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Student name:__________
1) Gabbe Industries is a division of a major corporation. Last year the division had total
sales of $24,048,000, net operating income of $2,765,520, and average operating assets of
$6,012,000. The company’s minimum required rate of return is 17%.
Required:
a. What is the division’s margin? (Round your percentage answer to 2 decimal places.)
b. What is the division’s turnover? (Round your answer to 2 decimal places.)
c. What is the division’s return on investment (ROI)? (Round percentage your answer to 2
decimal places.)
2) Craycraft Incorporated reported the following results from last year’s operations:
Sales $12,600,000
Variable expenses 9,380,000
Contribution margin 3,220,000
Fixed expenses 2,716,000
Net operating income $504,000
Average operating assets $7,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the
following characteristics:
Sales $560,000
Contribution margin ratio 50 % of sales
Fixed expenses $246,400
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Required:
1. What was last year’s margin? (Round to the nearest 0.1%.)
2. What was last year’s turnover? (Round to the nearest 0.01.)
3. What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)
4. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall margin this year? (Round to the nearest 0.1%.)
5. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall turnover this year? (Round to the nearest 0.01.)
6. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
3) Wolley Incorporated reported the following results from last year’s operations:
Sales $7,200,000
Variable expenses 5,210,000
Contribution margin 1,990,000
Fixed expenses 1,486,000
Net operating income $504,000
Average operating assets $4,000,000
At the beginning of this year, the company has a $1,200,000 investment opportunity with the
following characteristics:
Sales $1,560,000
Contribution margin ratio 30 % of sales
Fixed expenses $343,200
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The company’s minimum required rate of return is 14%.
Required:
1. What was last year’s margin? (Round to the nearest 0.1%.)
2. What was last year’s turnover? (Round to the nearest 0.01.)
3. What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)
4. What is the margin related to this year’s investment opportunity? (Round to the nearest
0.1%.)
5. What is the turnover related to this year’s investment opportunity? (Round to the nearest
0.01.)
6. What is the ROI related to this year’s investment opportunity? (Round to the nearest 0.1%.)
7. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall margin this year? (Round to the nearest 0.1%.)
8. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall turnover this year? (Round to the nearest 0.01.)
9. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
10. If Westerville’s chief executive officer earns a bonus only if the ROI for this year exceeds
the ROI for last year, would the CEO pursue the investment opportunity? Would the owners of
the company want the CEO to pursue the investment opportunity?
4) Criner Incorporated reported the following results from last year’s operations:
Sales $16,100,000
Variable expenses 12,330,000
Contribution margin 3,770,000
Fixed expenses 3,126,000
Net operating income $644,000
Average operating assets $7,000,000
At the beginning of this year, the company has a $1,800,000 investment opportunity with the
following characteristics:
Sales $1,980,000
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Contribution margin ratio 30 % of sales
Fixed expenses $475,200
Required:
1.What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)
2. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
5) Familia Incorporated reported the following results from last year’s operations:
Sales $16,100,000
Variable expenses 10,400,000
Contribution margin 5,700,000
Fixed expenses 4,734,000
Net operating income $966,000
Average operating assets $7,000,000
At the beginning of this year, the company has a $1,200,000 investment opportunity with the
following characteristics:
Sales $3,840,000
Contribution margin ratio 50 % of sales
Fixed expenses $1,728,000
The company’s minimum required rate of return is 13%.
Required:
1. What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)
2. What is the ROI related to this year’s investment opportunity? (Round to the nearest 0.1%.)
3. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
4. If Westerville’s chief executive officer earns a bonus only if the ROI for this year exceeds the
ROI for last year, would the CEO pursue the investment opportunity? Would the owners of the
company want the CEO to pursue the investment opportunity?
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6) The following data pertains to Timmins Company’s operations last year:
Return on investment (ROI) 20%
Sales $800,000
Margin 5%
Minimum required rate of return 16%
Required:
a. Compute the company’s average operating assets.
b. Compute the company’s residual income for the year.
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7) The Clipper Corporation had net operating income of $380,000 and average operating
assets of $2,000,000. The corporation requires a return on investment of 18%.
Required:
a. Calculate the company’s return on investment (ROI) and residual income (RI).
b. Clipper Corporation is considering an investment of $70,000 in a project that will generate
annual net operating income of $12,950. Would it be in the best interests of the company to
make this investment?
c. Clipper Corporation is considering an investment of $70,000 in a project that will generate
annual net operating income of $12,950. If the division planning to make the investment
currently has a return on investment of 20% and its manager is evaluated based on the division’s
ROI, will the division manager be inclined to request funds to make this investment?
d. Clipper Corporation is considering an investment of $70,000 in a project that will generate
annual net operating income of $12,950. If the division planning to make the investment
currently has a residual income of $50,000 and its manager is evaluated based on the division’s
residual income, will the division manager be inclined to request funds to make this investment?
8) Financial data for Beaker Company for last year appear below:
Beaker Company
Statements of Financial Position
Beginning Balance Ending Balance
Assets:
Cash $346,000 $324,792
Accounts receivable 202,000 159,000
Inventory 298,000 299,000
Plant and equipment (net) 463,000 455,000
Investment in Cedar Company 318,000 293,000
Land (undeveloped) 237,000 237,000
Total assets $1,864,000 $1,767,792
Liabilities and owners’ equity:
Accounts payable $249,000 $228,000
Long-term debt 855,000 855,000
Owners’ equity 760,000 684,792
Total liabilities and owners’ equity $1,864,000 $1,767,792
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Beaker Company
Income Statement
Sales $1,790,000
Less operating expenses 1,440,950
Net operating income 349,050
Less interest and taxes:
Interest expense $98,600
Tax expense 125,658 224,258
Net income $124,792
The company paid dividends of $200,000 last year. The “Investment in Cedar Company” on the
statement of financial position represents an investment in the stock of another company.
Required:
a. Compute the company’s margin, turnover, and return on investment for last year.
b. The Board of Directors of Beaker Company has set a minimum required return of 25%.
What was the company’s residual income last year?
9) Ranallo Incorporated reported the following results from last year’s operations:
Sales $11,400,000
Variable expenses 7,480,000
Contribution margin 3,920,000
Fixed expenses 3,008,000
Net operating income $912,000
Average operating assets $6,000,000
At the beginning of this year, the company has a $1,800,000 investment opportunity with the
following characteristics:
Sales $3,600,000
Contribution margin ratio 40 % of sales
Fixed expenses $1,116,000
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The company’s minimum required rate of return is 14%.
Required:
1. What was last year’s margin? (Round to the nearest 0.1%.)
2. What was last year’s turnover? (Round to the nearest 0.01.)
3. What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)
4. What is the margin related to this year’s investment opportunity? (Round to the nearest
0.1%.)
5. What is the turnover related to this year’s investment opportunity? (Round to the nearest
0.01.)
6. What is the ROI related to this year’s investment opportunity? (Round to the nearest 0.1%.)
7. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall margin this year? (Round to the nearest 0.1%.)
8. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall turnover this year? (Round to the nearest 0.01.)
9. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
10. If Westerville’s chief executive officer earns a bonus only if the ROI for this year exceeds
the ROI for last year, would the CEO pursue the investment opportunity? Would the owners of
the company want the CEO to pursue the investment opportunity?
11. What was last year’s residual income?
12. What is the residual income of this year’s investment opportunity?
13. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall residual income this year?
14. If Westerville’s CEO earns a bonus only if residual income for this year exceeds residual
income for last year, would the CEO pursue the investment opportunity?
10) Willing Incorporated reported the following results from last year’s operations:
Sales $11,400,000
Variable expenses 8,540,000
Contribution margin 2,860,000
Fixed expenses 1,948,000
Net operating income $912,000
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Average operating assets $6,000,000
At the beginning of this year, the company has a $1,200,000 investment opportunity with the
following characteristics:
Sales $2,400,000
Contribution margin ratio 40 % of sales
Fixed expenses $744,000
The company’s minimum required rate of return is 14%.
Required:
1.What was last year’s residual income?
2. What is the residual income of this year’s investment opportunity?
3. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall residual income this year?
4. If Westerville’s CEO earns a bonus only if residual income for this year exceeds residual
income for last year, would the CEO pursue the investment opportunity?
11) The Casket Division of Saal Corporation had average operating assets of $1,020,000 and
net operating income of $205,200 in January. The company uses residual income to evaluate the
performance of its divisions, with a minimum required rate of return of 14%.
Required:
What was the Casket Division’s residual income in January?
12) Worley Incorporated reported the following results from last year’s operations:
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Sales $13,200,000
Variable expenses 8,490,000
Contribution margin 4,710,000
Fixed expenses 3,654,000
Net operating income $1,056,000
Average operating assets $6,000,000
At the beginning of this year, the company has a $1,000,000 investment opportunity with the
following characteristics:
Sales $3,400,000
Contribution margin ratio 50 % of sales
Fixed expenses $1,496,000
The company’s minimum required rate of return is 17%.
Required:
1. What was last year’s residual income?
2. If the company pursues the investment opportunity and otherwise performs the same as last
year, what will be the overall residual income this year?
3. If Westerville’s CEO earns a bonus only if residual income for this year exceeds residual
income for last year, would the CEO pursue the investment opportunity?
13) Creaser Products, Incorporated, has a Sensor Division that manufactures and sells a
number of products, including a standard sensor. Data concerning that sensor appear below:
Capacity in units 42,000
Selling price to outside customers $85
Variable cost per unit $50
Fixed cost per unit (based on capacity) $28
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The company has a Safety Products Division that could use this sensor in one of its products.
The Safety Products Division is currently purchasing 8,000 of these sensors per year from an
overseas supplier at a cost of $76 per sensor.
Required:
The Sensor Division is selling all of the sensors it can produce to outside customers. Also
assume that $10 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?
14) Cominsky Products, Incorporated, has a Screen Division that manufactures and sells a
number of products, including a standard screen. Data concerning that screen appear below:
Capacity in units 74,000
Selling price to outside customers $98
Variable cost per unit $61
Fixed cost per unit (based on capacity) $14
The company has a Home Security Division that could use this screen in one of its products.
The Home Security Division is currently purchasing 6,000 of these screens per year from an
overseas supplier at a cost of $96 per screen.
Required:
Assume that the Screen Division is selling all of the screens it can produce to outside customers.
What is the acceptable range, if any, for the transfer price between the two divisions?
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15) Gauani Products, Incorporated, has a Detector Division that manufactures and sells a
number of products, including a standard detector. Data concerning that detector appear below:
Capacity in units 51,000
Selling price to outside customers $72
Variable cost per unit $35
Fixed cost per unit (based on capacity) $17
The company has a Commercial Security Division that could use this detector in one of its
products. The Commercial Security Division is currently purchasing 5,000 of these detectors per
year from an overseas supplier at a cost of $65 per detector.
Required:
a. Assume that the Detector Division has enough idle capacity to handle all of the Commercial
Security Division’s needs. What is the acceptable range, if any, for the transfer price between the
two divisions?
b. Assume that the Detector Division is selling all of the detectors it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
16) 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:
Capacity in units 69,000
Selling price to outside customers $62
Variable cost per unit $31
Fixed cost per unit (based on capacity) $15
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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?
17) Manni Products, Incorporated, has a Pump Division that manufactures and sells a number
of products, including a standard pump. Data concerning that pump appear below:
Capacity in units 68,000
Selling price to outside customers $68
Variable cost per unit $38
Fixed cost per unit (based on capacity) $23
The company has a Pool Products Division that needs 7,000 special heavy-duty pumps per year.
The Pump Division’s variable cost to manufacture and ship this special pump would be $43 per
unit. Making these special pumps would require more manufacturing resources. Therefore, the
Pump Division would have to reduce its production and sales of regular pumps to outside
customers from 68,000 units per year to 56,100 units per year.
Required:
As far as the Pump Division is concerned, what is the lowest acceptable transfer price for the
special pumps?
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18) Fyodor Corporation has a Parts Division that does work for other Divisions in the
company as well as for outside customers. The company’s Machine Division has asked the Parts
Division to provide it with 4,000 special parts each year. The special parts would require $11 per
unit in variable production costs.
The Machine Division has a bid from an outside supplier for the special parts at $17.70 per unit.
In order to have time and space to produce the special part, the Parts Division would have to cut
back production of another part-the QR4 that it presently is producing. The QR4 sells for $20 per
unit, and requires $10 per unit in variable production costs. Packaging and shipping costs of the
QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50
per unit. The Parts Division is now producing and selling 20,000 units of the QR4 each year.
Production and sales of the QR4 would drop by 5% if the new special part is produced for the
Machine Division.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase
as a result of agreeing to the transfer of 4,000 special parts per year from the Parts Division to the
Machine Division? (Round your final answers to 2 decimal places.)
b. Is it in the best interests of Fyodor Corporation for this transfer to take place?
19) Trendell Products, Incorporated, has a Motor Division that manufactures and sells a
number of products, including a standard motor. Data concerning that motor appear below:
Capacity in units 65,000
Selling price to outside customers $75
Variable cost per unit $36
Fixed cost per unit (based on capacity) $29
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The company has a Automotive Division that could use this motor in one of its products. The
Automotive Division is currently purchasing 8,000 of these motors per year from an overseas
supplier at a cost of $66 per motor.
Required:
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs.
What is the acceptable range, if any, for the transfer price between the two divisions?
20) Shular 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, the Division, in
one of its products. Data concerning that valve appear below:
Capacity in units 69,000
Selling price to outside customers $53
Variable cost per unit $33
Fixed cost per unit (based on capacity) $10
The company has a Pump Division that could use this valve in one of its products. The Pump
Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a
cost of $47 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division’s
needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside
customers. Also assume that $5 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?
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21) Prejean Products, Incorporated, has a Relay Division that manufactures and sells a
number of products, including a standard relay. Data concerning that relay appear below:
Capacity in units 78,000
Selling price to outside customers $81
Variable cost per unit $56
Fixed cost per unit (based on capacity) $19
The company has a Electronics Division that could use this relay in one of its products. The
Electronics Division is currently purchasing 9,000 of these relays per year from an overseas
supplier at a cost of $74 per relay.
Required:
a. Assume that the Relay Division has enough idle capacity to handle all of the Electronics
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
b. Assume that the Relay Division is selling all of the relays it can produce to outside customers.
Also assume that $13 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?
22) Zumsteg Products, Incorporated, has a Pump Division that manufactures and sells a
number of products, including a standard pump. Data concerning that pump appear below:
Capacity in units 71,000
Selling price to outside customers $88
Variable cost per unit $61
Fixed cost per unit (based on capacity) $19
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The company has a Pool Products Division that could use this pump in one of its products. The
Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas
supplier at a cost of $81 per pump.
Required:
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
23) Division Y has asked Division X of the same company to supply it with 7,600 units of
part L763 this year to use in one of its products. Division Y has received a bid from an outside
supplier for the parts at a price of $46 per unit. Division X has the capacity to produce 30,400
units of part L763 per year. Division X expects to sell 27,360 units of part L763 to outside
customers this year at a price of $49.60 per unit. To fill the order from Division Y, Division X
would have to cut back its sales to outside customers. Division X produces part L763 at a
variable cost of $38 per unit. The cost of packing and shipping the parts for outside customers is
$2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts
to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase
as a result of agreeing to the transfer of 7,600 parts this year from Division X to Division Y?
(Round your final answers to 2 decimal places.)
b. Is it in the best interests of the overall company for this transfer to take place?
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24) Starcic Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector. Data concerning that connector appear
below:
Capacity in units 45,000
Selling price to outside customers $86
Variable cost per unit $57
Fixed cost per unit (based on capacity) $15
The company has a Transmission Division that needs 6,000 special heavy-duty connectors per
year. The Connector Division’s variable cost to manufacture and ship this special connector
would be $62 per unit. Making these special connectors would require more manufacturing
resources. Therefore, the Connector Division would have to reduce its production and sales of
regular connectors to outside customers from 45,000 units per year to 38,400 units per year.
Required:
As far as the Connector Division is concerned, what is the lowest acceptable transfer price for
the special connectors?
25) Stibbins Products, Incorporated, has a Receiver Division that manufactures and sells a
number of products, including a standard receiver. Data concerning that receiver appear below:
Capacity in units 45,000
Selling price to outside customers $88
Variable cost per unit $61
Fixed cost per unit (based on capacity) $15
The company has a Industrial Products Division that could use this receiver in one of its
products. The Industrial Products Division is currently purchasing 6,000 of these receivers per
year from an overseas supplier at a cost of $79 per receiver.
Required:
a. Assume that the Receiver Division is selling all of the receivers it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume again that the Receiver Division is selling all of the receivers it can produce to
outside customers. Also assume that $13 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?
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26) Vandermeer Products, Incorporated, has a Antennae Division that manufactures and sells
a number of products, including a standard antennae. Data concerning that antennae appear
below:
Capacity in units 88,000
Selling price to outside customers $97
Variable cost per unit $50
Fixed cost per unit (based on capacity) $23
The company has a Aircraft Products Division that could use this antennae in one of its
products. The Aircraft Products Division is currently purchasing 11,000 of these antennaes per
year from an overseas supplier at a cost of $88 per antennae.
Required:
a. Assume that the Antennae Division is selling all of the antennaes it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume again that the Antennae Division is selling all of the antennaes it can produce to
outside customers. Also assume that $1 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?
27) Chesley Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector. Data concerning that connector appear
below:
Capacity in units 40,000
Selling price to outside customers $89
Variable cost per unit $43
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Fixed cost per unit (based on capacity) $22
The company has a Transmission Division that could use this connector in one of its products.
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the
Transmission Division’s needs. What is the acceptable range, if any, for the transfer price
between the two divisions?
b. Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Connector Division is selling all of the connectors it can produce to
outside customers. Also assume that $3 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?
28) Liapis 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, the Pump
Division, in one of its products. Data concerning that valve appear below:
Capacity in units 66,000
Selling price to outside customers $66
Variable cost per unit $38
Fixed cost per unit (based on capacity) $22
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The Pump Division is currently purchasing 12,000 of these valves per year from an overseas
supplier at a cost of $62 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division’s
needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Valve Division is selling all of the valves it can produce to outside
customers. Also assume that $7 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?
