56. Selected data from Chering Division’s accounting records revealed the following:
Sales $825,000
Average investment $440,000
Net operating income $66,000
Minimum rate of return (divisional cost of capital) 14%
If the minimum rate of return (i.e., cost of capital) was 13%, Chering Division’s residual income
(RI) would calculate to be:
57. An investment center’s return on investment (ROI) is affected by a change in:
Asset Turnover Return on Sales
(A) Yes Yes
(B) Yes No
(C) No No
(D) No Yes
(E) Yes Not likely
58. The return on investment (ROI) ratio measures:
59. Return on investment (ROI) is a term often used to express income earned on capital
invested in a division (investment center). A division’s ROI would increase if:
60. Residual income (RI) is:
61. The following results pertain to an investment center.
Sales $1,500,000
Variable costs 800,000
Traceable fixed costs 100,000
Average investment 1,000,000
Divisional cost of capital (discount rate) 10%
How much is the residual income (RI) for this investment center?
62. The following results pertain to an investment center.
Sales $1,500,000
Variable costs 800,000
Traceable fixed costs 100,000
Average investment 1,000,000
Divisional cost of capital (discount rate) 10%
How much is the return on investment (ROI) for this investment center?
63. Residual income (RI) may be a better measure for performance evaluation of an
investment center than return on investment (ROI) is because:
64. Given a competitive outside market for identical intermediate goods, what is generally
considered the best transfer price, assuming all relevant information is readily available?
65. Transfer prices based on actual costs of the selling division as opposed to standard costs
incurred by that division:
66. The primary limitation of a full-cost based transfer pricing system is that:
67. A company has two divisions, X and Y, each operated as an investment center. X charges
Y $55 per unit for each unit transferred to Y. Other data are:
X’s variable cost per unit $40
X’s fixed costs $100,000
X’s annual sales to Y 5,000 units
X’s sales to outsiders 10,000 units
X is planning to raise its transfer price to $65 per unit. Division Y can purchase units at $50 each
from outsiders, but doing so would idle X’s facilities now committed to producing units for Y.
Division X cannot increase its sales to outsiders.
From the perspective of the short-term profit
position of the company as a whole
, from which source should Division Y acquire the units?
68. Division A, which is operating at capacity, produces a component that it currently sells in
a competitive market for $25 per unit. At the current level of production, the fixed cost of
producing this component is $8 per unit and the variable cost is $10 per unit. Division B would
like to purchase this component from Division A. The price that Division A should charge Division
Y for this component is:
69. A company established a branch to sell automobile seat covers. The company purchases
these covers and stores them in a warehouse. The covers are then shipped from the warehouse
to both the home office and the new branch, FOB (Free On Board) destination. Home office
management is responsible for setting the transfer price of the covers charged to the branch.
Per-unit costs of the covers are:
$60.00 purchase price
$2.50 shipping cost to warehouse
$3.00 handling cost, including $1 allocated administrative overhead
$3.50 shipping cost to branch, paid by home office
According to the general transfer-pricing formula given in the text, the
minimum
transfer price
that home office should charge the branch is:
70. Selected data from Division A of Green Company are as follows:
Sales $500,000
Average investment $300,000
Operating income $60,000
Minimum rate of return 15%
Division A’s return on investment (ROI) is:
71. Selected data from Division A of Green Company are as follows:
Sales $500,000
Average investment $300,000
Operating income $60,000
Minimum rate of return 15%
Division A’s return on sales (ROS) is:
72. Selected data from Division A of Green Company are as follows:
Sales $500,000
Average investment $300,000
Operating income $60,000
Minimum rate of return 15%
Division A’s asset turnover (AT) is (rounded to two decimal places):
73. Selected data from Division A of Green Company are as follows:
Sales $500,000
Average investment $300,000
Operating income $60,000
Minimum rate of return 15%
Division A’s residual income (RI) is:
74. Selected data from Division A of Green Company are as follows:
Sales $500,000
Average investment $300,000
Operating income $60,000
Minimum rate of return 15%
If the minimum rate of return was 10%, Division A’s residual income (RI) would be:
75. In the context of transfer pricing,
dual pricing
is:
76. Expropriation occurs when the government in which a foreign company’s investment
assets are located:
77. One advantage of the return on investment (ROI) metric is that it:
78. One approach to measuring the short-term financial performance of a business unit
considered an investment center is return on investment (ROI). ROI is expressed as operating
income of the investment center:
79. The two approaches for estimating Economic Value Added (EVA®) are:
80. A fully-owned subsidiary of a multinational company reports its return on investment
(ROI) periodically during the year. This unit of the company, for performance-evaluation
purposes, is likely considered a(n):
81. A primary goal of transfer pricing is to:
82. All of the following are true of market–based transfer prices except:
83. All of the following are true of cost-based transfer prices except: