Company provided the following information for last year:
$$\begin{array} { l l } \text { Operating income } & \$ 60,000 \\\text { Sales } & \$ 240,000 \\\text { Beginning operating assets } & \$ 440,000 \\\text { Ending operating assets } & \$ 450,000\end{array}$$

-Refer to the Figure.What was Condor's return on investment last year?

A)0.10
B)0.13
C)0.32
D)0.50

Question 65

Condor Company provided the following information for last year:
$$\begin{array} { l l } \text { Operating income } & \$ 60,000 \\\text { Sales } & \$ 240,000 \\\text { Beginning operating assets } & \$ 440,000 \\\text { Ending operating assets } & \$ 450,000\end{array}$$

-Refer to the Figure.What was Condor's turnover ratio last year?

A)0.10
B)0.16
C)0.32
D)0.54

Question 66

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.23 \\\text { Total } & \$ 1.23\end{array}$$

-Refer to the Figure.Assume that Corrugated,Inc.allows division managers to negotiate the transfer price.The Box Division is producing 400,000 boxes.Suppose the Box Division and the Candy Division agree to transfer boxes.What would be the floor of the bargaining range and which division sets it?

A)$1.00; Box Division
B)$1.00; Candy Division
C)$1.40; Box Division
D)$1.40; Candy Division

Question 67

The following information pertains to the three divisions of Borraw Company:
$\begin{array}{lrr} & \text { Division A } & \text { Division B } \\\text { Sales } & ? & 1,250,000 \\\text { Net operating income } & \$ 25,000 & \$ 75,000\\\text { Average operating assets } & ? & ? \\\text { Return on investment } & 20 \% & 15 \% \\\text { Margin } & 0.05 & ? \\\text { Turnover } & ? & ? \\\text { Target ROI } & 12 \% & 10 \%\end{array}$

-Refer to the Figure.What are the sales for Division A?

A)$25,000
B)$125,000
C)$208,333
D)$500,000

Question 68

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$

-Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What is the total benefit for Giga-Stuff,Inc.?

A)$18,000
B)$63,000
C)$69,000
D)$81,000

Question 69

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$

-Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What is the total benefit for Sophistosand?

A)$18,000
B)$63,000
C)$69,000
D)$81,000

Question 70

The following information pertains to the three divisions of Borraw Company:
$\begin{array}{lrr} & \text { Division A } & \text { Division B } \\\text { Sales } & ? & 1,250,000 \\\text { Net operating income } & \$ 25,000 & \$ 75,000\\\text { Average operating assets } & ? & ? \\\text { Return on investment } & 20 \% & 15 \% \\\text { Margin } & 0.05 & ? \\\text { Turnover } & ? & ? \\\text { Target ROI } & 12 \% & 10 \%\end{array}$

-Refer to the Figure.What are the average operating assets for Division B?

A)$5,000
B)$25,000
C)$125,000
D)$208,333

Question 71

The manager of Gamma Division projects the following for next year:
The manager can invest in an additional project that would require $30,000 investment in additional assets and would generate $4,200 of additional income. The company's minimum rate of return is 12%.
$\begin{array}{ll}\text { Sales } & \$ 100,000 \\\text { Operating income } & \$ 30,000 \\\text { Operating assets } & \$ 200,000\end{array}$

-Refer to the Figure.What is the residual income for Gamma Division without the additional investment?

A)$4,200
B)$6,000
C)$6,600
D)$24,000

Question 72

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$

-Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the ceiling of the bargaining range,and which division sets it?

A)$2.15; Sophistosand
B)$2.15; Videostuff
C)$2.50; Sophistosand
D)$2.50; Videostuff

Question 73

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$

-Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the floor of the bargaining range,and which division sets it?

A)$1.15; Sophistosand
B)$1.15; Videostuff
C)$2.15; Sophistosand
D)$2.15;Videostuff

Question 74

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.23 \\\text { Total } & \$ 1.23\end{array}$$

-Refer to the Figure.Assume that Corrugated,Inc.allows division managers to negotiate the transfer price.The Box Division is producing 400,000 boxes.Suppose the Box Division and the Candy Division agree to transfer boxes.What would be the ceiling of the bargaining range,and which division sets it?

A)$1.23; Box Division
B)$1.23; Candy Division
C)$1.40; Box Division
D)$1.40; Candy Division

Question 75

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.23 \\\text { Total } & \$ 1.23\end{array}$$

-Refer to the Figure.Assume that Corrugated,Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if the Box Division transferred boxes to the Candy Division?

A)$0.90
B)$1.00
C)$1.23
D)$1.40

Question 76

The practice of delegating decision-making authority to lower levels of management in a company is called centralization.

Question 77

The manager of Gamma Division projects the following for next year:
The manager can invest in an additional project that would require $30,000 investment in additional assets and would generate $4,200 of additional income. The company's minimum rate of return is 12%.
$\begin{array}{ll}\text { Sales } & \$ 100,000 \\\text { Operating income } & \$ 30,000 \\\text { Operating assets } & \$ 200,000\end{array}$

-Refer to the Figure.What is the residual income for Gamma Division with the additional project?

A)$4,200
B)$6,000
C)$6,600
D)$27,600

Question 78

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives).
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$

-Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What are the total cost savings for Videostuff?

A)$18,000
B)$63,000
C)$69,000
D)$81,000

Question 79

The following information pertains to the three divisions of Borraw Company:
$\begin{array}{lrr} & \text { Division A } & \text { Division B } \\\text { Sales } & ? & 1,250,000 \\\text { Net operating income } & \$ 25,000 & \$ 75,000\\\text { Average operating assets } & ? & ? \\\text { Return on investment } & 20 \% & 15 \% \\\text { Margin } & 0.05 & ? \\\text { Turnover } & ? & ? \\\text { Target ROI } & 12 \% & 10 \%\end{array}$

-Refer to the Figure.What is the turnover for Division B?

A)0.150
B)1.500
C)2.500
D)6.670

Question 80

Condor Company provided the following information for last year:
$$\begin{array} { l l } \text { Operating income } & \$ 60,000 \\\text { Sales } & \$ 240,000 \\\text { Beginning operating assets } & \$ 440,000 \\\text { Ending operating assets } & \$ 450,000\end{array}$$

-Refer to the Figure.What was Condor's margin last year?

A)0.10
B)0.16
C)0.25
D)0.50