29) Ulrich Company has a Castings Division which does casting work of various types. The
company’s Machine Products Division has asked the Castings Division to provide it with 20,000
special castings each year on a continuing basis. The special casting would require $12 per unit
in variable production costs.
In order to have time and space to produce the new casting, the Castings Division would have
to cut back production of another casting – the RB4 which it presently is producing. The RB4
sells for $40 per unit, and requires $18 per unit in variable production costs. Boxing and shipping
costs of the RB4 are $6 per unit. Boxing and shipping costs for the new special casting would be
only $1 per unit, thereby saving the company $5 per unit in cost. The company is now producing
and selling 100,000 units of the RB4 each year. Production and sales of this casting would drop
by 25 percent if the new casting is produced. Some $240,000 in fixed production costs in the
Castings Division are now being covered by the RB4 casting; 25 percent of these costs would
have to be covered by the new casting if it is produced and sold to the Machine Products
Division.
Required:
According to the formula in the text, what is the lowest acceptable transfer price from the
viewpoint of the selling division? Show all computations.
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30) Sauseda Corporation has two operating divisions—an Inland Division and a Coast
Division. The company’s Customer Service Department provides services to both divisions. The
variable costs of the Customer Service Department are budgeted at $37 per order. The Customer
Service Department’s fixed costs are budgeted at $437,000 for the year. The fixed costs of the
Customer Service Department are determined based on the peak-period orders.
Percentage of
Peak-period
Capacity Required Budgeted Orders
Inland Division 30% 1,950
Coast Division 70% 5,950
At the end of the year, actual Customer Service Department variable costs totaled $305,343 and
fixed costs totaled $440,080. The Inland Division had a total of 1,985 orders and the Coast
Division had a total of 5,905 orders for the year.
Required:
a. Prepare a report showing how much of the Customer Service Department’s costs should be
charged to each of the operating divisions at the end of the year.
b. How much of the actual Customer Service 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?
31) Sauseda Corporation has two operating divisions—an Inland Division and a Coast
Division. The company’s Customer Service Department provides services to both divisions. The
variable costs of the Customer Service Department are budgeted at $38 per order. The Customer
Service Department’s fixed costs are budgeted at $433,200 for the year. The fixed costs of the
Customer Service Department are determined based on the peak-period orders.
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Percentage of
Peak-period
Capacity Required Budgeted Orders
Inland Division 40% 2,400
Coast Division 60% 5,200
At the end of the year, actual Customer Service Department variable costs totaled $303,240 and
fixed costs totaled $450,280. The Inland Division had a total of 2,430 orders and the Coast
Division had a total of 5,170 orders for the year.
Required:
a. Prepare a report showing how much of the Customer Service Department’s costs should be
charged to each of the operating divisions at the end of the year.
b. How much of the actual Customer Service 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?
32) Leslie Company operates a cafeteria for the benefit of its employees. The company
subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced
prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows:
Budgeted Actual
Variable costs* $1,090,805 $901,120
Fixed costs $362,000 $384,500
*Unrecovered cost after deducting amounts received from employees.
Costs of the cafeteria are charged to producing departments on the basis of the number of
employees in these departments. Fixed costs are charged on the basis of the percentage of peak-
period requirements. Data concerning the company’s producing departments follows:
Machining Assembly Total
Budgeted number of employees 415 1,150 1,565
Actual number of employees 275 1,005 1,280
Percentage of peak-period requirements 30% 70% 100%
Required:
a. Compute the dollar amount of variable and fixed costs that should be charged to each of the
producing departments at the end of the year for purposes of evaluating performance.
b.Identify the amount, if any, of actual costs that should not be charged to the operating
departments.
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33) Gabbe Industries is a division of a major corporation. Last year the division had total
sales of $8,910,000, net operating income of $962,280, and average operating assets of
$3,000,000. The company’s minimum required rate of return is 10%.
Required:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
34) Haney Fabrication is a division of a major corporation. Last year the division had total
sales of $21,560,000, net operating income of $1,897,280, and average operating assets of
$7,000,000. The company’s minimum required rate of return is 16%.
Required:
What is the division’s return on investment (ROI)?
35) Financial data for Beaker Company for last year appear below:
Beaker Company
Statements of Financial Position
Beginning Balance Ending Balance
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Assets:
Cash $ 50,000 $ 70,000
Accounts receivable 20,000 25,000
Inventory 30,000 35,000
Plant and equipment (net) 120,000 110,000
Investment in Cedar Company 80,000 100,000
Land (undeveloped) 170,000 170,000
Total assets $ 470,000 $ 510,000
Liabilities and owners’ equity:
Accounts payable $ 70,000 $ 90,000
Long-term debt 250,000 250,000
Owners’ equity 150,000 170,000
Total liabilities and owners’ equity $ 470,000 $ 510,000
Beaker Company
Income Statement
Sales $ 414,000
Less operating expenses 351,900
Net operating income 62,100
Less interest and taxes:
Interest expense $ 30,000
Tax expense 10,000 40,000
Net income $ 22,100
The company paid dividends of $2,100 last year. The “Investment in Cedar Company” on the
statement of financial position represents an investment in the stock of another company.
Required:
a. Compute the company’s margin, turnover, and return on investment for last year.
b. The Board of Directors of Beaker Company has set a minimum required return of 20%.
What was the company’s residual income last year?
36) Eady Wares is a division of a major corporation. The following data are for the latest year
of operations:
Sales $ 19,600,000
Net operating income $ 470,400
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Average operating assets $ 5,000,000
The company’s minimum required rate of return 10%
Required:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
d. What is the division’s residual income?
37) Fabbri Wares is a division of a major corporation. The following data are for the latest
year of operations:
Sales $ 9,540,000
Net operating income $ 1,163,880
Average operating assets $ 3,000,000
The company’s minimum required rate of return 14%
Required:
a. What is the division’s return on investment (ROI)?
b. What is the division’s residual income?
38) 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?
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39) Ibale Industries is a division of a major corporation. The following data are for the latest
year of operations:
Sales $ 29,960,000
Net operating income $ 1,827,560
Average operating assets $ 7,000,000
The company’s minimum required rate of return 10%
Required:
What is the division’s residual income?
40) Brodrick Corporation uses residual income to evaluate the performance of its divisions.
The minimum required rate of return for performance evaluation purposes is 19%. The Games
Division had average operating assets of $140,000 and net operating income of $25,900 in
August.
Required:
What was the Games Division’s residual income in August?
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41) Fyodor Corporation has a Parts Division that does work for other Divisions in the
company as well as for outside customers. The company’s Machine Division has asked the Parts
Division to provide it with 8,000 special parts each year. The special parts would require $19.00
per unit in variable production costs.
The Machine Division has a bid from an outside supplier for the special parts at $27.00 per
unit. In order to have time and space to produce the special part, the Parts Division would have to
cut back production of another part-the QR4 that it presently is producing. The QR4 sells for
$34.00 per unit, and requires $18.00 per unit in variable production costs. Packaging and
shipping costs of the QR4 are $2.00 per unit. Packaging and shipping costs for the new special
part would be only $0.50 per unit. The Parts Division is now producing and selling 40,000 units
of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part
is produced for the Machine Division.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase
as a result of agreeing to the transfer of 8,000 special parts per year from the Parts Division to the
Machine Division?
b. Is it in the best interests of Fyodor Corporation for this transfer to take place? Explain.
42) Division Y has asked Division X of the same company to supply it with 5,000 units of
part L763 this year to use in one of its products. Division Y has received a bid from an outside
supplier for the parts at a price of $33.00 per unit. Division X has the capacity to produce 20,000
units of part L763 per year. Division X expects to sell 18,000 units of part L763 to outside
customers this year at a price of $34.00 per unit. To fill the order from Division Y, Division X
would have to cut back its sales to outside customers. Division X produces part L763 at a
variable cost of $25.00 per unit. The cost of packing and shipping the parts for outside customers
is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of the
parts to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase
as a result of agreeing to the transfer of 5,000 parts this year from Division Y to Division X?
b. Is it in the best interests of the overall company for this transfer to take place? Explain.
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43) 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:
Maintenance Department
Budgeted variable cost $ 7 per case
Budgeted total fixed cost $ 600,000
Actual total variable cost $ 432,072
Actual total fixed cost $ 602,860
Paints Division
Percentage of peak-period capacity required 30%
Budgeted cases 15,000
Actual cases 15,020
Stains Division
Percentage of peak-period capacity required 70%
Budgeted cases 45,000
Actual cases 44,990
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?
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44) Smurnov Company has a purchasing department that provides services to two factories
located in Austin and the other in Belmont. Budgeted costs for the purchasing department consist
of $91,000 per year of fixed costs and $7 per purchase order for variable costs. The level of
budgeted fixed costs is determined by the peak-period requirements. The Austin factory requires
3/7 of the peak-period capacity and the Belmont factory requires 4/7.
During the year, 2,700 purchase orders were processed for the Austin factory and 3,900
purchase orders for the Belmont factory.
Required:
Compute the amount of purchasing department cost that should be charged to each factory for
the year.
45) Sauseda Corporation has two operating divisions—an Inland Division and a Coast
Division. The company’s Customer Service Department provides services to both divisions. The
variable costs of the Customer Service Department are budgeted at $38 per order. The Customer
Service Department’s fixed costs are budgeted at $433,200 for the year. The fixed costs of the
Customer Service Department are determined based on the peak-period orders.
Percentage of Peak-period Capacity Required Budgeted Orders
Inland Division 40% 2,400
Coast Division 60% 5,200
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At the end of the year, actual Customer Service Department variable costs totaled $303,240 and
fixed costs totaled $450,280. The Inland Division had a total of 2,430 orders and the Coast
Division had a total of 5,170 orders for the year.
Required:
a. Prepare a report showing how much of the Customer Service Department’s costs should be
charged to each of the operating divisions at the end of the year.
b. How much of the actual Customer Service 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?
46) Cannata Corporation has two operating divisions—a North Division and a South Division.
The company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $32 per shipment. The Logistics Department’s fixed costs are
budgeted at $372,300 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period Capacity Required Budgeted Shipments
North Division 25% 1,700
South Division 75% 5,600
At the end of the year, actual Logistics Department variable costs totaled $335,000 and fixed
costs totaled $382,850. The North Division had a total of 4,700 shipments and the South
Division had a total of 5,300 shipments for the year.
Required:
a. Prepare a report showing how much of the Logistics Department’s costs should be charged to
each of the operating divisions at the end of the year.
b. How much of the actual Logistics 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?
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47) Leslie Company operates a cafeteria for the benefit of its employees. The company
subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced
prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows:
Budgeted Actual
Variable costs* $ 500,000 $ 436,000
Fixed costs $ 340,000 $ 352,000
*Unrecovered cost after deducting amounts received from employees.
Costs of the cafeteria are charged to producing departments on the basis of the number of
employees in these departments. Fixed costs are charged on the basis of the percentage of peak-
period requirements. Data concerning the company’s producing departments follows:
Machining Assembly Total
Budgeted number of employees 300 500 800
Actual number of employees 200 400 600
Percentage of peak-period requirements 40% 60% 100%
Required:
a. Compute the dollar amount of variable and fixed costs that should be charged to each of the
producing departments at the end of the year for purposes of evaluating performance.
b. Identify the amount, if any, of actual costs that should not be charged to the operating
departments.
48) Gabritz, Incorporated has a maintenance department that provides services to the
company’s two operating departments. The variable costs of the maintenance department are
charged on the basis of the number of maintenance hours logged in each department. Last year,
budgeted variable maintenance costs were $7.50 per maintenance hour and actual variable
maintenance costs were $7.80 per maintenance hour.
The budgeted and actual maintenance hours for each operating department for last year appear
below:
Operating Department A Operating Department B
Budgeted maintenance hours 3,000 2,500
Actual maintenance hours 3,100 2,700
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Required:
a. Compute the amount of variable maintenance department cost that should have been charged
to each operating department at the end of the year for performance evaluation purposes.
b. Compute the amount of actual variable maintenance department cost that should NOT have
been charged to the operating departments at the end of the year for performance evaluation
purposes.
49) Which of the following would not be included in operating assets in return on investment
calculations?
A) Cash.
B) Accounts Receivable.
C) Equipment
D) Factory building rented to (and occupied by) another company.
50) Which of the following would be an argument for using the gross cost of plant and
equipment as part of operating assets in return on investment (ROI) computations?
A) It is consistent with the computation of net operating income, which includes
depreciation as an operating expense.
B) It is consistent with the balance sheet presentation of plant and equipment.
C) It eliminates the age of equipment as a factor in return on investment (ROI)
computations.
D) It discourages the replacement of old, worn-out equipment because of the dramatic,
adverse effect on return on investment.
51) Which of the following will not result in an increase in return on investment (ROI),
assuming other factors remain the same?
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A) A reduction in expenses.
B) An increase in net operating income.
C) An increase in operating assets.
D) An increase in sales.
52) Some investment opportunities that should be accepted from the viewpoint of the entire
company may be rejected by a manager who is evaluated on the basis of:
A) return on investment.
B) residual income.
C) contribution margin.
D) segment margin.
53) Which of the following would be considered an operating asset in return on investment
computations?
A) Land being held for plant expansion.
B) Treasury stock.
C) Accounts receivable.
D) Common stock.
54) Which of the following segment performance measures will decrease if there is an
increase in the interest expense for that segment?
Return on Investment Residual Income
A) Yes Yes
B) No Yes
C) Yes No
D) No No
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A) Choice A
B) Choice B
C) Choice C
D) Choice D
55) Which of the following performance measures will increase if inventory decreases and all
else remains the same?
Return on Investment Residual Income
A) Yes Yes
B) No Yes
C) Yes No
D) No No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
56) All other things equal, which of the following would increase a division’s residual
income?
A) Increase in expenses.
B) Decrease in average operating assets.
C) Increase in minimum required return.
D) Decrease in net operating income.
57) 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?
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A) return on investment
B) transfer pricing
C) the contribution approach
D) residual income
58) A segment of a business responsible for both revenues and expenses would be called:
A) a cost center.
B) an investment center.
C) a profit center.
D) residual income.
59) Othman Incorporated has a $800,000 investment opportunity with the following
characteristics:
Sales $ 2,240,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 1,008,000
The margin for this investment opportunity is closest to:
A) 50.0%
B) 45.0%
C) 5.0%
D) 55.0%
60) Runyon Incorporated reported the following results from last year’s operations:
Sales $ 16,800,000
Variable expenses 12,230,000
Contribution margin 4,570,000
Fixed expenses 3,394,000
Net operating income $ 1,176,000
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The company’s average operating assets were $7,000,000.
Last year’s turnover was closest to:
A) 0.42
B) 14.29
C) 0.07
D) 2.40
61) Tennill Incorporated has a $1,400,000 investment opportunity with the following
characteristics:
Sales $ 4,480,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 1,657,600
The ROI for this year’s investment opportunity considered alone is closest to:
A) 8.1%
B) 128.0%
C) 3.0%
D) 9.6%
62) Youns Incorporated reported the following results from last year’s operations:
Sales $ 10,500,000
Variable expenses 6,610,000
Contribution margin 3,890,000
Fixed expenses 3,260,000
Net operating income $ 630,000
The company’s average operating assets were $5,000,000.
At the beginning of this year, the company has a $1,400,000 investment opportunity that
involves sales of $2,800,000, fixed expenses of $616,000, 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 turnover for the entire company will be closest to:
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A) 9.50
B) 1.64
C) 2.66
D) 2.08
63) Leete Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,660,000
Contribution margin 4,340,000
Fixed expenses 2,940,000
Net operating income $ 1,400,000
Last year’s margin was closest to:
A) 79.0%
B) 31.0%
C) 20.0%
D) 10.0%
64) BR Company has a contribution margin of 8%. Sales are $517,000, net operating income
is $41,360, and average operating assets are $136,000. What is the company’s return on
investment (ROI)?
A) 3.8%
B) 8.0%
C) 30.4%
D) 0.3%
65) BR Company has a contribution margin of 40%. Sales are $312,500, net operating
income is $25,000, and average operating assets are $200,000. What is the company’s return on
investment (ROI)?
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A) 12.5%
B) 62.5%
C) 8.0%
D) 64.0%
66) Nasser Incorporated reported the following results from last year’s operations:
Sales $ 12,600,000
Variable expenses 7,760,000
Contribution margin 4,840,000
Fixed expenses 3,706,000
Net operating income $ 1,134,000
Average operating assets $ 6,000,000
Last year’s return on investment (ROI) was closest to:
A) 9.0%
B) 47.6%
C) 18.9%
D) 80.7%
67) Chiodini Incorporated has a $900,000 investment opportunity that involves sales of
$2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales. The
ROI for this year’s investment opportunity considered alone is closest to:
A) 16.3%
B) 18.9%
C) 7.0%
D) 135.0%
68) Anguiano Incorporated reported the following results from last year’s operations:
Sales $ 10,500,000
Variable expenses 8,210,000
Contribution margin 2,290,000
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Fixed expenses 1,555,000
Net operating income $ 735,000
The company’s average operating assets were $5,000,000.
