35. Refer to Figure 12-2. What is the residual income for Stock Division without the additional
investment?
a.
$40,000
b.
$6,000
c.
$6,600
d.
$6,200
e.
$7,500
36. Refer to Figure 12-2. What is the residual income for Stock Division with the additional project?
a.
$40,000
b.
$6,000
c.
$7,900
d.
$4,200
e.
$25,600
37. Refer to Figure 12-2. Which of the following statements is true?
a.
If the manager invests in the additional project, ROI of the division will decrease.
b.
The residual income of the project is less than the residual income of the division without
the project; therefore the project will be rejected.
c.
Average investment for Stock Division will decrease if the project is accepted for
investment.
d.
If the manager invests in the additional project, residual income of the division will
increase.
e.
None of these.
38. Residual income is calculated as
a.
operating income − (ROI average operating assets).
b.
operating income/(ROI average operating assets).
c.
operating income/(minimum rate of return average operating assets).
d.
operating income − (minimum rate of return average operating assets).
e.
(minimum rate of return average operating assets)/operating income.
39. The performance measure that uses after-tax operating income and the actual cost of capital employed
is
a.
return on investment (ROI).
b.
residual income.
c.
economic value added (EVA).
d.
margin.
e.
turnover.
40. Which of the following is an absolute dollar measure rather than a percentage?
a.
average operating assets.
b.
operating income.
c.
residual income.
d.
economic value added (EVA).
e.
All of these.
41. Economic Value Added is residual income with the cost of capital equal to the firm’s
a.
budgeted cost of capital.
b.
average cost of capital.
c.
standard cost of capital.
d.
actual cost of capital.
42. In calculating residual income, the variable set by top management is called the
a.
average operating assets.
b.
operating income.
c.
hurdle rate.
d.
actual operating assets.
43. The calculation of Economic Value Added is
a.
margin minus total annual cost of capital.
b.
operating income minus average cost of capital.
c.
operating income minus total annual cost of capital.
d.
operating income minus taxes and the total annual cost of capital.
44. Using Economic Value Added (EVA) to calculate residual income, the cost of capital employed is
a.
the standard percentage cost of capital multiplied by the average capital employed.
b.
the actual percentage cost of capital multiplied by the average capital employed.
c.
the standard percentage cost of capital multiplied by the total capital employed.
d.
the actual percentage cost of capital multiplied by the total capital employed.
45. The following information pertains to the three divisions of Marlow Company:
Division X
Division Y
Division Z
Sales
?
?
$1,250,000
Net operating income
$36,000
$25,000
$75,000
Average operating assets
$300,000
?
?
Return on investment
?
20%
15%
Margin
0.10
0.05
?
Turnover
1.2
?
?
Target ROI
15%
12%
10%
What is the residual income for Division X?
a.
$36,000
b.
$45,000
c.
$(9,000)
d.
$(36,000)
46. The Auto Division of Big Department Store had a net operating income of $560,000, a net asset base
of $4,000,000, and a required rate of return of 12%. Sales for the period totaled $3,000,000. The
residual income for the period is
a.
$480,000.
b.
$360,000.
c.
$120,000.
d.
$80,000.
47. A price charged for a component by the selling division to the buying division of the same company is
called a(n)
a.
transfer price.
b.
economic value added.
c.
market price.
d.
cost-based price.
e.
None of these.
48. The level of the transfer price can affect the overall company because
a.
the higher the transfer price, the higher the operating income.
b.
it may impact on the taxes paid by the multinational company.
c.
the lower the transfer price, the lower the total costs.
d.
internal transfers are always costly to the firm.
e.
the transfer price may be higher than the cost-based price.
49. If there is a competitive outside market for the transferred product, then the best transfer price is the
a.
cost-based price.
b.
negotiated price.
c.
market price.
d.
price set by central management.
e.
None of these.
50. If the selling division is operating at less than full capacity, the floor of the bargaining range would
most probably set at
a.
market price.
b.
full manufacturing cost.
c.
average price of all products sold by the selling division.
d.
manufacturing cost plus some percentage for profit.
e.
variable cost of manufacturing.
51. The Engine Division provides engines for the Tractor Division of a company. The standard unit costs
for Engine Division are:
Direct materials
$ 600
Direct labor
1,200
Variable overhead
300
Fixed overhead
150
Market price per unit
2,730
What is the transfer price based on full cost plus a markup of 30%?
a.
$2,925
b.
$585
c.
$2,760
d.
$2,730
52. Several transfer pricing policies are used in practice. These transfer pricing policies include
a.
transfer at market price.
b.
transfer at negotiated price.
c.
transfer at cost.
d.
All of these.
53. Division A produces a component and wants to sell it to Division B. The transfer price is
a.
revenue to Division ‘A’ and a cost to Division B.
b.
revenue to Division ‘B’ and a cost to Division A.
c.
revenue to Division ‘A’ and no effect on Division B.
d.
a cost to Division ‘B’ and no effect on Division A.