Last year’s return on investment (ROI) was closest to:
A) 7.0%
B) 14.7%
C) 45.8%
D) 47.6%
69) Selma Incorporated reported the following results from last year’s operations:
Sales $ 13,800,000
Variable expenses 9,950,000
Contribution margin 3,850,000
Fixed expenses 3,022,000
Net operating income $ 828,000
Average operating assets $ 6,000,000
Last year’s margin was closest to:
A) 78.1%
B) 6.0%
C) 13.8%
D) 27.9%
70) Cirone Incorporated reported the following results from last year’s operations:
Sales $ 9,600,000
Variable expenses 6,810,000
Contribution margin 2,790,000
Fixed expenses 1,926,000
Net operating income $ 864,000
Average operating assets $ 4,000,000
At the beginning of this year, the company has a $1,200,000 investment opportunity with the
following characteristics:
Sales $ 4,200,000
Contribution margin ratio 30 % ofsales
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Fixed expenses $ 966,000
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined margin for the entire company will be closest to:
A) 3.1%
B) 8.4%
C) 6.3%
D) 12.1%
71) Given the following data:
Average operating assets $ 280,000
Total liabilities $ 33,600
Sales $ 160,000
Contribution margin $ 89,600
Net operating income $ 33,600
Return on investment (ROI) is:
A) 32.0%
B) 21.0%
C) 12.0%
D) 56.0%
E) 32.0%
72) Given the following data:
Average operating assets $ 125,000
Total liabilities $ 50,000
Sales $ 300,000
Contribution margin $ 75,000
Net operating income $ 15,000
Return on investment (ROI) is:
A) 30%
B) 5%
C) 20%
D) 12%
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73) Tadman Incorporated reported the following results from last year’s operations:
Sales $ 8,400,000
Variable expenses 5,120,000
Contribution margin 3,280,000
Fixed expenses 2,944,000
Net operating income $ 336,000
At the beginning of this year, the company has a $800,000 investment opportunity that involves
sales of $2,800,000, fixed expenses of $756,000, 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 margin for the entire company will be closest to:
A) 1.0%
B) 3.0%
C) 5.0%
D) 3.8%
74) The following information relates to last year’s operations at the Legumes Division of
Gervani Corporation:
Minimum required rate of return 7%
Return on investment (ROI) 8.7%
Sales $ 710,000
Turnover (on operating assets) 3 times
What was the Legume Division’s net operating income last year?
A) $61,770
B) $49,700
C) $12,070
D) $20,590
75) The following information relates to last year’s operations at the Legumes Division of
Gervani Corporation:
Minimum required rate of return 12%
Return on investment (ROI) 15%
Sales $ 900,000
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Turnover (on operating assets) 3 times
What was the Legume Division’s net operating income last year?
A) $108,000
B) $135,000
C) $36,000
D) $45,000
76) Verbeke Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 3,890,000
Contribution margin 2,410,000
Fixed expenses 2,032,000
Net operating income $ 378,000
Average operating assets $ 3,000,000
Last year’s turnover was closest to:
A) 16.67
B) 0.06
C) 2.10
D) 0.48
77) Condren Incorporated reported the following results from last year’s operations:
Sales $ 12,000,000
Variable expenses 7,680,000
Contribution margin 4,320,000
Fixed expenses 3,720,000
Net operating income $ 600,000
Average operating assets $ 6,000,000
At the beginning of this year, the company has a $1,000,000 investment opportunity with the
following characteristics:
Sales $ 1,100,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 363,000
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If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined ROI for the entire company will be closest to:
A) 1.1%
B) 8.6%
C) 9.7%
D) 11.3%
78) Last year a company had sales of $460,000, a turnover of 2.5, and a return on investment
of 62.5%. The company’s net operating income for the year was:
A) $172,500
B) $184,000
C) $115,000
D) $287,500
79) Last year a company had sales of $600,000, a turnover of 3.6, and a return on investment
of 18%. The company’s net operating income for the year was:
A) $166,667
B) $108,000
C) $30,000
D) $15,000
80) Boespflug Incorporated has a $1,000,000 investment opportunity that involves sales of
$900,000, fixed expenses of $225,000, and a contribution margin ratio of 30% of sales. The
margin for this investment opportunity is closest to:
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A) 5.0%
B) 25.0%
C) 75.0%
D) 30.0%
81) Canedo Incorporated reported the following results from last year’s operations:
Sales $ 9,600,000
Variable expenses 7,170,000
Contribution margin 2,430,000
Fixed expenses 1,470,000
Net operating income $ 960,000
Average operating assets $ 4,000,000
At the beginning of this year, the company has a $700,000 investment opportunity with the
following characteristics:
Sales $ 2,310,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 1,201,200
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined turnover for the entire company will be closest to:
A) 2.98
B) 17.01
C) 2.53
D) 2.04
82) Braymiller Incorporated has a $1,600,000 investment opportunity with the following
characteristics:
Sales $ 4,000,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 1,040,000
The turnover for this investment opportunity is closest to:
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A) 0.04
B) 0.40
C) 2.50
D) 25.00
83) Largo Company recorded for the past year sales of $832,000 and average operating assets
of $260,000. What is the margin that Largo Company needed to earn in order to achieve an ROI
of 22.4%?
A) 22.40%
B) 3.20%
C) 4.46%
D) 7.00%
84) 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 ROI
of 15%?
A) 2.00%
B) 15.00%
C) 9.99%
D) 7.50%
85) Chavin Company had the following results during August: net operating income,
$320,000; turnover, 8; and ROI 13%. Chavin Company’s average operating assets were:
A) $40,000
B) $41,600
C) $2,560,000
D) $2,461,538
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86) Chavin Company had the following results during August: net operating income,
$220,000; turnover, 5; and ROI 25%. Chavin Company’s average operating assets were:
A) $880,000
B) $44,000
C) $55,000
D) $1,100,000
87) Tallon Incorporated has a $1,200,000 investment opportunity that involves sales of
$1,680,000, fixed expenses of $336,000, and a contribution margin ratio of 30% of sales. The
turnover for this investment opportunity is closest to:
A) 1.40
B) 0.10
C) 10.00
D) 0.71
88) The following data has been provided for a company’s most recent year of operations:
Return on investment 38%
Average operating assets $ 55,000
Minimum required rate of return 19%
The residual income for the year was closest to:
A) $10,450
B) $19,900
C) $14,850
D) $15,200
89) The following data has been provided for a company’s most recent year of operations:
Return on investment 20%
Average operating assets $ 100,000
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Minimum required rate of return 15%
The residual income for the year was closest to:
A) $20,000
B) $3,000
C) $5,000
D) $15,000
90) 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:
A) ($31,500)
B) $0
C) $94,500
D) $126,000
91) Worsell Incorporated reported the following results from last year’s operations:
Sales $ 11,000,000
Variable expenses 8,200,000
Contribution margin 2,800,000
Fixed expenses 2,360,000
Net operating income $ 440,000
Average operating assets $ 5,000,000
The company’s minimum required rate of return is 10%. Last year’s residual income was closest
to:
A) $440,000
B) $490,000
C) ($638,000)
D) ($60,000)
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92) Lumsden Incorporated has a $1,200,000 investment opportunity with the following
characteristics:
Sales $ 2,400,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 600,000
The company’s minimum required rate of return is 7%. The residual income for this year’s
investment opportunity is closest to:
A) $120,000
B) $36,000
C) $0
D) $84,000
93) Mike Corporation uses residual income to evaluate the performance of its divisions. The
company’s minimum required rate of return is 14%. In January, the Commercial Products
Division had average operating assets of $970,000 and net operating income of $143,700. What
was the Commercial Products Division’s residual income in January?
A) $7,900
B) ($20,118)
C) $20,118
D) ($7,900)
94) If net operating income is $80,000, average operating assets are $640,000, and the
minimum required rate of return is 11%, what is the residual income?
A) $89,600
B) $60,800
C) $9,600
D) $70,400
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95) If net operating income is $70,000, average operating assets are $250,000, and the
minimum required rate of return is 16%, what is the residual income?
A) $11,200
B) $40,000
C) $110,000
D) $30,000
96) Salvey Incorporated reported the following results from last year’s operations:
Sales $ 7,200,000
Variable expenses 5,550,000
Contribution margin 1,650,000
Fixed expenses 1,146,000
Net operating income $ 504,000
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 ROI for the entire company will be closest to:
A) 16.6%
B) 1.3%
C) 18.2%
D) 15.3%
97) In November, the Universal Solutions Division of Keaffaber Corporation had average
operating assets of $480,000 and net operating income of $46,200. The company uses residual
income, with a minimum required rate of return of 11%, to evaluate the performance of its
divisions. What was the Universal Solutions Division’s residual income in November?
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A) ($6,600)
B) $5,082
C) $6,600
D) ($5,082)
98) Bungert Incorporated reported the following results from last year’s operations:
Sales $ 15,200,000
Variable expenses 9,470,000
Contribution margin 5,730,000
Fixed expenses 4,818,000
Net operating income $ 912,000
The company’s minimum required rate of return is 12% and its average operating assets were
$8,000,000. Last year’s residual income was closest to:
A) $912,000
B) ($48,000)
C) $992,000
D) ($972,800)
99) Beery Incorporated reported the following results from last year’s operations:
Sales $ 11,400,000
Variable expenses 8,180,000
Contribution margin 3,220,000
Fixed expenses 2,422,000
Net operating income $ 798,000
Average operating assets $ 6,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 2,880,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 720,000
The company’s minimum required rate of return is 12%. If the company pursues the investment
opportunity, this year’s combined residual income for the entire company will be closest to:
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A) $848,700
B) $942,000
C) $24,300
D) $114,000
100) Wiswell Incorporated reported the following results from last year’s operations:
Sales $ 15,200,000
Variable expenses 9,270,000
Contribution margin 5,930,000
Fixed expenses 5,018,000
Net operating income $ 912,000
The average operating assets were $8,000,000.
At the beginning of this year, the company has a $900,000 investment opportunity that would
involve sales of $2,070,000, a contribution margin ratio of 30% of sales, and fixed expenses of
$538,200. The company’s minimum required rate of return is 10%. If the company pursues the
investment opportunity, this year’s combined residual income for the entire company will be
closest to:
A) $104,800
B) $925,600
C) ($19,800)
D) $994,800
101) Gauntlett Incorporated reported the following results from last year’s operations:
Sales $ 12,000,000
Variable expenses 9,580,000
Contribution margin 2,420,000
Fixed expenses 1,460,000
Net operating income $ 960,000
Average operating assets $ 5,000,000
At the beginning of this year, the company has a $1,300,000 investment opportunity with the
following characteristics:
Sales $ 4,680,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 2,059,200
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Last year’s turnover was closest to:
A) 0.08
B) 0.42
C) 12.50
D) 2.40
102) Gauntlett Incorporated reported the following results from last year’s operations:
Sales $ 12,000,000
Variable expenses 9,580,000
Contribution margin 2,420,000
Fixed expenses 1,460,000
Net operating income $ 960,000
Average operating assets $ 5,000,000
At the beginning of this year, the company has a $1,300,000 investment opportunity with the
following characteristics:
Sales $ 4,680,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 2,059,200
The turnover for this year’s investment opportunity considered alone is closest to:
A) 16.67
B) 0.06
C) 0.28
D) 3.60
103) Gauntlett Incorporated reported the following results from last year’s operations:
Sales $ 12,000,000
Variable expenses 9,580,000
Contribution margin 2,420,000
Fixed expenses 1,460,000
Net operating income $ 960,000
Average operating assets $ 5,000,000
At the beginning of this year, the company has a $1,300,000 investment opportunity with the
following characteristics:
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Sales $ 4,680,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 2,059,200
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined turnover for the entire company will be closest to:
A) 12.83
B) 2.65
C) 1.90
D) 3.34
104) Bonilla Incorporated has a $700,000 investment opportunity with the following
characteristics:
Sales $ 2,240,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 739,200
The margin for the investment opportunity is closest to:
A) 40.0%
B) 33.0%
C) 67.0%
D) 7.0%
105) Bonilla Incorporated has a $700,000 investment opportunity with the following
characteristics:
Sales $ 2,240,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 739,200
The turnover for the investment opportunity is closest to:
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A) 14.29
B) 3.20
C) 0.07
D) 0.31
106) Bonilla Incorporated has a $700,000 investment opportunity with the following
characteristics:
Sales $ 2,240,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 739,200
The return on investment (ROI) for the investment opportunity is closest to:
A) 7.0%
B) 128.0%
C) 21.2%
D) 22.4%
107) 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 margin is closest to:
A) 31.3%
B) 9.6%
C) 30.7%
D) 40.3%
108) Babak Industries is a division of a major corporation. Last year the division had total
sales of $20,760,000, net operating income of $1,889,760, and average operating assets of
$7,200,000.
The division’s turnover is closest to:
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A) 2.88
B) 0.26
C) 2.10
D) 10.99
109) 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 turnover is closest to:
A) 3.26
B) 0.31
C) 2.48
D) 10.42
110) 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:
A) 7.3%
B) 23.8%
C) 31.3%
D) 3.0%
111) Minar Incorporated reported the following results from last year’s operations:
Sales $ 5,700,000
Variable expenses 3,510,000
Contribution margin 2,190,000
Fixed expenses 1,734,000
Net operating income $ 456,000
Average operating assets $ 3,000,000
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At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 810,900
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined margin for the entire company will be closest to:
A) 9.9%
B) 1.9%
C) 7.8%
D) 6.3%
112) Minar Incorporated reported the following results from last year’s operations:
Sales $ 5,700,000
Variable expenses 3,510,000
Contribution margin 2,190,000
Fixed expenses 1,734,000
Net operating income $ 456,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 810,900
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined turnover for the entire company will be closest to:
A) 8.03
B) 1.85
C) 2.41
D) 1.46
113) Minar Incorporated reported the following results from last year’s operations:
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Sales $ 5,700,000
Variable expenses 3,510,000
Contribution margin 2,190,000
Fixed expenses 1,734,000
Net operating income $ 456,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 810,900
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined ROI for the entire company will be closest to:
A) 14.4%
B) 2.7%
C) 11.7%
D) 18.8%
114) Weafer Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,560,000
Contribution margin 4,440,000
Fixed expenses 3,740,000
Net operating income $ 700,000
Average operating assets $ 7,000,000
Last year’s margin was closest to:
A) 10.0%
B) 73.3%
C) 5.0%
D) 31.7%
115) Weafer Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,560,000
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Contribution margin 4,440,000
Fixed expenses 3,740,000
Net operating income $ 700,000
Average operating assets $ 7,000,000
Last year’s turnover was closest to:
A) 0.05
B) 2.00
C) 20.00
D) 0.50
116) Weafer Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,560,000
Contribution margin 4,440,000
Fixed expenses 3,740,000
Net operating income $ 700,000
Average operating assets $ 7,000,000
Last year’s return on investment (ROI) was closest to:
A) 10.0%
B) 50.0%
C) 5.0%
D) 63.4%
117) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Net operating income ? $ 600,000
Turnover ? 3
Margin ? ?
Sales $ 3,320,000 ?
Millard Division’s margin in Year 2 was 150% of the margin in Year 1.
The net operating income for Year 1 was:
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A) $400,000
B) $265,600
C) $398,400
D) $796,800
118) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Net operating income ? $ 360,000
Turnover ? 3
Margin ? ?
Sales $ 3,200,000 ?
Millard Division’s margin in Year 2 was 150% of the margin in Year 1.
The net operating income for Year 1 was:
A) $240,000
B) $256,000
C) $384,000
D) $768,000
119) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Net operating income ? $ 360,000
Turnover ? 3
Margin ? ?
Sales $ 3,200,000 ?
Millard Division’s margin in Year 2 was 150% of the margin in Year 1.
The turnover for Year 1 was:
A) 1.2
B) 1.5
C) 3.0
D) 4.0
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120) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 15% 20%
Net operating income ? $ 400,000
Turnover ? 2
Margin ? ?
Sales $ 3,220,000 ?
Millard Division’s margin in Year 2 was 100% of the margin in Year 1.
The sales for Year 2 were:
A) $3,000,000
B) $3,220,000
C) $4,000,000
D) $4,333,333
121) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Net operating income ? $ 360,000
Turnover ? 3
Margin ? ?
Sales $ 3,200,000 ?
Millard Division’s margin in Year 2 was 150% of the margin in Year 1.
The sales for Year 2 were:
A) $1,200,000
B) $3,200,000
C) $3,000,000
D) $3,333,333
122) The Millard Division’s operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Net operating income ? $ 360,000
Turnover ? 3
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Margin ? ?
Sales $ 3,200,000 ?
Millard Division’s margin in Year 2 was 150% of the margin in Year 1.
The average operating assets for Year 2 were:
A) $1,000,000
B) $1,080,000
C) $1,200,000
D) $1,388,889
123) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 17,520,000
Net operating income $ 928,560
Average operating assets $ 4,830,000
The division’s margin is closest to:
A) 19.2%
B) 20.4%
C) 25.7%
D) 5.3%
124) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 17,000,000
Net operating income $ 1,581,000
Average operating assets $ 5,000,000
The division’s margin is closest to:
A) 31.6%
B) 29.4%
C) 38.7%
D) 9.3%
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125) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 18,210,000
Net operating income $ 637,350
Average operating assets $ 4,250,000
The division’s turnover is closest to:
A) 28.57
B) 4.28
C) 0.15
D) 6.67
126) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 17,000,000
Net operating income $ 1,581,000
Average operating assets $ 5,000,000
The division’s turnover is closest to:
A) 3.40
B) 10.75
C) 2.58
D) 0.32
127) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 18,310,000
Net operating income $ 1,171,840
Average operating assets $ 5,550,000
The division’s return on investment (ROI) is closest to:
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A) 6.40%
B) 21.11%
C) 17.26%
D) 3.40%
128) Agustin Industries is a division of a major corporation. Data concerning the most recent
year appears below:
Sales $ 17,000,000
Net operating income $ 1,581,000
Average operating assets $ 5,000,000
The division’s return on investment (ROI) is closest to:
A) 24.0%
B) 31.62%
C) 3.0%
D) 9.3%
129) Serie Incorporated reported the following results from last year’s operations:
Sales $ 16,800,000
Variable expenses 10,640,000
Contribution margin 6,160,000
Fixed expenses 5,488,000
Net operating income $ 672,000
Average operating assets $ 7,000,000
At the beginning of this year, the company has a $2,100,000 investment opportunity with the
following characteristics:
Sales $ 2,520,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 1,108,800
Last year’s margin was closest to:
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A) 36.7%
B) 67.3%
C) 9.6%
D) 4.0%
130) Serie Incorporated reported the following results from last year’s operations:
Sales $ 16,800,000
Variable expenses 10,640,000
Contribution margin 6,160,000
Fixed expenses 5,488,000
Net operating income $ 672,000
Average operating assets $ 7,000,000
At the beginning of this year, the company has a $2,100,000 investment opportunity with the
following characteristics:
Sales $ 2,520,000
Contribution margin ratio 50 % of sales
Fixed expenses $ 1,108,800
The margin for this year’s investment opportunity considered alone is closest to:
A) 56.0%
B) 50.0%
C) 6.0%
D) 44.0%
131) Serie Incorporated reported the following results from last year’s operations:
Sales $ 16,800,000
Variable expenses 10,640,000
Contribution margin 6,160,000
Fixed expenses 5,488,000
Net operating income $ 672,000
Average operating assets $ 7,000,000
At the beginning of this year, the company has a $2,100,000 investment opportunity with the
following characteristics:
Sales $ 2,520,000
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Contribution margin ratio 50 % of sales
Fixed expenses $ 1,108,800
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined margin for the entire company will be closest to:
A) 4.9%
B) 4.3%
C) 0.9%
D) 3.5%
132) Parsa Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,500,000
Contribution margin 4,500,000
Fixed expenses 3,800,000
Net operating income $ 700,000
Average operating assets $ 7,000,000
At the beginning of this year, the company has a $1,100,000 investment opportunity with the
following characteristics:
Sales $ 1,980,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 653,400
Last year’s return on investment (ROI) was closest to:
A) 10.0%
B) 5.0%
C) 50.0%
D) 64.3%
133) Parsa Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,500,000
Contribution margin 4,500,000
Fixed expenses 3,800,000
Net operating income $ 700,000
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Average operating assets $ 7,000,000
At the beginning of this year, the company has a $1,100,000 investment opportunity with the
following characteristics:
Sales $ 1,980,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 653,400
The ROI for this year’s investment opportunity considered alone is closest to:
A) 7.0%
B) 21.2%
C) 12.6%
D) 72.0%
134) Parsa Incorporated reported the following results from last year’s operations:
Sales $ 14,000,000
Variable expenses 9,500,000
Contribution margin 4,500,000
Fixed expenses 3,800,000
Net operating income $ 700,000
Average operating assets $ 7,000,000
At the beginning of this year, the company has a $1,100,000 investment opportunity with the
following characteristics:
Sales $ 1,980,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 653,400
If the company pursues the investment opportunity and otherwise performs the same as last year,
the combined ROI for the entire company will be closest to:
A) 12.0%
B) 8.6%
C) 10.4%
D) 1.7%
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135) The Tipton Division of Dudley Company reported the following data last year:
Return on investment 20%
Minimum required rate of return 12%
Residual income $ 50,000
Tipton Division’s average operating assets last year were:
A) $625,000
B) $250,000
C) $416,677
D) $333,333
136) The Tipton Division of Dudley Company reported the following data last year:
Return on investment 20%
Minimum required rate of return 12%
Residual income $ 50,000
The division’s net operating income last year was:
A) $250,000
B) $125,000
C) $100,000
D) $75,000
137) The following data pertain to Turk Company’s operations last year:
Sales $ 900,000
Net operating income $ 36,000
Contribution margin $ 150,000
Average operating assets $ 180,000
Stockholders’ equity $ 100,000
Plant, property, & equipment $ 120,000
Turk’s return on investment for the year was:
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A) 4%
B) 15%
C) 36%
D) 20%
138) The following data pertain to Turk Company’s operations last year:
Sales $ 900,000
Net operating income $ 36,000
Contribution margin $ 150,000
Average operating assets $ 180,000
Stockholders’ equity $ 100,000
Plant, property, & equipment $ 120,000
If the residual income for the year was $9,000, the minimum required rate of return must have
been:
A) 15%
B) 4%
C) 20%
D) 36%
139) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
Last year’s return on investment (ROI) was closest to:
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A) 47.6%
B) 18.9%
C) 9.0%
D) 45.7%
140) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
The ROI for this year’s investment opportunity considered alone is closest to:
A) 51.0%
B) 50.0%
C) 10.0%
D) 17.0%
141) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
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Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
If the company pursues the investment opportunity and otherwise performs the same as last
year, the combined ROI for the entire company will be closest to:
A) 3.9%
B) 24.0%
C) 14.5%
D) 18.5%
142) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
Last year’s residual income was closest to:
A) $567,000
B) $597,000
C) ($33,000)
D) ($686,700)
143) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
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Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
The residual income for this year’s investment opportunity when considered alone is closest to:
A) $0
B) $179,100
C) $153,000
D) ($27,000)
144) Robichau Incorporated reported the following results from last year’s operations:
Sales $ 6,300,000
Variable expenses 4,930,000
Contribution margin 1,370,000
Fixed expenses 803,000
Net operating income $ 567,000
Average operating assets $ 3,000,000
At the beginning of this year, the company has a $900,000 investment opportunity with the
following characteristics:
Sales $ 1,530,000
Contribution margin ratio 30 % of sales
Fixed expenses $ 306,000
The company’s minimum required rate of return is 20%.
If the company pursues the investment opportunity, this year’s combined residual income for
the entire company will be closest to:
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A) $776,100
B) ($17,100)
C) $720,000
D) ($60,000)
145) Edith Carolina is president of the Deed Corporation. The company is decentralized, and
leaves investment decisions up to the discretion of the division managers. Michael Sanders,
manager of the Cosmetics Division, has had a return on investment of 14% for his division for
the past three years and expects the division to have the same return in the coming year. Sanders
has the opportunity to invest in a new line of cosmetics which is expected to have a return on
investment of 12%. The company’s minimum required rate of return is 8%.
Suppose Deed Corporation evaluates managerial performance using return on investment.
Edith Carolina, as president of the company, may view the opportunity for taking on the
cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What
action would each of them prefer with respect to the decision of whether to take on the new
cosmetics line?
Carolina Sanders
A) accept reject
B) reject accept
C) accept accept
D) reject reject
A) Choice A
B) Choice B
C) Choice C
D) Choice D
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146) Edith Carolina is president of the Deed Corporation. The company is decentralized, and
leaves investment decisions up to the discretion of the division managers. Michael Sanders,
manager of the Cosmetics Division, has had a return on investment of 14% for his division for
the past three years and expects the division to have the same return in the coming year. Sanders
has the opportunity to invest in a new line of cosmetics which is expected to have a return on
investment of 12%. The company’s minimum required rate of return is 8%.
If the Deed Corporation evaluates managerial performance using residual income based on the
corporate minimum required rate of return of 8%, what decision would be preferred by Edith
Carolina and Michael Sanders?
Carolina Sanders
A) accept reject
B) reject accept
C) accept accept
D) reject reject
A) Choice A
B) Choice B
C) Choice C
D) Choice D
147) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 38,480,000
Net operating income $ 3,808,960
Average operating assets $ 10,000,000
The company’s minimum required rate of return 14%
The division’s margin used to compute ROI is closest to:
A) 35.9%
B) 38.1%
C) 26.0%
D) 9.9%
148) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 36,480,000
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Net operating income $ 2,808,960
Average operating assets $ 8,000,000
The company’s minimum required rate of return 16%
The division’s margin used to compute ROI is closest to:
A) 29.6%
B) 35.1%
C) 21.9%
D) 7.7%
149) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 36,480,000
Net operating income $ 2,808,960
Average operating assets $ 8,000,000
The company’s minimum required rate of return 16%
The division’s turnover used to compute ROI is closest to:
A) 4.56
B) 12.99
C) 3.37
D) 0.35
150) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 36,480,000
Net operating income $ 2,808,960
Average operating assets $ 8,000,000
The company’s minimum required rate of return 16%
The division’s return on investment (ROI) is closest to:
A) 6.3%
B) 2.7%
C) 35.1%
D) 160.1%
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151) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 37,680,000
Net operating income $ 3,408,960
Average operating assets $ 9,200,000
The company’s minimum required rate of return 16%
The division’s residual income is closest to:
A) $3,408,960
B) $4,880,960
C) $(3,627,840)
D) $1,936,960
152) Dacker Products is a division of a major corporation. The following data are for the most
recent year of operations:
Sales $ 36,480,000
Net operating income $ 2,808,960
Average operating assets $ 8,000,000
The company’s minimum required rate of return 16%
The division’s residual income is closest to:
A) $2,808,960
B) $4,088,960
C) $(3,027,840)
D) $1,528,960
153) Cabell Products is a division of a major corporation. Last year the division had total sales
of $16,260,000, net operating income of $1,040,640, and average operating assets of $3,902,400.
The company’s minimum required rate of return is 12%.
The division’s margin is closest to:
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A) 6.4%
B) 26.7%
C) 53.3%
D) 24.0%
154) 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 margin is closest to:
A) 23.7%
B) 7.6%
C) 32.1%
D) 31.3%
155) Cabell Products is a division of a major corporation. Last year the division had total sales
of $26,020,000, net operating income of $2,274,320, and average operating assets of $6,700,000.
The company’s minimum required rate of return is 12%.
The division’s turnover is closest to:
A) 11.44
B) 3.88
C) 0.34
D) 2.83
156) 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:
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A) 13.16
B) 4.22
C) 0.32
D) 3.20
157) Cabell Products is a division of a major corporation. Last year the division had total sales
of $25,540,000, net operating income of $1,277,000, and average operating assets of $7,151,200.
The company’s minimum required rate of return is 16%.
The division’s return on investment (ROI) is closest to:
A) 5.0%
B) 17.9%
C) 31.3%
D) 28.0%
158) 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 return on investment (ROI) is closest to:
A) 135.5%
B) 6.1%
C) 32.1%
D) 2.4%
159) Cabell Products is a division of a major corporation. Last year the division had total sales
of $16,260,000, net operating income of $1,040,640, and average operating assets of $3,902,400.
The company’s minimum required rate of return is 12%.
The division’s residual income is closest to:
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A) $1,040,640
B) $572,352
C) $(936,576)
D) $1,508,928
160) 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 residual income is closest to:
A) $1,324,320
B) $2,524,320
C) $1,924,320
D) $(607,680)
161) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 750,000
Net operating income $ 45,000
Average operating assets $ 250,000
Stockholders’ equity $ 75,000
Residual income $ 15,000
For the past year, the return on investment was:
A) 6%
B) 30%
C) 18%
D) 26%
162) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 820,000
Net operating income $ 52,000
Average operating assets $ 320,000
Stockholders’ equity $ 82,000
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Residual income $ 22,000
For the past year, the margin used in ROI calculations was:
A) 6.34%
B) 9.01%
C) 10.00%
D) 9.02%
163) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 750,000
Net operating income $ 45,000
Average operating assets $ 250,000
Stockholders’ equity $ 75,000
Residual income $ 15,000
For the past year, the margin used in ROI calculations was:
A) 6.00%
B) 8.67%
C) 10.00%
D) 8.00%
164) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 750,000
Net operating income $ 45,000
Average operating assets $ 250,000
Stockholders’ equity $ 75,000
Residual income $ 15,000
For the past year, the turnover used in ROI calculations was:
A) 1.4
B) 3.3
C) 10.0
D) 3.0
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165) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 920,000
Net operating income $ 79,000
Average operating assets $ 420,000
Stockholders’ equity $ 92,000
Residual income $ 32,000
For the past year, the minimum required rate of return was:
A) 64.00%
B) 11.19%
C) 31.91%
D) 8.59%
166) The following data are for the Akron Division of Consolidated Rubber, Incorporated:
Sales $ 750,000
Net operating income $ 45,000
Average operating assets $ 250,000
Stockholders’ equity $ 75,000
Residual income $ 15,000
For the past year, the minimum required rate of return was:
A) 30%
B) 12%
C) 15%
D) 6%
167) The Hum Division of the Ho Company reported the following data for last year:
Net operating income $ 150,000
Interest expense $ 50,000
Tax expense $ 30,000
Stockholders’ equity $ 200,000
Average operating assets $ 600,000
Minimum required rate of return 12%
The residual income for the Hum Division last year was:
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A) $126,000
B) $46,000
C) $78,000
D) $22,000
168) The Hum Division of the Ho Company reported the following data for last year:
Net operating income $ 150,000
Interest expense $ 50,000
Tax expense $ 30,000
Stockholders’ equity $ 200,000
Average operating assets $ 600,000
Minimum required rate of return 12%
The return on investment (ROI) last year for the Hum Division was:
A) 75%
B) 25%
C) 35%
D) 12%
169) The West Division of Cecchetti Corporation had average operating assets of $661,000
and net operating income of $85,000 in August. The minimum required rate of return for
performance evaluation purposes is 15%.
What was the West Division’s minimum required return in August?
A) $85,000
B) $99,150
C) $12,750
D) $111,900
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170) The West Division of Cecchetti Corporation had average operating assets of $240,000
and net operating income of $42,200 in August. The minimum required rate of return for
performance evaluation purposes is 19%.
What was the West Division’s minimum required return in August?
A) $45,600
B) $42,200
C) $53,618
D) $8,018
171) The West Division of Cecchetti Corporation had average operating assets of $240,000
and net operating income of $42,200 in August. The minimum required rate of return for
performance evaluation purposes is 19%.
What was the West Division’s residual income in August?
A) $(8,018)
B) $3,400
C) $(3,400)
D) $8,018
172) The Consumer Products Division of Goich Corporation had average operating assets of
$440,000 and net operating income of $48,500 in May. The minimum required rate of return for
performance evaluation purposes is 11%.
What was the Consumer Products Division’s minimum required return in May?
A) $5,335
B) $48,500
C) $53,735
D) $48,400
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173) The Consumer Products Division of Goich Corporation had average operating assets of
$800,000 and net operating income of $81,300 in May. The minimum required rate of return for
performance evaluation purposes is 10%.
What was the Consumer Products Division’s minimum required return in May?
A) $81,300
B) $8,130
C) $88,130
D) $80,000
174) The Consumer Products Division of Goich Corporation had average operating assets of
$1,600,000 and net operating income of $146,900 in May. The minimum required rate of return
for performance evaluation purposes is 9%.
What was the Consumer Products Division’s residual income in May?
A) $(2,900)
B) $13,221
C) $2,900
D) $(13,221)
175) The Consumer Products Division of Goich Corporation had average operating assets of
$800,000 and net operating income of $81,300 in May. The minimum required rate of return for
performance evaluation purposes is 10%.
What was the Consumer Products Division’s residual income in May?
A) $(1,300)
B) $8,130
C) $1,300
D) $(8,130)
176) Shrewsbury Incorporated reported the following results from last year’s operations:
Sales $ 7,200,000
Variable expenses 5,400,000
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Contribution margin 1,800,000
Fixed expenses 1,296,000
Net operating income $ 504,000
Average operating assets $ 4,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the
following characteristics:
Sales $ 2,480,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 868,000
The company’s minimum required rate of return is 14%.
Last year’s residual income was closest to:
A) $504,000
B) ($56,000)
C) $544,000
D) ($475,200)
177) Shrewsbury Incorporated reported the following results from last year’s operations:
Sales $ 7,200,000
Variable expenses 5,400,000
Contribution margin 1,800,000
Fixed expenses 1,296,000
Net operating income $ 504,000
Average operating assets $ 4,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the
following characteristics:
Sales $ 2,480,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 868,000
The company’s minimum required rate of return is 14%.
The residual income for this year’s investment opportunity when considered alone is closest to:
A) $124,000
B) $12,000
C) $0
D) $108,800
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178) Shrewsbury Incorporated reported the following results from last year’s operations:
Sales $ 7,200,000
Variable expenses 5,400,000
Contribution margin 1,800,000
Fixed expenses 1,296,000
Net operating income $ 504,000
Average operating assets $ 4,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the
following characteristics:
Sales $ 2,480,000
Contribution margin ratio 40 % of sales
Fixed expenses $ 868,000
The company’s minimum required rate of return is 14%.
If the company pursues the investment opportunity, this year’s combined residual income for
the entire company will be closest to:
A) $23,200
B) ($44,000)
C) $628,000
D) $652,800
179) Wengert Products, Incorporated, has a Motor Division that manufactures and sells a
number of products, including a standard motor. Data concerning that motor appear below:
Capacity in units 40,000
Selling price to outside customers $ 59
Variable cost per unit $ 17
Fixed cost per unit (based on capacity) $ 21
The Automotive Division of Wengert Products, Inc needs 8,000 special heavy-duty motors per
year. The Motor Division’s variable cost to manufacture and ship this special motor would be
$20 per unit. Because these special motors require more manufacturing resources than the
standard motor, the Motor Division would have to reduce its production and sales of standard
motors to outside customers from 40,000 units per year to 27,200 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division
would give up if it were to make the special motors for the Automotive Division?
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A) $336,000
B) $537,600
C) $860,160
D) $755,200
180) Godina Products, Incorporated, has a Receiver Division that manufactures and sells a
number of products, including a standard receiver that could be used by another division in the
company, the Industrial Products Division, in one of its products. Data concerning that receiver
appear below:
Capacity in units 58,000
Selling price to outside customers $ 89
Variable cost per unit $ 35
Fixed cost per unit (based on capacity) $ 42
The Industrial Products Division is currently purchasing 10,000 of these receivers per year from
an overseas supplier at a cost of $81 per receiver.
Assume that the Receiver Division is selling all of the receivers it can produce to outside
customers. Does there exist a transfer price that would make both the Receiver and Industrial
Products Division financially better off than if the Industrial Products Division were to continue
buying its receivers from the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
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181) Division Delta of Golvin Corporation makes and sells a single product which is used by
manufacturers of fork lift trucks. Presently it sells 9,000 units per year to outside customers at
$57 per unit. The annual capacity is 10,000 units and the variable cost to make each unit is $32.
Division Echo of Golvin Corporation would like to buy 2,000 units a year from Division Delta to
use in its products. There would be no cost savings from transferring the units within the
company rather than selling them on the outside market. What should be the lowest acceptable
transfer price from the perspective of Division Delta?
A) $57.00 per unit
B) $19.50 per unit
C) $44.50 per unit
D) $32.00 per unit
182) The Southern Division of Barstol Company makes and sells a single product, which is a
part used in manufacturing trucks. The annual production capacity is 29,000 units and the
variable cost of each unit is $49. Presently the Southern Division sells 25,000 units per year to
outside customers at $64 per unit. The Northern Division of Barstol Company would like to buy
15,000 units a year from Southern to use in its production. There would be no savings in variable
costs from transferring the units internally rather than selling them externally. The lowest
acceptable transfer price from the standpoint of the Southern Division should be closest to:
A) $60.00 per unit
B) $49.00 per unit
C) $64.00 per unit
D) $26.00 per unit
183) The Southern Division of Barstol Company makes and sells a single product, which is a
part used in manufacturing trucks. The annual production capacity is 12,000 units and the
variable cost of each unit is $35. Presently the Southern Division sells 11,000 units per year to
outside customers at $49 per unit. The Northern Division of Barstol Company would like to buy
4,000 units a year from Southern to use in its production. There would be no savings in variable
costs from transferring the units internally rather than selling them externally. The lowest
acceptable transfer price from the standpoint of the Southern Division should be closest to:
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A) $45.50 per unit
B) $35.00 per unit
C) $32.00 per unit
D) $49.00 per unit
184) Toldness Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 57,000
Selling price to outside customers $ 67
Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 29
The Transmission Division is currently purchasing 11,000 of these connectors per year from an
overseas supplier at a cost of $58 per connector.