54. The Engine Division provides engines for the Tractor Division of a company. The standard unit costs
for Engine Division are:
Direct materials
$ 600
Direct labor
1,200
Variable overhead
300
Fixed overhead
150
Market price per unit
2,730
The engine department has excess capacity. What is the best transfer price to avoid transfer price
problems?
a.
$1,350
b.
$300
c.
$900
d.
$2,100
55. Pautner Company had the following historical accounting data per unit:
Direct materials
$60
Direct labor
30
Variable overhead
15
Fixed overhead
24
Variable selling expenses
45
Fixed selling expenses
9
The units are normally transferred internally from Division A to Division B. The units also may be
sold externally for $210 per unit. The minimum profit level accepted by the company is a markup of
30%. There were no beginning or ending inventories.
What would be the transfer price if Division X uses full cost plus markup?
a.
$167.70
b.
$198.90
c.
$136.50
d.
$129.00
Figure 12-3.
Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes
boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs
the following costs for one box:
Direct materials
$0.35
Direct labor
$0.60
Variable overhead
$0.40
Fixed overhead
$0.13
Total
$1.48
Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside
supplier for $1.80 each (the same price that Centra receives).
56. Refer to Figure 12-3. Assume that Grey Inc. mandates that any transfers take place at full
manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?
a.
$1.35
b.
$1.48
c.
$1.00
d.
Cannot be determined from the information given.
e.
$0.90
57. Refer to Figure 12-3. Assume that Grey Inc. allows division managers to negotiate transfer price.
Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the ceiling of
the bargaining range and which division sets it?
a.
$1.48; Centra
b.
$1.35; Centra
c.
$1.80; Mantra
d.
$1.35; Mantra
e.
$1.80; Centra
58. Refer to Figure 12-3. Assume that Grey Inc. allows division managers to negotiate transfer price.
Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the floor of
the bargaining range and which division sets it?
a.
$1.80; Centra
b.
$1.48; Centra
c.
$1.48; Mantra
d.
$1.35; Mantra
e.
$1.35; Centra
59. Refer to Figure 12-3. Assume that Grey Inc. allows division managers to negotiate transfer price.
Centra is producing 700,000 boxes. If Centra and Mantra agree to transfer boxes, what is the floor of
the bargaining range and which division sets it?
a.
$1.80; Centra
b.
$1.35; Centra
c.
$1.48; Mantra
d.
$1.35; Mantra
e.
$1.80; Mantra
Figure 12-4.
Quinn Inc. has a number of divisions. One division, Style, makes zippers that are used in the
manufacture of boots. Another division, LeatherStuff, makes boots that use the zippers and needs
90,000 zippers per year. Style incurs the following costs for one zipper:
Direct materials
$0.23
Direct labor
$0.20
Variable overhead
$0.95
Fixed overhead
$1.32
Total
$2.70
Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce
and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for
$3.50 each (the same price that Style receives).
60. Refer to Figure 12-4. Assume that Quinn allows negotiated transfer pricing. What is the floor of the
bargaining range and which division sets it?
a.
$3.50; Style
b.
$2.70; LeatherStuff
c.
$2.70; Style
d.
$1.38; LeatherStuff
e.
$1.38; Style
61. Refer to Figure 12-4. Assume that Quinn allows negotiated transfer pricing. What is the ceiling of the
bargaining range and which division sets it?
a.
$3.50; Style
b.
$3.50; LeatherStuff
c.
$2.70; Style
d.
$2.70; LeatherStuff
e.
$1.38; Style
62. Refer to Figure 12-4. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25.
What are the total cost savings for LeatherStuff?
a.
$22,500
b.
$315,000
c.
$292,500
d.
$69,000
e.
$81,000
63. Refer to Figure 12-4. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25.
What is the total benefit for Style?
a.
$243,000
b.
$292,500
c.
$168,300
d.
$69,000
e.
$81,000
64. Refer to Figure 12-4. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25.
What is the total benefit for Quinn, Inc.?
a.
$22,500
b.
$292,500
c.
$163,000
d.
$169,000
e.
$190,800
65. The strategic management system that translates an organization’s mission and strategy into
operational objectives and performance measures is
a.
activity-based management.
b.
responsibility accounting.
c.
strategic accounting.
d.
cost information management.
e.
Balanced Scorecard.
66. The Balanced Scorecard perspective that describes the internal processes needed to provide value for
customers and owners is the ____ perspective.
a.
customer
b.
internal business process
c.
learning and growth
d.
financial
e.
None of these.
67. The Balanced Scorecard perspective that describes the economic consequences of actions taken in the
other three perspectives is the ____ perspective.
a.
customer
b.
internal business process
c.
learning and growth
d.
financial
e.
None of these.