What is the maximum price that the Transmission Division should be willing to pay for
connectors transferred from the Connector Division?
A) $51 per unit
B) $58 per unit
C) $22 per unit
D) $29 per unit
185) Blitch 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:
Capacity in units 45,000
Selling price to outside customers $ 53
Variable cost per unit $ 26
Fixed cost per unit (based on capacity) $ 16
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The Home Security Division is currently purchasing 2,000 of these screens per year from an
overseas supplier at a cost of $50 per screen.
Assume that the Screen Division has enough idle capacity to handle all of the Home Security
Division’s needs. Does there exist a transfer price that would make both the Screen and Home
Security Division financially better off than if the Home Security Division were to continue
buying its screens from the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) The answer cannot be determined from the information that has been provided.
C) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept.
D) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
186) Using the formula in the text, if the lowest acceptable transfer price from the viewpoint of
the selling division is $83 and the opportunity cost per unit on outside sales is $33, then the
variable cost per unit must be:
A) $83 per unit
B) $33 per unit
C) $50 per unit
D) $116 per unit
187) Using the formula in the text, if the lowest acceptable transfer price from the viewpoint of
the selling division is $75 and the opportunity cost per unit on outside sales is $24, then the
variable cost per unit must be:
A) $24 per unit
B) $99 per unit
C) $51 per unit
D) $75 per unit
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188) Lumpkins 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:
Capacity in units 46,000
Selling price to outside customers $ 62
Variable cost per unit $ 38
Fixed cost per unit (based on capacity) $ 12
The Pump Division is currently purchasing 9,000 of these valves per year from an overseas
supplier at a cost of $59 per valve.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that none of the variable expenses can be avoided on transfers within the company.
What should be the minimum acceptable transfer price for the valves from the standpoint of the
Valve Division?
A) $50 per unit
B) $38 per unit
C) $62 per unit
D) $59 per unit
189) Division G makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers $ 87
Variable cost per unit $ 49
Total fixed costs $ 40,000
Capacity in units 4,000
Division H of the same company would like to use the part manufactured by Division G in one
of its products. Division H currently purchases a similar part made by an outside company for
$83 per unit and would substitute the part made by Division G. Division H requires 500 units of
the part each period. Division G has ample capacity to produce the units for Division H without
any increase in fixed costs and without cutting into sales to outside customers. If Division G sells
to Division H rather than to outside customers, the variable cost be unit would be $2 lower. What
should be the lowest acceptable transfer price from the perspective of Division G?
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A) $47
B) $87
C) $83
D) $57
190) Nanke Products, Incorporated, has a Sensor Division that manufactures and sells a
number of products, including a standard sensor that could be used by another division in the
company, the Safety Products Division, in one of its products. Data concerning that sensor
appear below:
Capacity in units 58,000
Selling price to outside customers $ 64
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 17
The Safety Products Division is currently purchasing 3,000 of these sensors per year from an
overseas supplier at a cost of $59 per sensor.
Assume that the Sensor Division is selling all of the sensors it can produce to outside customers.
What should be the minimum acceptable transfer price for the sensors from the standpoint of the
Sensor Division?
A) $37 per unit
B) $59 per unit
C) $20 per unit
D) $64 per unit
191) Mittan Products, Incorporated, has a Antennae Division that manufactures and sells a
number of products, including a standard antennae that could be used by another division in the
company, the Aircraft Products Division, in one of its products. Data concerning that antennae
appear below:
Capacity in units 68,000
Selling price to outside customers $ 68
Variable cost per unit $ 34
Fixed cost per unit (based on capacity) $ 22
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The Aircraft Products Division is currently purchasing 4,000 of these antennaes per year from an
overseas supplier at a cost of $66 per antennae.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $48,000
B) $136,000
C) $2,312,000
D) $152,000
192) Division E of Harveq Company has the capacity for making 6,000 motors per month and
regularly sells 5,400 motors each month to outside customers at a contribution margin of $54 per
motor. The variable cost per motor is $41. Division F of Harveq Company would like to obtain
900 motors each month from Division E. What should be the lowest acceptable transfer price
from the perspective of Division E?
A) $59.00 per unit
B) $54.00 per unit
C) $41.00 per unit
D) $18.00 per unit
193) The Northern Division of Fiscar Corporation sells Part X2 to other companies for $87.20
per unit. According to the company’s cost accounting system, the costs to Northern Division to
make a unit of Part X2 are:
Direct materials $ 42.70
Direct labor $ 5.80
Variable manufacturing overhead $ 9.60
Fixed manufacturing overhead $ 4.50
The Southern Division of Fiscar Corporation uses a part much like Part X2 in one of its products.
The Southern Division can buy this part from an outside supplier for $79.95 per unit. However,
the Southern Division could use Part X2 instead of this part that it purchases from outside
suppliers. What is the most that the Southern Division would be willing to pay the Northern
Division for Part X2?
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A) $87.20 per unit
B) $62.60 per unit
C) $58.10 per unit
D) $79.95 per unit
194) Siegrist 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:
Capacity in units 83,000
Selling price to outside customers $ 60
Variable cost per unit $ 36
Fixed cost per unit (based on capacity) $ 11
The Pool Products Division is currently purchasing 12,000 of these pumps per year from an
overseas supplier at a cost of $54 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?
A) $47 per unit
B) $60 per unit
C) $36 per unit
D) $54 per unit
195) Division C makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers $ 49
Variable cost per unit $ 45
Total fixed costs $ 482,000
Capacity in units 29,200
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Division D of the same company would like to use the part manufactured by Division C in one of
its products. Division D currently purchases a similar part made by an outside company for $48
per unit and would substitute the part made by Division C. Division D requires 5,640 units of the
part each period. Division C has ample excess capacity to handle all of Division D’s needs
without any increase in fixed costs and without cutting into outside sales. What is the lowest
acceptable transfer price from the standpoint of the selling division?
A) $49
B) $48
C) $47
D) $45
196) Division C makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers $ 75
Variable cost per unit $ 54
Total fixed costs $ 150,000
Capacity in units 10,000
Division D of the same company would like to use the part manufactured by Division C in one of
its products. Division D currently purchases a similar part made by an outside company for $79
per unit and would substitute the part made by Division C. Division D requires 1,000 units of the
part each period. Division C has ample excess capacity to handle all of Division D’s needs
without any increase in fixed costs and without cutting into outside sales. What is the lowest
acceptable transfer price from the standpoint of the selling division?
A) $75
B) $79
C) $54
D) $69
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197) The Parts Division of Nydron Corporation makes Part Y6P, which it sells to outside
companies for $17.00 per unit. According to the cost accounting system, the costs of making one
unit of Part Y6P consist of $7.00 for direct materials, $3.00 for direct labor, $4.50 for variable
manufacturing overhead, and $1.20 for fixed manufacturing overhead. The Parts Division has
enough idle capacity to make 1,000 units of Part Y6P each month. The Assembly Division of
Nydron Corporation can use Part Y6P in one of its products. At present, the Assembly Division
is purchasing an equivalent part from an outside supplier for $16.85 per unit. The Assembly
Division needs 2,000 units of the part each month. It has been suggested that the Assembly
Division buy Part Y6P from the Parts Division instead of buying the equivalent part from the
outside supplier. The transfer price for this transaction would lie within what limits?
A) equal to or greater than $15.75 and less than or equal to $16.85
B) equal to or greater than $15.70 and less than or equal to $17.00
C) equal to or greater than $14.50 and less than or equal to $17.00
D) equal to or greater than $14.50 and less than or equal to $16.85
198) Koppenhaver Products, Incorporated has a Relay Division that manufactures and sells a
number of products, including a standard relay that could be used by another division in the
company, the Electronics Division, in one of its products. Data concerning that relay appear
below:
Capacity in units 86,000
Selling price to outside customers $ 63
Variable cost per unit $ 41
Fixed cost per unit (based on capacity) $ 10
The Electronics Division is currently purchasing 15,000 of these relays per year from an
overseas supplier at a cost of $57 per relay.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $10 in variable expenses can be avoided on transfers within the company due
to reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $57 per unit
B) $41 per unit
C) $53 per unit
D) $63 per unit
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199) Division R of Harris Corporation has the capacity for making 40,000 wheel sets per year
and regularly sells 36,000 each year on the outside market. The regular selling price on the
outside market is $89 per wheel set, and the variable production cost per unit is $56. Division S
of Harris Corporation currently buys 6,000 wheel sets (of the kind made by Division R) yearly
from an outside supplier at a price of $85 per wheel set. If Division S were to buy the 6,000
wheel sets it needs annually from Division R at $83 per wheel set, the change in annual net
operating income for the company as a whole, compared to what it is currently, would be:
A) $108,000
B) $174,000
C) $162,000
D) $96,000
200) Tron 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:
Capacity in units 81,000
Selling price to outside customers $ 98
Variable cost per unit $ 51
Fixed cost per unit (based on capacity) $ 27
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $3 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) The answer cannot be determined from the information that has been provided.
B) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division would accept.
C) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
D) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept.
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201) Rohrer Products, Incorporated has a Motor Division that manufactures and sells a number
of products, including a standard motor that could be used by another division in the company,
the Automotive Division, in one of its products. Data concerning that motor appear below:
Capacity in units 56,000
Selling price to outside customers $ 95
Variable cost per unit $ 41
Fixed cost per unit (based on capacity) $ 24
The Automotive Division is currently purchasing 10,000 of these motors per year from an
overseas supplier at a cost of $88 per motor.
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs. What should be the minimum acceptable transfer price for the motors from the
standpoint of the Motor Division?
A) $65 per unit
B) $88 per unit
C) $41 per unit
D) $95 per unit
202) Ricardo Products, Incorporated has a Motor Division that manufactures and sells a
number of products, including a standard motor. Data concerning that motor appear below:
Capacity in units 87,000
Selling price to outside customers $ 57
Variable cost per unit $ 30
Fixed cost per unit (based on capacity) $ 19
The Automotive Division of Ricardo Products, Incorporated needs 10,000 special heavy-duty
motors per year. The Motor Division’s variable cost to manufacture and ship this special motor
would be $35 per unit. Because these special motors require more manufacturing resources than
the standard motor, the Motor Division would have to reduce its production and sales of standard
motors to outside customers from 87,000 units per year to 69,000 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division
would give up if it were to make the special motors for the Automotive Division?
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A) $486,000
B) $874,800
C) $1,026,000
D) $270,000
203) Delemos Products, Incorporated has a Transmitter Division that manufactures and sells a
number of products, including a standard transmitter. Data concerning that transmitter appear
below:
Capacity in units 83,000
Selling price to outside customers $ 98
Variable cost per unit $ 60
Fixed cost per unit (based on capacity) $ 24
The Remote Devices Division of Delemos Products, Incorporated needs 6,000 special heavy-
duty transmitters per year. The Transmitter Division’s variable cost to manufacture and ship this
special transmitter would be $66 per unit. Because these special transmitters require more
manufacturing resources than the standard transmitter, the Transmitter Division would have to
reduce its production and sales of standard transmitters to outside customers from 83,000 units
per year to 76,400 units per year.
From the standpoint of the Transmitter Division, what is the minimal acceptable transfer price
for the special transmitters for the Remote Devices Division?
A) $90.00 per unit
B) $98.00 per unit
C) $104.00 per unit
D) $107.80 per unit
204) Fois Company has two divisions, Division X and Division Y. Division X has a
production capacity of 5,000 units of a particular part per month. Division X sells 4,400 units of
the part each month to outside customers at a contribution margin of $56 per unit. Division Y
would like to buy 800 units of the part each month from Division X. In computing the lowest
acceptable transfer price from the perspective of the selling division, the lost contribution margin
per unit portion of the transfer price computation would be:
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A) $56.00 per unit
B) $30.00 per unit
C) $14.00 per unit
D) $25.00 per unit
205) Wamsley Products, Incorporated, has a Transmitter Division that manufactures and sells
a number of products, including a standard transmitter that could be used by another division in
the company, the Remote Devices Division, in one of its products. Data concerning that
transmitter appear below:
Capacity in units 60,000
Selling price to outside customers $ 64
Variable cost per unit $ 27
Fixed cost per unit (based on capacity) $ 17
The Remote Devices Division is currently purchasing 8,000 of these transmitters per year from
an overseas supplier at a cost of $61 per transmitter.
Assume that the Transmitter Division is selling all of the transmitters it can produce to outside
customers. What should be the minimum acceptable transfer price for the transmitters from the
standpoint of the Transmitter Division?
A) $44 per unit
B) $27 per unit
C) $64 per unit
D) $61 per unit
206) Leneau Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 65,000
Selling price to outside customers $ 56
Variable cost per unit $ 25
Fixed cost per unit (based on capacity) $ 23
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The Transmission Division is currently purchasing 12,000 of these connectors per year from an
overseas supplier at a cost of $52 per connector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $5 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept. Both divisions
would be financially better off if the transfers were to take place.
B) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
C) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
D) The answer cannot be determined from the information that has been provided.
207) Wigelsworth Products, Incorporated, has a Sensor Division that manufactures and sells a
number of products, including a standard sensor. Data concerning that sensor appear below:
Capacity in units 89,000
Selling price to outside customers $ 67
Variable cost per unit $ 30
Fixed cost per unit (based on capacity) $ 28
The Safety Products Division of Wigelsworth Products, Incorporated needs 6,000 special heavy-
duty sensors per year. The Sensor Division’s variable cost to manufacture and ship this special
sensor would be $32 per unit. Because these special sensors require more manufacturing
resources than the standard sensor, the Sensor Division would have to reduce its production and
sales of standard sensors to outside customers from 89,000 units per year to 79,400 units per
year.
From the standpoint of the Sensor Division, what is the minimal acceptable transfer price for the
special sensors for the Safety Products Division?
A) $60.00 per unit
B) $67.00 per unit
C) $69.00 per unit
D) $91.20 per unit
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208) Meers Products, Incorporated, has a Detector Division that manufactures and sells a
number of products, including a standard detector that could be used by another division in the
company, the Commercial Security Division, in one of its products. Data concerning that
detector appear below:
Capacity in units 43,000
Selling price to outside customers $ 98
Variable cost per unit $ 39
Fixed cost per unit (based on capacity) $ 40
The Commercial Security Division is currently purchasing 7,000 of these detectors per year from
an overseas supplier at a cost of $93 per detector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $133,000
B) $469,000
C) $2,537,000
D) $413,000
209) Cichy 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:
Capacity in units 80,000
Selling price to outside customers $ 90
Variable cost per unit $ 37
Fixed cost per unit (based on capacity) $ 32
The Pump Division is currently purchasing 5,000 of these valves per year from an overseas
supplier at a cost of $85 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves
transferred from the Valve Division?
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A) $37 per unit
B) $85 per unit
C) $32 per unit
D) $69 per unit
210) Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a
number of products, including a standard antennae that could be used by another division in the
company, the Aircraft Products Division, in one of its products. Data concerning that antennae
appear below:
Capacity in units 86,000
Selling price to outside customers $ 63
Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 18
The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
What is the maximum price that the Aircraft Products Division should be willing to pay for
antennaes transferred from the Antennae Division?
A) $22 per unit
B) $57 per unit
C) $18 per unit
D) $40 per unit
211) Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a
number of products, including a standard antennae that could be used by another division in the
company, the Aircraft Products Division, in one of its products. Data concerning that antennae
appear below:
Capacity in units 86,000
Selling price to outside customers $ 63
Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 18
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The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
Assume that the Antennae Division is selling all of the antennaes it can produce to outside
customers. What should be the minimum acceptable transfer price for the antennaes from the
standpoint of the Antennae Division?
A) $40 per unit
B) $63 per unit
C) $57 per unit
D) $22 per unit
212) Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a
number of products, including a standard antennae that could be used by another division in the
company, the Aircraft Products Division, in one of its products. Data concerning that antennae
appear below:
Capacity in units 86,000
Selling price to outside customers $ 63
Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 18
The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $7 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $33 per unit
B) $63 per unit
C) $56 per unit
D) $57 per unit
213) Division S of Kracker Company makes a part that it sells to other companies. Data on
that part appear below:
Selling price on the intermediate market $ 30 per unit
Variable costs per unit $ 22 per unit
Fixed costs per unit (based on capacity) $ 7 per unit
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Capacity in units 50,000 units
Division B, another division of Kracker Company, presently is purchasing 10,000 units of a
similar product each period from an outside supplier for $28 per unit, but would like to begin
purchasing from Division S.
Suppose that Division S has ample idle capacity to handle all of Division B’s needs without any
increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a
transfer price of $28 or less and Division B continues to buy from the outside supplier, the
company as a whole will:
A) gain $20,000 in potential profit.
B) lose $60,000 in potential profit.
C) lose $70,000 in potential profit.
D) lose $20,000 in potential profit.
214) Division S of Kracker Company makes a part that it sells to other companies. Data on
that part appear below:
Selling price on the intermediate market $ 30 per unit
Variable costs per unit $ 22 per unit
Fixed costs per unit (based on capacity) $ 7 per unit
Capacity in units 50,000 units
Division B, another division of Kracker Company, presently is purchasing 10,000 units of a
similar product each period from an outside supplier for $28 per unit, but would like to begin
purchasing from Division S.
Suppose that Division S can sell all that it can produce to outside customers. If Division S sells
to Division B at a price of $28 per unit, the company as a whole will be:
A) worse off by $80,000 each period.
B) worse off by $70,000 each period.
C) better off by $20,000 each period.
D) worse off by $20,000 each period.
215) 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:
Capacity in units 60,000
Selling price to outside customers $ 53
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Variable cost per unit $ 28
Fixed cost per unit (based on capacity) $ 17
The Pump Division is currently purchasing 8,000 of these valves per year from an overseas
supplier at a cost of $47 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves
transferred from the Valve Division?
A) $45 per unit
B) $28 per unit
C) $47 per unit
D) $17 per unit
216) 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:
Capacity in units 60,000
Selling price to outside customers $ 53
Variable cost per unit $ 28
Fixed cost per unit (based on capacity) $ 17
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 has enough idle capacity to handle all of the Pump Division’s
needs. What should be the minimum acceptable transfer price for the valves from the standpoint
of the Valve Division?
A) $45 per unit
B) $28 per unit
C) $47 per unit
D) $53 per unit
217) 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:
Capacity in units 60,000
Selling price to outside customers $ 53
Variable cost per unit $ 28
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Fixed cost per unit (based on capacity) $ 17
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?
A) $47 per unit
B) $28 per unit
C) $45 per unit
D) $53 per unit
218) Brull Products, Incorporated, has a Sensor Division that manufactures and sells a number
of products, including a standard sensor. Data concerning that sensor appear below:
Capacity in units 56,000
Selling price to outside customers $ 75
Variable cost per unit $ 52
Fixed cost per unit (based on capacity) $ 17
The Safety Products Division of Brull Products, Inc needs 6,000 special heavy-duty sensors per
year. The Sensor Division’s variable cost to manufacture and ship this special sensor would be
$60 per unit. Because these special sensors require more manufacturing resources than the
standard sensor, the Sensor Division would have to reduce its production and sales of standard
sensors to outside customers from 56,000 units per year to 46,400 units per year.
What is the total contribution margin on sales to outside customers that the Sensor Division
would give up if it were to make the special sensors for the Safety Products Division?
A) $720,000
B) $353,280
C) $220,800
D) $138,000
219) Brull Products, Incorporated, has a Sensor Division that manufactures and sells a number
of products, including a standard sensor. Data concerning that sensor appear below:
Capacity in units 56,000
Selling price to outside customers $ 75
Variable cost per unit $ 52
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Fixed cost per unit (based on capacity) $ 17
The Safety Products Division of Brull Products, Inc needs 6,000 special heavy-duty sensors per
year. The Sensor Division’s variable cost to manufacture and ship this special sensor would be
$60 per unit. Because these special sensors require more manufacturing resources than the
standard sensor, the Sensor Division would have to reduce its production and sales of standard
sensors to outside customers from 56,000 units per year to 46,400 units per year.
From the standpoint of the Sensor Division, what is the minimal acceptable transfer price for
the special sensors for the Safety Products Division?
A) $75.00 per unit
B) $77.00 per unit
C) $83.00 per unit
D) $96.80 per unit
220) Germano 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:
Capacity in units 65,000
Selling price to outside customers $ 98
Variable cost per unit $ 36
Fixed cost per unit (based on capacity) $ 44
The Pool Products Division is currently purchasing 10,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products
Division’s needs. Does there exist a transfer price that would make both the Pump and Pool
Products Division financially better off than if the Pool Products Division were to continue
buying its pumps from the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept.
C) The answer cannot be determined from the information that has been provided.
D) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
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221) Germano 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:
Capacity in units 67,500
Selling price to outside customers $ 75
Variable cost per unit $ 26
Fixed cost per unit (based on capacity) $ 30
The Pool Products Division is currently purchasing 15,000 of these pumps per year from an
overseas supplier at a cost of $70 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers.
Does there exist a transfer price that would make both the Pump and Pool Products Division
financially better off than if the Pool Products Division were to continue buying its pumps from
the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
222) Germano 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:
Capacity in units 65,000
Selling price to outside customers $ 98
Variable cost per unit $ 36
Fixed cost per unit (based on capacity) $ 44
The Pool Products Division is currently purchasing 10,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers.
Does there exist a transfer price that would make both the Pump and Pool Products Division
financially better off than if the Pool Products Division were to continue buying its pumps from
the outside supplier?
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A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
223) Division A makes a part with the following characteristics:
Production capacity in units 30,800 units
Selling price to outside customers $ 23
Variable cost per unit $ 15
Total fixed costs $ 105,200
Division B, another division of the same company, would like to purchase 16,100 units of the
part each period from Division A. Division B is now purchasing these parts from an outside
supplier at a price of $19 each.
Suppose that Division A has ample idle capacity to handle all of Division B’s needs without
any increase in fixed costs and without cutting into sales to outside customers. If Division A
refuses to accept the $19 price internally and Division B continues to buy from the outside
supplier, the company as a whole will be:
A) worse off by $89,800 each period.
B) worse off by $10,100 each period.
C) worse off by $64,400 each period.
D) worse off by $12,800 each period.
224) Division A makes a part with the following characteristics:
Production capacity in units 15,000 units
Selling price to outside customers $ 25
Variable cost per unit $ 18
Total fixed costs $ 60,000
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Division B, another division of the same company, would like to purchase 5,000 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier
at a price of $24 each.
Suppose that Division A has ample idle capacity to handle all of Division B’s needs without
any increase in fixed costs and without cutting into sales to outside customers. If Division A
refuses to accept the $24 price internally and Division B continues to buy from the outside
supplier, the company as a whole will be:
A) worse off by $30,000 each period.
B) worse off by $10,000 each period.
C) better off by $15,000 each period.
D) worse off by $35,000 each period.
225) Division A makes a part with the following characteristics:
Production capacity in units 34,000 units
Selling price to outside customers $ 21
Variable cost per unit $ 13
Total fixed costs $ 105,800
Division B, another division of the same company, would like to purchase10,000 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier
at a price of $18 each.
Suppose that Division A is operating at capacity and can sell all of its output to outside
customers at itsusual selling price. If Division A agrees to sell the parts to Division B at $18 per
unit, the company as a whole will be:
A) better off by $30,000 each period.
B) worse off by $60,000 each period.
C) worse off by $30,000 each period.
D) There will be no change in the status of the company as a whole.
226) Division A makes a part with the following characteristics:
Production capacity in units 15,000 units
Selling price to outside customers $ 25
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Variable cost per unit $ 18
Total fixed costs $ 60,000
Division B, another division of the same company, would like to purchase 5,000 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier
at a price of $24 each.
Suppose that Division A is operating at capacity and can sell all of its output to outside
customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per
unit, the company as a whole will be:
A) better off by $5,000 each period.
B) worse off by $15,000 each period.
C) worse off by $5,000 each period.
D) There will be no change in the profits of the company as a whole.
227) 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:
Capacity in units 40,000
Selling price to outside customers $ 65
Variable cost per unit $ 28
Fixed cost per unit (based on capacity) $ 26
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?
A) $58 per unit
B) $26 per unit
C) $28 per unit
D) $54 per unit
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228) 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:
Capacity in units 40,000
Selling price to outside customers $ 65
Variable cost per unit $ 28
Fixed cost per unit (based on capacity) $ 26
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.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $88,000
B) $392,000
C) $1,480,000
D) $296,000
229) Royal Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 66,000
Selling price to outside customers $ 69
Variable cost per unit $ 21
Fixed cost per unit (based on capacity) $ 35
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
What is the maximum price that the Transmission Division should be willing to pay for
connectors transferred from the Connector Division?
A) $35 per unit
B) $65 per unit
C) $56 per unit
D) $21 per unit
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230) Royal Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 66,000
Selling price to outside customers $ 69
Variable cost per unit $ 21
Fixed cost per unit (based on capacity) $ 35
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
Assume that the Connector Division has enough idle capacity to handle all of the Transmission
Division’s needs. What should be the minimum acceptable transfer price for the connectors from
the standpoint of the Connector Division?
A) $21 per unit
B) $56 per unit
C) $69 per unit
D) $65 per unit
231) Royal Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 66,000
Selling price to outside customers $ 69
Variable cost per unit $ 21
Fixed cost per unit (based on capacity) $ 35
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the connectors from the
standpoint of the Connector Division?
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A) $56 per unit
B) $65 per unit
C) $69 per unit
D) $21 per unit
232) Fregozo Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 58,000
Selling price to outside customers $ 54
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 21
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $45 per connector.
Assume that the Connector Division has enough idle capacity to handle all of the Transmission
Division’s needs. What should be the minimum acceptable transfer price for the connectors from
the standpoint of the Connector Division?
A) $54 per unit
B) $20 per unit
C) $41 per unit
D) $45 per unit
233) Fregozo Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 58,000
Selling price to outside customers $ 54
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 21
Version 1 116
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $45 per connector.
Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the connectors from the
standpoint of the Connector Division?
A) $54 per unit
B) $45 per unit
C) $41 per unit
D) $20 per unit
234) Fregozo Products, Incorporated, has a Connector Division that manufactures and sells a
number of products, including a standard connector that could be used by another division in the
company, the Transmission Division, in one of its products. Data concerning that connector
appear below:
Capacity in units 58,000
Selling price to outside customers $ 54
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 21
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $45 per connector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $10 in variable expenses can be avoided on transfers within the company due
to reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $31 per unit
B) $54 per unit
C) $44 per unit
D) $45 per unit
235) Division A of Tripper Company produces a part that it sells to other companies. Sales and
cost data for the part follow:
Capacity in units 60,000 units
Selling price per unit $ 40 per unit
Variable costs per unit $ 28 per unit
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Fixed costs per unit at capacity $ 9 per unit
Division B, another division of Tripper Company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at $38 per unit. If Division A
sells to Division B, $1 in variable costs can be avoided.
Assume that Division A is presently operating at capacity. According to the formula in the text,
what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $37 per unit
B) $39 per unit
C) $36 per unit
D) $38 per unit
236) Division A of Tripper Company produces a part that it sells to other companies. Sales and
cost data for the part follow:
Capacity in units 60,000 units
Selling price per unit $ 40 per unit
Variable costs per unit $ 28 per unit
Fixed costs per unit at capacity $ 9 per unit
Division B, another division of Tripper Company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at $38 per unit. If Division A
sells to Division B, $1 in variable costs can be avoided.
Assume that Division A has ample idle capacity to handle all of Division B’s needs without any
increase in fixed costs and without cutting into outside sales. According to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $40 per unit
B) $39 per unit
C) $28 per unit
D) $27 per unit
237) Oberley Products, Incorporated, has a Receiver Division that manufactures and sells a
number of products, including a standard receiver that could be used by another division in the
company, the Industrial Products Division, in one of its products. Data concerning that receiver
appear below:
Capacity in units 47,000
Selling price to outside customers $ 67
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Variable cost per unit $ 33
Fixed cost per unit (based on capacity) $ 19
The Industrial Products Division is currently purchasing 5,000 of these receivers per year from
an overseas supplier at a cost of $58 per receiver.
What is the maximum price that the Industrial Products Division should be willing to pay for
receivers transferred from the Receiver Division?
A) $52 per unit
B) $19 per unit
C) $58 per unit
D) $33 per unit
238) Oberley Products, Incorporated, has a Receiver Division that manufactures and sells a
number of products, including a standard receiver that could be used by another division in the
company, the Industrial Products Division, in one of its products. Data concerning that receiver
appear below:
Capacity in units 47,000
Selling price to outside customers $ 67
Variable cost per unit $ 33
Fixed cost per unit (based on capacity) $ 19
The Industrial Products Division is currently purchasing 5,000 of these receivers per year from
an overseas supplier at a cost of $58 per receiver.
Assume that the Valve Division is selling all of the valves 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 should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $61 per unit
B) $46 per unit
C) $67 per unit
D) $58 per unit
239) Division P of the Nyers Company makes a part that can either be sold to outside
customers or transferred internally to Division Q for further processing. Annual data relating to
this part are as follows:
Annual production capacity 80,000 units
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Selling price of the item to outside customers $ 35 per unit
Variable cost $ 23 per unit
Average fixed cost $ 5 per unit
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an
outside supplier $33 per unit. Consider each part below independently.
If outside customers demand only 50,000 units per year, then according to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $33 per unit
C) $28 per unit
D) $23 per unit
240) Division P of the Nyers Company makes a part that can either be sold to outside
customers or transferred internally to Division Q for further processing. Annual data relating to
this part are as follows:
Annual production capacity 80,000 units
Selling price of the item to outside customers $ 35 per unit
Variable cost $ 23 per unit
Average fixed cost $ 5 per unit
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an
outside supplier $33 per unit. Consider each part below independently.
If outside customers demand 80,000 units, then according to the formula in the text, what is the
lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $33 per unit
C) $28 per unit
D) $23 per unit
241) Division P of the Nyers Company makes a part that can either be sold to outside
customers or transferred internally to Division Q for further processing. Annual data relating to
this part are as follows:
Annual production capacity 80,000 units
Selling price of the item to outside customers $ 35 per unit
Variable cost $ 23 per unit
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Average fixed cost $ 5 per unit
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an
outside supplier $33 per unit. Consider each part below independently.
If outside customers demand 80,000 units and if, by selling to Division Q, Division P could
avoid $4 per unit in variable selling expense, then according to the formula in the text, what is
the lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $21 per unit
C) $31 per unit
D) $33 per unit
242) Division P of the Nyers Company makes a part that can either be sold to outside
customers or transferred internally to Division Q for further processing. Annual data relating to
this part are as follows:
Annual production capacity 80,000 units
Selling price of the item to outside customers $ 35 per unit
Variable cost $ 23 per unit
Average fixed cost $ 5 per unit
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an
outside supplier $33 per unit. Consider each part below independently.
If outside customers demand 80,000 units and if, by selling to Division Q, Division P could
avoid $4 per unit in variable selling expense, then according to the formula in the text, what is
the lowest acceptable transfer price from the viewpoint of the selling division?
A) $33 per unit
B) $27 per unit
C) $28 per unit
D) $29 per unit
243) Tommasino Products, Incorporated, has a Motor Division that manufactures and sells a
number of products, including a standard motor that could be used by another division in the
company, the Automotive Division, in one of its products. Data concerning that motor appear
below:
Capacity in units 83,000
Selling price to outside customers $ 74
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Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 28
The Automotive Division is currently purchasing 9,000 of these motors per year from an
overseas supplier at a cost of $72 per motor.
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs. Does there exist a transfer price that would make both the Motor and
Automotive Division financially better off than if the Automotive Division were to continue
buying its motors from the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
B) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
C) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept.
D) The answer cannot be determined from the information that has been provided.
244) Tommasino Products, Incorporated, has a Motor Division that manufactures and sells a
number of products, including a standard motor that could be used by another division in the
company, the Automotive Division, in one of its products. Data concerning that motor appear
below:
Capacity in units 83,000
Selling price to outside customers $ 74
Variable cost per unit $ 22
Fixed cost per unit (based on capacity) $ 28
The Automotive Division is currently purchasing 9,000 of these motors per year from an
overseas supplier at a cost of $72 per motor.
Assume that the Motor Division is selling all of the motors it can produce to outside customers.
Does there exist a transfer price that would make both the Motor and Automotive Division
financially better off than if the Automotive Division were to continue buying its motors from
the outside supplier?
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A) The answer cannot be determined from the information that has been provided.
B) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
C) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
D) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
245) Fingado Products, Incorporated, has a Detector Division that manufactures and sells a
number of products, including a standard detector that could be used by another division in the
company, the Commercial Security Division, in one of its products. Data concerning that
detector appear below:
Capacity in units 87,000
Selling price to outside customers $ 98
Variable cost per unit $ 32
Fixed cost per unit (based on capacity) $ 51
The Commercial Security Division is currently purchasing 6,000 of these detectors per year from
an overseas supplier at a cost of $91 per detector.
What is the maximum price that the Commercial Security Division should be willing to pay for
detectors transferred from the Detector Division?
A) $83 per unit
B) $51 per unit
C) $91 per unit
D) $32 per unit
246) Fingado Products, Incorporated, has a Detector Division that manufactures and sells a
number of products, including a standard detector that could be used by another division in the
company, the Commercial Security Division, in one of its products. Data concerning that
detector appear below:
Capacity in units 87,000
Selling price to outside customers $ 98
Variable cost per unit $ 32
Fixed cost per unit (based on capacity) $ 51
Version 1 123
The Commercial Security Division is currently purchasing 6,000 of these detectors per year from
an overseas supplier at a cost of $91 per detector.
Assume that the Detector Division is selling all of the detectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the detectors from the
standpoint of the Detector Division?
A) $32 per unit
B) $98 per unit
C) $91 per unit
D) $83 per unit
247) Fingado Products, Incorporated, has a Detector Division that manufactures and sells a
number of products, including a standard detector that could be used by another division in the
company, the Commercial Security Division, in one of its products. Data concerning that
detector appear below:
Capacity in units 87,000
Selling price to outside customers $ 98
Variable cost per unit $ 32
Fixed cost per unit (based on capacity) $ 51
The Commercial Security Division is currently purchasing 6,000 of these detectors per year from
an overseas supplier at a cost of $91 per detector.
Assume that the Valve Division is selling all of the valves 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 should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $92 per unit
B) $77 per unit
C) $91 per unit
D) $98 per unit
248) Ebbs Products, Incorporated, has a Motor Division that manufactures and sells a number
of products, including a standard motor. Data concerning that motor appear below:
Capacity in units 86,000
Selling price to outside customers $ 81
Variable cost per unit $ 43
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Fixed cost per unit (based on capacity) $ 18
The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year.
The Motor Division’s variable cost to manufacture and ship this special motor would be $46 per
unit. Because these special motors require more manufacturing resources than the standard
motor, the Motor Division would have to reduce its production and sales of standard motors to
outside customers from 86,000 units per year to 72,500 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division
would give up if it were to make the special motors for the Automotive Division?
A) $513,000
B) $342,000
C) $769,500
D) $1,093,500
249) Ebbs Products, Incorporated, has a Motor Division that manufactures and sells a number
of products, including a standard motor. Data concerning that motor appear below:
Capacity in units 86,000
Selling price to outside customers $ 81
Variable cost per unit $ 43
Fixed cost per unit (based on capacity) $ 18
The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year.