68. The Balanced Scorecard perspective that defines the customer and market segments in which the
business unit will compete is the ____ perspective.
a.
customer
b.
internal business process
c.
learning and growth
d.
financial
e.
None of these.
69. The Balanced Scorecard perspective that defines the capabilities than an organization needs to create
long-term growth and improvement is the ____ perspective.
a.
learning and growth
b.
internal business process
c.
customer
d.
financial
e.
None of these.
70. A testable strategy is defined as a
a.
set of linked objectives aimed at an overall goal.
b.
means of providing managers with information about the effectiveness of strategy
implementation and the validity of the assumption underlying the strategy.
c.
means of specifying objectives, measures, targets, and initiatives for each perspective of
the Balanced Scorecard.
d.
strategic management system that defines a strategic-based responsibility accounting
system.
e.
None of these.
71. The difference between realization and sacrifice defines
a.
target objectives.
b.
reliability.
c.
single-loop feedback.
d.
customer value.
e.
None of these.
72. The process value chain consists of
a.
value, operations, and objectives.
b.
innovation, satisfaction, and value.
c.
innovation, operations, and post-sales service.
d.
design, production, and selling.
e.
design, satisfaction, and post-sales service.
73. The number of units of output that can be produced in a given period of time is called
a.
cycle time.
b.
unit process time.
c.
responsiveness.
d.
cell conversion time.
e.
velocity.
74. MCE (manufacturing cycle efficiency) is calculated using the following formula:
a.
processing time/nonprocessing time.
b.
nonprocessing time/processing time.
c.
total time/processing time.
d.
processing time/total time.
e.
total time/nonprocessing time.
75. Last night, Shirley worked on her accounting homework for one and one half hours. During that time,
she completed 6 problems. What is the cycle time for one problem?
a.
4 minutes
b.
90 minutes
c.
15 minutes
d.
10 minutes
e.
6 minutes
76. Last night, Shirley worked on her accounting homework for one and one half hours. During that time,
she completed 6 problems. What is the velocity in problems per hour?
a.
4 per hour
b.
0.67 per hour
c.
6 per hour
d.
10 per hour
e.
15 per hour
77. Porter Company makes children’s board games. One popular game requires the following amounts of
time: processing − 2 hours; waiting − 6 hours; moving − 4 hours. The Manufacturing Cycle Efficiency
(MCE) for Porter Company is
a.
16.67%.
b.
20.0%.
c.
100%.
d.
25%.
e.
33%.
78. A Utah hospital decided to streamline its surgical suite operation. In order to speed things up, the
nurses in charge studied how much time patients actually spent in various activities. They found that
on average, a patient scheduled for an operation spent about 1 hours waiting, and 1.5 hours in moving
from lab to x-ray to the operating room. The average operation takes 90 minutes. What is the MCE?
a.
100%
b.
60%
c.
50%
d.
37.5%
e.
20%
PROBLEM
1. Pollux Company had the following income statement for last year:
Sales
$360,000
Less: Cost of goods sold
195,000
Gross margin
$165,000
Less: Selling & administrative expense
78,600
Operating income
$ 86,400
Beginning assets were $565,000 and ending assets were $597,000.
(Carry computations out to three decimal places.)
A.
What are average operating assets?
B.
What is margin?
C.
What is turnover?
D.
What is ROI?
2. Noble Company has two divisions, the Domestic Division and the International Division. Last year,
the Domestic Division earned $360,000 using average operating assets of $1,440,000. Sales for the
Domestic Division were $3,600,000. Last year, the International Division earned $560,000 using
average operating assets of $2,800,000. Sales for the International Division were $7,000,000.
A.
For the Domestic Division, margin is __________________ Turnover is
__________________ and ROI is __________________.
B.
For the International Division, margin is __________________ Turnover is
__________________ and ROI is __________________.
C.
If these are the only two divisions of Noble Company, what is ROI for Noble
Company?
A.
Margin = $360,000/$3,600,000 = 0.1 or 10%
Turnover = $3,600,000/$1,440,000 = 2.5
ROI = 0.1 2.5 = 0.25 or 25%
B.
Margin = $560,000/$7,000,000 = 0.08 or 8%
Turnover = $7,000,000/$2,800,000 = 2.5
ROI = 0.08 2.5 = 0.20 or 20%
C.
ROI = ($360,000 + $560,000)/($1,440,000 + $2,800,000) = 0.217 or 21.7%
3. Chase Company had the following income statement for last year:
Sales
$180,000
Less: Cost of goods sold
97,500
Gross margin
$ 82,500
Less: Selling & Admin. Expense
39,300
A.
Average operating assets = ($565,000 + $597,000)/2 = $581,000
B.
Margin = $86,400/$360,000 = 0.24 or 24%
C.
Turnover = $360,000/$581,000 = 0.620
D.
ROI = $86,400/$581,000 = 0.149 or 14.9%