The Motor Division’s variable cost to manufacture and ship this special motor would be $46 per
unit. Because these special motors require more manufacturing resources than the standard
motor, the Motor Division would have to reduce its production and sales of standard motors to
outside customers from 86,000 units per year to 72,500 units per year.
From the standpoint of the Motor Division, what is the minimal acceptable transfer price for
the special motors for the Automotive Division?
A) $84.00 per unit
B) $103.00 per unit
C) $81.00 per unit
D) $64.00 per unit
250) Ganus Products, Incorporated, has a Relay Division that manufactures and sells a number
of products, including a standard relay that could be used by another division in the company, the
Electronics Division, in one of its products. Data concerning that relay appear below:
Version 1 125
Capacity in units 50,000
Selling price to outside customers $ 62
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 29
The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas
supplier at a cost of $59 per relay.
Assume that the Relay Division is selling all of the relays it can produce to outside customers.
Does there exist a transfer price that would make both the Relay and Electronics Division
financially better off than if the Electronics Division were to continue buying its relays from the
outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
B) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
C) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
D) The answer cannot be determined from the information that has been provided.
251) Ganus Products, Incorporated, has a Relay Division that manufactures and sells a number
of products, including a standard relay that could be used by another division in the company, the
Electronics Division, in one of its products. Data concerning that relay appear below:
Capacity in units 52,500
Selling price to outside customers $ 41
Variable cost per unit $ 12
Fixed cost per unit (based on capacity) $ 24
The Electronics Division is currently purchasing 7,350 of these relays per year from an overseas
supplier at a cost of $38 per relay.
Assume that the Relay Division is selling all of the relays it can produce to outside customers.
Also assume that $4 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Relay and Electronics Division financially better off than if the Electronics Division were to
continue buying its relays from the outside supplier?
Version 1 126
A) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
B) The answer cannot be determined from the information that has been provided.
C) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept. Both divisions
would be financially better off if the transfers were to take place.
D) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
252) Ganus Products, Incorporated, has a Relay Division that manufactures and sells a number
of products, including a standard relay that could be used by another division in the company, the
Electronics Division, in one of its products. Data concerning that relay appear below:
Capacity in units 50,000
Selling price to outside customers $ 62
Variable cost per unit $ 20
Fixed cost per unit (based on capacity) $ 29
The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas
supplier at a cost of $59 per relay.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $4 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) No, the selling division’s price to outside customers is higher than the price that the
buying division has to pay its outside supplier.
B) The answer cannot be determined from the information that has been provided.
C) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept. Both divisions
would be financially better off if the transfers were to take place.
D) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
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253) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics
Division and the Components Division. The Plastics Division sells molded parts to both the
Components Division and to customers outside the corporation.
Assume that the Plastics Division is currently operating at full capacity. Also assume that the
Components Division wants to increase the number of parts it purchases from Plastics. In order
to maintain its current level of profitability, the Plastics Division should not accept any transfer
price on these additional parts that is below the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that
could no longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all
units that could no longer be sold to customers outside the corporation.
254) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics
Division and the Components Division. The Plastics Division sells molded parts to both the
Components Division and to customers outside the corporation.
Assume that the Plastics Division is currently operating with idle capacity. Also assume that
the Components Division wants to purchase from Plastics all of the additional parts that could be
made with this idle capacity. In order to increase its current level of profitability, the Plastics
Division should accept any transfer price on these additional parts that is above the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that
could no longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all
units that could no longer be sold to customers outside the corporation.
255) Yearout 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:
Capacity in units 58,000
Selling price to outside customers $ 59
Variable cost per unit $ 40
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Fixed cost per unit (based on capacity) $ 11
The Pump Division is currently purchasing 9,000 of these valves per year from an overseas
supplier at a cost of $53 per valve.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Does there exist a transfer price that would make both the Valve and Pump Division financially
better off than if the Pump Division were to continue buying its valves from the outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division should be willing to accept.
B) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
256) Yearout 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:
Capacity in units 58,000
Selling price to outside customers $ 59
Variable cost per unit $ 40
Fixed cost per unit (based on capacity) $ 11
The Pump Division is currently purchasing 9,000 of these valves per year from an overseas
supplier at a cost of $53 per valve.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $1 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept
is less than the maximum transfer price that the buying division would accept.
B) The answer cannot be determined from the information that has been provided.
C) No, the minimum transfer price that the selling division should be willing to accept
exceeds the maximum transfer price that the buying division would accept.
D) Yes, both divisions are always better off regardless of whether the selling division
has enough idle capacity to handle all of the buying division’s needs.
Version 1 129
257) Ahart Products, Incorporated, has a Transmitter Division that manufactures and sells a
number of products, including a standard transmitter that could be used by another division in the
company, the Remote Devices Division, in one of its products. Data concerning that transmitter
appear below:
Capacity in units 79,000
Selling price to outside customers $ 61
Variable cost per unit $ 42
Fixed cost per unit (based on capacity) $ 8
The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from
an overseas supplier at a cost of $59 per transmitter.
What is the maximum price that the Remote Devices Division should be willing to pay for
transmitters transferred from the Transmitter Division?
A) $8 per unit
B) $50 per unit
C) $59 per unit
D) $42 per unit
258) Ahart Products, Incorporated, has a Transmitter Division that manufactures and sells a
number of products, including a standard transmitter that could be used by another division in the
company, the Remote Devices Division, in one of its products. Data concerning that transmitter
appear below:
Capacity in units 79,000
Selling price to outside customers $ 61
Variable cost per unit $ 42
Fixed cost per unit (based on capacity) $ 8
The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from
an overseas supplier at a cost of $59 per transmitter.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $3 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
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A) $59 per unit
B) $61 per unit
C) $47 per unit
D) $58 per unit
259) Steinhoff Products, Incorporated, has a Sensor Division that manufactures and sells a
number of products, including a standard sensor that could be used by another division in the
company, the Safety Products Division, in one of its products. Data concerning that sensor
appear below:
Capacity in units 51,000
Selling price to outside customers $ 56
Variable cost per unit $ 37
Fixed cost per unit (based on capacity) $ 14
The Safety Products Division is currently purchasing 4,000 of these sensors per year from an
overseas supplier at a cost of $48 per sensor.
What is the maximum price that the Safety Products Division should be willing to pay for
sensors transferred from the Sensor Division?
A) $51 per unit
B) $37 per unit
C) $48 per unit
D) $14 per unit
260) Steinhoff Products, Incorporated, has a Sensor Division that manufactures and sells a
number of products, including a standard sensor that could be used by another division in the
company, the Safety Products Division, in one of its products. Data concerning that sensor
appear below:
Capacity in units 51,000
Selling price to outside customers $ 56
Variable cost per unit $ 37
Fixed cost per unit (based on capacity) $ 14
Version 1 131
The Safety Products Division is currently purchasing 4,000 of these sensors per year from an
overseas supplier at a cost of $48 per sensor.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $76,000
B) $969,000
C) $120,000
D) $20,000
261) 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:
Capacity in units 55,000
Selling price to outside customers $ 82
Variable cost per unit $ 53
Fixed cost per unit (based on capacity) $ 11
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?
A) $74 per unit
B) $53 per unit
C) $64 per unit
D) $82 per unit
262) 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:
Capacity in units 62,500
Selling price to outside customers $ 112
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Variable cost per unit $ 68
Fixed cost per unit (based on capacity) $ 26
The Pool Products Division is currently purchasing 5,500 of these pumps per year from an
overseas supplier at a cost of $89 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers.
What should be the minimum acceptable transfer price for the pumps from the standpoint of the
Pump Division?
A) $94 per unit
B) $89 per unit
C) $112 per unit
D) $68 per unit
263) 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:
Capacity in units 55,000
Selling price to outside customers $ 82
Variable cost per unit $ 53
Fixed cost per unit (based on capacity) $ 11
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 is selling all of the pumps it can produce to outside customers.
What should be the minimum acceptable transfer price for the pumps from the standpoint of the
Pump Division?
A) $64 per unit
B) $74 per unit
C) $82 per unit
D) $53 per unit
264) 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:
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Capacity in units 55,000
Selling price to outside customers $ 82
Variable cost per unit $ 53
Fixed cost per unit (based on capacity) $ 11
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 Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $5 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $77 per unit
B) $74 per unit
C) $59 per unit
D) $82 per unit
265) Variable service department costs should be charged to operating departments at the end
of the period according to the formula:
A) Budgeted rate × Budgeted activity.
B) Budgeted rate × Actual activity.
C) Actual rate × Actual activity.
D) Budgeted total cost × Percentage of peak-period capacity required.
266) Which of the following companies is following a policy with respect to the costs of
service departments that is not recommended?
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A) To charge operating departments with the depreciation of forklifts used at its central
warehouse, Shalimar Electronics charges predetermined lump-sum amounts calculated on the
basis of the long-term average use of the services provided by the warehouse to the various
segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate costs
connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of their
inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its
service departments to its operating departments.
267) For performance evaluation purposes, the fixed costs of a service department should be
charged to operating departments using:
A) actual fixed costs and the budgeted level of activity for the period.
B) budgeted fixed costs and the actual level of activity for the period.
C) budgeted fixed costs and the peak-period or long-run average servicing capacity.
D) actual fixed costs and the peak-period or long-run average servicing capacity.
268) The long-run average or peak period needs of operating departments would be the most
suitable base for allocating:
A) the variable element of power costs.
B) the fixed element of power costs.
C) total power costs.
D) any spending variance associated with power costs.
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269) Mangiamele 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 budgeted based on the number
of cases produced by the operating departments during the peak period. Data appear below:
Maintenance Department:
Budgeted variable cost $ 4 per case
Budgeted total fixed cost $ 693,000
Paints Division:
Percentage of peak period capacity required 30%
Actual cases 18,000
Stains Division:
Percentage of peak period capacity required 70%
Actual cases 59,000
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Paints Division at the end of the year?
A) $234,000
B) $500,500
C) $279,900
D) $300,300
270) Oaks Company maintains a cafeteria for its employees. For June, variable food costs
were budgeted at $48 per employee based on a budgeted level of 1,000 employees in other
departments. During the month, an average of 1,100 employees worked in other departments.
The cafeteria’s total food costs for the month came to $57,750. How much food cost should be
charged to the other departments at the end of the month for performance evaluation purposes?
A) $57,750
B) $52,500
C) $48,000
D) $52,800
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271) Tabarez 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 budgeted based on the number
of cases produced by the operating departments during the peak period. Data appear below:
Maintenance Department:
Budgeted variable cost $ 2 per case
Budgeted total fixed cost $ 1,140,000
Actual total variable cost $ 239,400
Actual total fixed cost $ 1,157,980
Paints Division:
Percentage of peak period capacity required 30%
Budgeted cases 29,000
Actual cases 29,040
Stains Division:
Percentage of peak period capacity required 70%
Budgeted cases 85,000
Actual cases 84,960
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Stains Division at the end of the year?
A) $989,002
B) $1,041,416
C) $967,920
D) $1,019,520
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272) Schabel Corporation has two operating divisions—a Consumer Division and a
Commercial Division. The company’s Customer Service Department provides services to both
divisions. The variable costs of the Customer Service Department are budgeted at $75 per order.
The Customer Service Department’s fixed costs are budgeted at $276,000 for the year. The fixed
costs of the Customer Service Department are determined based on the peak period orders.
Percentage of Peak Period Capacity Required Budgeted Orders
Consumer Division 40% 1,950
Commercial Division 60% 3,900
At the end of the year, actual Customer Service Department variable costs totaled $443,156 and
fixed costs totaled $305,290. The Consumer Division had a total of 1,975 orders and the
Commercial Division had a total of 3,856 orders for the year. For performance evaluation
purposes, how much actual Customer Service Department cost should NOT be charged to the
operating divisions at the end of the year?
A) $29,290
B) $35,121
C) $5,831
D) $0
273) Schabel Corporation has two operating divisions—a Consumer Division and a
Commercial Division. The company’s Customer Service Department provides services to both
divisions. The variable costs of the Customer Service Department are budgeted at $72 per order.
The Customer Service Department’s fixed costs are budgeted at $695,400 for the year. The fixed
costs of the Customer Service Department are determined based on the peak period orders.
Percentage of Peak Period Capacity Required Budgeted Orders
Consumer Division 25% 2,600
Commercial Division 75% 9,600
At the end of the year, actual Customer Service Department variable costs totaled $891,089 and
fixed costs totaled $709,820. The Consumer Division had a total of 2,610 orders and the
Commercial Division had a total of 9,580 orders for the year. For performance evaluation
purposes, how much actual Customer Service Department cost should NOT be charged to the
operating divisions at the end of the year?
A) $13,409
B) $0
C) $14,420
D) $27,829
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274) The medical services department of Fischer Company budgeted $33 of variable medical
expenses per employee for May, based on 1,600 employees in operating departments. During
May an average of 1,580 employees were employed in operating departments. Actual variable
medical expenses totaled $54,700 for the month. How much variable medical expenses should be
charged to operating departments at the end of May for performance evaluation purposes?
A) $54,700
B) $52,140
C) $52,800
D) $55,372
275) The medical services department of Fischer Company budgeted $25 of variable medical
expenses per employee for May, based on 2,000 employees in operating departments. During
May an average of 1,980 employees were employed in operating departments. Actual variable
medical expenses totaled $50,700 for the month. How much variable medical expenses should be
charged to operating departments at the end of May for performance evaluation purposes?
A) $50,700
B) $49,500
C) $50,000
D) $51,212
276) Levar Corporation has two operating divisions—a Consumer Division and a Commercial
Division. The company’s Order Fulfillment Department provides services to both divisions. The
variable costs of the Order Fulfillment Department are budgeted at $31 per order. The Order
Fulfillment Department’s fixed costs are budgeted at $287,000 for the year. The fixed costs of the
Order Fulfillment Department are determined based on the peak period orders.
Percentage of Peak Period Capacity Required Budgeted Orders
Consumer Division 30% 1,800
Commercial Division 70% 4,980
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At the end of the year, actual Order Fulfillment Department variable costs totaled $215,963 and
fixed costs totaled $272,980. The Consumer Division had a total of 1,830 orders and the
Commercial Division had a total of 4,940 orders for the year. For purposes of evaluation
performance, how much Order Fulfillment Department cost should be charged to the
Commercial Division at the end of the year?
A) $373,121
B) $362,698
C) $382,172
D) $354,040
277) Levar Corporation has two operating divisions—a Consumer Division and a Commercial
Division. The company’s Order Fulfillment Department provides services to both divisions. The
variable costs of the Order Fulfillment Department are budgeted at $73 per order. The Order
Fulfillment Department’s fixed costs are budgeted at $470,400 for the year. The fixed costs of the
Order Fulfillment Department are determined based on the peak period orders.
Percentage of Peak Period Capacity Required Budgeted Orders
Consumer Division 25% 1,800
Commercial Division 75% 6,600
At the end of the year, actual Order Fulfillment Department variable costs totaled $621,600 and
fixed costs totaled $473,970. The Consumer Division had a total of 1,840 orders and the
Commercial Division had a total of 6,560 orders for the year. For purposes of evaluation
performance, how much Order Fulfillment Department cost should be charged to the
Commercial Division at the end of the year?
A) $831,680
B) $855,588
C) $840,918
D) $846,240
278) Macumber Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $44 per shipment. The Logistics Department’s fixed costs
are budgeted at $402,000 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
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Percentage of Peak Period Capacity Required Actual Shipments
Atlantic Division 25% 2,660
Pacific Division 75% 4,970
How much Logistics Department cost should be charged to the Atlantic Division at the end of
the year for performance evaluation purposes?
A) $217,540
B) $187,745
C) $322,595
D) $234,710
279) Macumber Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $36 per shipment. The Logistics Department’s fixed costs
are budgeted at $234,000 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period Capacity Required Actual Shipments
Atlantic Division 30% 1,100
Pacific Division 70% 3,400
How much Logistics Department cost should be charged to the Atlantic Division at the end of
the year for performance evaluation purposes?
A) $198,000
B) $109,800
C) $118,800
D) $96,800
280) Gretter Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $36 per shipment. The Logistics Department’s fixed costs
are budgeted at $399,600 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period Capacity Required Budgeted Shipments
Atlantic Division 25% 1,600
Pacific Division 75% 5,800
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At the end of the year, actual Logistics Department variable costs totaled $305,040 and fixed
costs totaled $418,680. The Atlantic Division had a total of 2,600 shipments and the Pacific
Division had a total of 5,600 shipments for the year. For performance evaluation purposes, how
much actual Logistics Department cost should NOT be charged to the operating divisions at the
end of the year?
A) $28,920
B) $9,840
C) $19,080
D) $0
281) Fox Company has the following data concerning the machine-hours in its operating
departments:
Department A Department B Department C
Machine-hours—long-run average 10,000 30,000 20,000
Machine-hours—actual 9,000 24,000 18,000
Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed
maintenance costs are incurred in order to service long-run average demand. The actual fixed
maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to
Department B at the end of the year for performance evaluation purposes?
A) $12,000
B) $14,400
C) $15,000
D) $18,000
282) Erholm Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $43 per shipment. The Logistics Department’s fixed costs
are budgeted at $423,800 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period Capacity Required Budgeted Shipments
Atlantic Division 35% 3,100
Pacific Division 65% 6,400
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At the end of the year, actual Logistics Department variable costs totaled $302,700 and fixed
costs totaled $443,950. The Atlantic Division had a total of 5,100 shipments and the Pacific
Division had a total of 6,300 shipments for the year. How much Logistics Department cost
should be charged to the Pacific Division at the end of the year for performance evaluation
purposes?
A) $403,453
B) $546,370
C) $457,498
D) $530,102
283) Erholm Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $31 per shipment. The Logistics Department’s fixed costs
are budgeted at $411,800 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period Capacity Required Budgeted Shipments
Atlantic Division 35% 1,900
Pacific Division 65% 5,200
At the end of the year, actual Logistics Department variable costs totaled $290,700 and fixed
costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments and the Pacific
Division had a total of 5,100 shipments for the year. How much Logistics Department cost
should be charged to the Pacific Division at the end of the year for performance evaluation
purposes?
A) $391,453
B) $425,770
C) $445,498
D) $409,502
284) 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:
Maintenance Department:
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Budgeted variable cost $ 6 per case
Budgeted total fixed cost $ 328,000
Actual total variable cost $ 254,014
Actual total fixed cost $ 331,940
Paints Division:
Percentage of peak-period capacity required 35%
Budgeted cases 12,000
Actual cases 12,010
Stains Division:
Percentage of peak-period capacity required 65%
Budgeted cases 29,000
Actual cases 28,960
How much Maintenance Department cost should be allocated to the Stains Division at the end of
the year?
A) $395,313
B) $414,187
C) $405,610
D) $386,960
285) 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:
Maintenance Department:
Budgeted variable cost $ 6 per case
Budgeted total fixed cost $ 328,000
Actual total variable cost $ 254,014
Actual total fixed cost $ 331,940
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Paints Division:
Percentage of peak-period capacity required 35%
Budgeted cases 12,000
Actual cases 12,010
Stains Division:
Percentage of peak-period capacity required 65%
Budgeted cases 29,000
Actual cases 28,960
How much actual Maintenance Department cost should not be allocated to the operating
divisions at the end of the year?
A) $12,134
B) $8,194
C) $0
D) $3,940
286) Wollan Corporation has two operating divisions—an East Division and a West Division.
The company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $53 per shipment. The Logistics Department’s fixed costs are
budgeted at $385,100 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period Capacity Required Budgeted Shipments
East Division 35% 2,220
West Division 65% 5,480
At the end of the year, actual Logistics Department variable costs totaled $403,300 and fixed
costs totaled $387,000. The East Division had a total of 2,570 shipments and the West Division
had a total of 4,830 shipments for the year.
How much Logistics Department cost should be allocated to the West Division at the end of the
year?
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A) $506,305
B) $514,785
C) $478,922
D) $492,662
287) Wollan Corporation has two operating divisions—an East Division and a West Division.
The company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $44 per shipment. The Logistics Department’s fixed costs are
budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period Capacity Required Budgeted Shipments
East Division 40% 1,300
West Division 60% 3,100
At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed
costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division
had a total of 3,000 shipments for the year.
How much Logistics Department cost should be allocated to the West Division at the end of
the year?
A) $289,176
B) $229,644
C) $241,167
D) $274,560
288) Wollan Corporation has two operating divisions—an East Division and a West Division.
The company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $51 per shipment. The Logistics Department’s fixed costs are
budgeted at $410,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period Capacity Required Budgeted Shipments
East Division 25% 1,490
West Division 75% 5,440
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At the end of the year, actual Logistics Department variable costs totaled $426,096 and fixed
costs totaled $420,000. The East Division had a total of 2,620 shipments and the West Division
had a total of 5,450 shipments for the year.
How much actual Logistics Department cost should not be allocated to the operating divisions
at the end of the year?
A) $0
B) $23,926
C) $9,400
D) $14,526
289) Wollan Corporation has two operating divisions—an East Division and a West Division.
The company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $44 per shipment. The Logistics Department’s fixed costs are
budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period Capacity Required Budgeted Shipments
East Division 40% 1,300
West Division 60% 3,100
At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed
costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division
had a total of 3,000 shipments for the year.
How much actual Logistics Department cost should not be allocated to the operating divisions
at the end of the year?
A) $28,040
B) $0
C) $16,360
D) $11,680
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290) 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 $790,000 per year in fixed costs and
$1.40 per ton variable cost. Last year, 84,000 tons of crushed stone were budgeted to be
delivered to the West Plant and 99,000 tons of crushed stone to the East Plant. During the year,
the trucking department actually delivered 83,000 tons of crushed stone to the West Plant and
101,000 tons to the East Plant. Its actual costs for the year were $90,000 variable and $798,000
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?
A) $352,548
B) $356,114
C) $411,100
D) $355,500
291) 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?
A) $312,048
B) $315,614
C) $361,600
D) $315,000
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292) 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 variable trucking department cost should be charged to the West Plant at the end of
the year?
A) $37,500
B) $36,108
C) $42,000
D) $37,000
293) 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 $365,000 per year in fixed costs and
$.30 per ton variable cost. Last year, 71,000 tons of crushed stone were budgeted to be delivered
to the West Plant and 109,000 tons of crushed stone to the East Plant. During the year, the
trucking department actually delivered 79,000 tons of crushed stone to the West Plant and 97,000
tons to the East Plant. Its actual costs for the year were $71,000 variable and $378,000 fixed. The
level of budgeted fixed costs is determined by peak-period requirements. The West Plant
requires 40% of the peak-period capacity and the East Plant requires 60%. The company
allocates fixed and variable costs separately. For performance evaluation purposes, how much
of the actual trucking department cost should not be charged to the plants at the end of the year?
A) $13,000
B) $31,200
C) $0
D) $18,200
Version 1 149
294) 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.
For performance evaluation purposes, how much of the actual trucking department cost should
not be charged to the plants at the end of the year?
A) $10,000
B) $6,000
C) $0
D) $8,000
295) Azotea Corporation has two operating divisions—a Consumer Division and a
Commercial Division. The company’s Order Fulfillment Department provides services to both
divisions. The variable costs of the Order Fulfillment Department are budgeted at $72 per order.
The Order Fulfillment Department’s fixed costs are budgeted at $241,700 for the year. The fixed
costs of the Order Fulfillment Department are budgeted based on the peak-period orders.
Percentage of Peak-period Capacity Required Budgeted Orders
Consumer Division 45% 2,000
Commercial Division 55% 3,700
At the end of the year, actual Order Fulfillment Department variable costs totaled $253,390 and
fixed costs totaled $255,140. The Consumer Division had a total of 2,040 orders and the
Commercial Division had a total of 3,660 orders for the year.
How much Order Fulfillment Department cost should be allocated to the Commercial Division
at the end of the year?
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A) $396,455
B) $405,153
C) $428,484
D) $419,255
296) Azotea Corporation has two operating divisions—a Consumer Division and a
Commercial Division. The company’s Order Fulfillment Department provides services to both
divisions. The variable costs of the Order Fulfillment Department are budgeted at $56 per order.
The Order Fulfillment Department’s fixed costs are budgeted at $233,700 for the year. The fixed
costs of the Order Fulfillment Department are budgeted based on the peak-period orders.
Percentage of Peak-period Capacity Required Budgeted Orders
Consumer Division 40% 1,200
Commercial Division 60% 2,900
At the end of the year, actual Order Fulfillment Department variable costs totaled $237,390 and
fixed costs totaled $239,140. The Consumer Division had a total of 1,240 orders and the
Commercial Division had a total of 2,860 orders for the year.
How much Order Fulfillment Department cost should be allocated to the Commercial Division
at the end of the year?
A) $300,380
B) $309,078
C) $332,409
D) $323,180
297) Azotea Corporation has two operating divisions—a Consumer Division and a
Commercial Division. The company’s Order Fulfillment Department provides services to both
divisions. The variable costs of the Order Fulfillment Department are budgeted at $56 per order.
The Order Fulfillment Department’s fixed costs are budgeted at $233,700 for the year. The fixed
costs of the Order Fulfillment Department are budgeted based on the peak-period orders.
Percentage of Peak-period Capacity Required Budgeted Orders
Consumer Division 40% 1,200
Commercial Division 60% 2,900
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At the end of the year, actual Order Fulfillment Department variable costs totaled $237,390 and
fixed costs totaled $239,140. The Consumer Division had a total of 1,240 orders and the
Commercial Division had a total of 2,860 orders for the year.
How much actual Order Fulfillment Department cost should not be allocated to the operating
divisions at the end of the year?
A) $7,790
B) $5,440
C) $13,230
D) $0
298) Mannerman Products, Incorporated, operates an electric power plant which provides all
electrical power for the company’s Machining and Fabrication departments. Information on
kilowatt-hours (kwh) of power usage in these departments for May follow:
Machining Fabrication Total
Budgeted kwh 20,000 10,000 30,000
Actual kwh 25,000 15,000 40,000
The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000
and are determined by peak-period requirements. Actual fixed costs for the month totaled
$65,000. The Machining Department requires 60% of the peak-period capacity and the
Fabrication Department requires 40%.
For performance evaluation purposes, how much of the electric power plant’s fixed costs
should be charged to the Fabrication department at the end of the month for purposes of
evaluating performance?
A) $18,000
B) $24,000
C) $30,000
D) $26,000
299) Mannerman Products, Incorporated, operates an electric power plant which provides all
electrical power for the company’s Machining and Fabrication departments. Information on
kilowatt-hours (kwh) of power usage in these departments for May follow:
Machining Fabrication Total
Budgeted kwh 20,000 10,000 30,000
Actual kwh 25,000 15,000 40,000
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The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000
and are determined by peak-period requirements. Actual fixed costs for the month totaled
$65,000. The Machining Department requires 60% of the peak-period capacity and the
Fabrication Department requires 40%.
How much (if any) of the electric power plant’s actual fixed costs of $65,000 should not be
charged to the other departments?
A) $0
B) $10,000
C) $5,000
D) $15,000
300) Ghia Manufacturing Corporation charges its Maintenance Department’s service costs to
two operating departments, Fabrication and Assembly. Charges are made on the basis of
machine-hours. Information pertaining to machine-hours for the year follows:
Fabrication Assembly
Budgeted machine-hours for the year 40,000 120,000
Actual machine-hours for the year 45,000 105,000
Percentage of peak-period capacity 23.2% 76.8%
The following costs pertain to the Maintenance Department:
Budgeted For Year Actual For Year
Variable costs $ 200,000 $ 240,000
Fixed costs $ 500,000 $ 450,000
For performance evaluation purposes, how much of the Maintenance Department’s variable cost
should be charged to the Fabrication Department at year-end?
A) $36,000
B) $46,400
C) $50,000
D) $56,250
301) Ghia Manufacturing Corporation charges its Maintenance Department’s service costs to
two operating departments, Fabrication and Assembly. Charges are made on the basis of
machine-hours. Information pertaining to machine-hours for the year follows:
Fabrication Assembly
Budgeted machine-hours for the year 40,000 120,000
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Actual machine-hours for the year 45,000 105,000
Percentage of peak-period capacity 23.2% 76.8%
The following costs pertain to the Maintenance Department:
Budgeted For Year Actual For Year
Variable costs $ 200,000 $ 240,000
Fixed costs $ 500,000 $ 450,000
For performance evaluation purposes, how much of the Maintenance Department’s fixed cost
should be charged to the Assembly Department at year-end?
A) $315,000
B) $337,500
C) $345,600
D) $384,000
302) Lakeside Nursing Home has two operating departments, Custodial Care and
Rehabilitation. It also has a Housekeeping Department that serves the two operating departments.
The costs of the Housekeeping Department are all variable and are charged to the operating
departments on the basis of labor-hours. Data for September follow:
Custodial Care Rehabilitation
Budgeted labor-hours 3,000 1,000
Actual labor-hours 3,200 1,600
The budgeted costs of the Housekeeping Department for September were $24,000 and the actual
costs were $29,760.
How much Housekeeping Department cost should be charged to Rehabilitation at the end of
September?
A) $19,840
B) $9,920
C) $9,600
D) $7,440
303) Lakeside Nursing Home has two operating departments, Custodial Care and
Rehabilitation. It also has a Housekeeping Department that serves the two operating departments.
The costs of the Housekeeping Department are all variable and are charged to the operating
departments on the basis of labor-hours. Data for September follow:
Custodial Care Rehabilitation
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Budgeted labor-hours 3,000 1,000
Actual labor-hours 3,200 1,600
The budgeted costs of the Housekeeping Department for September were $24,000 and the actual
costs were $29,760.
For performance evaluation purposes, how much of the actual Housekeeping Department costs
for September should not be charged to the operating departments?
A) $960
B) $5,760
C) $0
D) $1,240
304) Nafth Company has an Equipment Services Department that performs all needed
maintenance work on the equipment in the company’s Fabrication and Assembly Departments.
Costs of the equipment Services Department are charged to the Fabrication and Assembly
Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow:
Fabrication Assembly Total
Budgeted direct labor-hours 34,000 64,000 98,000
Actual direct labor-hours 39,000 69,000 108,000
Peak-period direct labor-hours 44,000 84,000 128,000
For the year just ended, the company budgeted its variable maintenance costs at $350,000 for the
year. Actual variable maintenance costs for the year totaled $395,000.
For performance evaluation purposes, how much of the $395,000 of actual variable
maintenance cost should be charged to the Assembly Department at the end of the year just
ended? (Do not round your intermediate calculations.)
A) $306,065
B) $252,360
C) $246,429
D) $302,422
305) Nafth Company has an Equipment Services Department that performs all needed
maintenance work on the equipment in the company’s Fabrication and Assembly Departments.
Costs of the equipment Services Department are charged to the Fabrication and Assembly
Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow:
Fabrication Assembly Total
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Budgeted direct labor-hours 20,000 50,000 70,000
Actual direct labor-hours 25,000 55,000 80,000
Peak-period direct labor-hours 30,000 70,000 100,000
For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the
year. Actual variable maintenance costs for the year totaled $255,000.
For performance evaluation purposes, how much of the $255,000 of actual variable
maintenance cost should be charged to the Assembly Department at the end of the year just
ended?
A) $182,143
B) $175,312
C) $165,000
D) $178,500
306) Nafth Company has an Equipment Services Department that performs all needed
maintenance work on the equipment in the company’s Fabrication and Assembly Departments.
Costs of the equipment Services Department are charged to the Fabrication and Assembly
Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow:
Fabrication Assembly Total
Budgeted direct labor-hours 20,000 50,000 70,000
Actual direct labor-hours 25,000 55,000 80,000
Peak-period direct labor-hours 30,000 70,000 100,000
For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the
year. Actual variable maintenance costs for the year totaled $255,000.
How much (if any) of the $255,000 in variable maintenance cost should not be charged to the
Fabrication and Assembly Departments?
A) $0
B) $15,000
C) $45,000
D) $60,000
307) Return on investment (ROI) equals margin multiplied by sales.
⊚ true
⊚ false
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308) When used in return on investment (ROI) calculations, turnover equals sales divided by
average operating assets.
⊚ true
⊚ false
309) Net operating income is income before interest and taxes.
⊚ true
⊚ false
310) An advantage of using ROI to evaluate performance is that it encourages the manager to
reduce the investment in operating assets as well as increase net operating income.
⊚ true
⊚ false
311) All other things the same, an increase in unit sales will normally result in an increase in
the return on investment.
⊚ true
⊚ false
312) The use of return on investment (ROI) as a performance measure may lead managers to
reject a project that would be favorable for the company as a whole.
⊚ true
⊚ false
313) Land held for possible plant expansion would be included as an operating asset when
computing return on investment (ROI).
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⊚ true
⊚ false
314) A change in sales has no effect on margin and turnover.
⊚ true
⊚ false
315) Suppose a company evaluates divisional performance using both ROI and residual
income. The company’s minimum required rate of return for the purposes of residual income
calculations is 12%. If a division has a residual income of $6,000, then its return on investment is
less than 12%.
⊚ true
⊚ false
316) If a company contains a number of investment centers of differing sizes, return on
investment (ROI) should be used rather than residual income to rank the financial performance
of the divisions.
⊚ true
⊚ false
317) ROI and residual income are tools used to evaluate managerial performance in
investment centers.
⊚ true
⊚ false
318) Residual income should be used to evaluate an investment center rather than a cost or
profit center.
⊚ true
⊚ false
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319) Residual income can be used most effectively in comparing the performance of divisions
of different size.
⊚ true
⊚ false
320) Residual income is the difference between net operating income and the product of
average operating assets and the minimum rate of return.
⊚ true
⊚ false
321) A profit center is responsible for generating revenue, but it is not responsible for
controlling costs.
⊚ true
⊚ false
322) A cost center is a responsibility center.
⊚ true
⊚ false
323) The basic objective of responsibility accounting is to charge each manager with those
costs and/or revenues over which he has control.
⊚ true
⊚ false
324) Under a responsibility accounting system, fewer expenses are charged against managers
the higher one moves upward in an organization.
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⊚ true
⊚ false
325) The selling division in a transfer pricing situation should want the transfer price to cover
at least the full cost per unit plus the lost contribution margin per unit on outside sales.
⊚ true
⊚ false
326) From the buying division’s perspective, when a transferred item can be purchased from
an outside supplier, the price charged by the outside supplier represents an upper bound on the
charge that should be made on transfers between the selling and buying divisions.
⊚ true
⊚ false
327) Whenever the selling division must give up outside sales in order to sell internally, it has
an opportunity cost that should be considered in setting the transfer price.
⊚ true
⊚ false
328) The transfer price used for internal transfers between divisions of the same company
cannot affect the divisions’ reported profits.
⊚ true
⊚ false
329) When a dispute arises over a transfer price, top managers should intervene to keep
divisional managers from making a costly mistake, even though the divisions are evaluated as
profit centers.
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⊚ true
⊚ false
330) Setting transfer prices at full cost can lead to bad decisions because, among other reasons,
full cost does not take into account opportunity costs.
⊚ true
⊚ false
331) If transfer prices are to be based on cost, then the costs should be actual costs rather than
standard costs.
⊚ true
⊚ false
332) In service department cost allocations, sales dollars should be used as an allocation base
whenever possible.
⊚ true
⊚ false
333) For performance evaluation purposes, variable service department costs should be
charged to operating departments in predetermined, lump-sum amounts.
⊚ true
⊚ false
334) All charges for services computed using budgeted rather than actual rates should be
removed from an operating department’s performance report.
⊚ true
⊚ false
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335) Since sales dollars represents “ability to pay,” it is superior to most other bases used for
allocating or charging service department costs.
⊚ true
⊚ false
336) For performance evaluation purposes, any variance over budgeted fixed costs in a service
department should be the responsibility of the service department and should not be charged to
the departments that use the service.
⊚ true
⊚ false
337) For performance evaluation purposes, the actual fixed costs of a service department
should be charged to the departments that consume the service in proportion to the actual
services provided to the consuming departments during the period.
⊚ true
⊚ false
338) Whenever possible, service department costs should be separated into fixed and variable
costs and charged separately to operating departments.
⊚ true
⊚ false
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Answer Key
Test name: chapter 11
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