138) Kragle Corporation reported the following financial data for one of its divisions for the
year; average invested assets of $470,000; sales of $930,000; and income of $105,000. The
investment turnover is:
A) 22.3.
B) 50.5.
C) 1.98.
D) 447.6.
E) 11.3.
139) If a company reports profit margin of 31.6% and investment turnover of 1.30 for one of its
investment centers, the return on investment must be:
A) 24.3%.
B) 41.1%.
C) 32.9%.
D) 30.3%.
E) 4.11%.
140) Holo Company reported the following financial numbers for one of its divisions for the
year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000;
and operating expenses of $1,147,000. Compute the division’s return on investment:
A) 18.6%.
B) 21.3%.
C) 17.3%.
D) 10.4%.
E) 14.7%.
141) Holo Company reported the following financial numbers for one of its divisions for the
year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000;
and operating expenses of $1,147,000. Assume a target income of 15% of average invested
assets. Compute residual income for the division:
A) $150,450.
B) $196,750.
C) $150,500.
D) $133,000.
E) $100,300.
142) Pleasant Hills Properties is developing a golf course subdivision that includes 250 home
lots; 100 lots are golf course lots and will sell for $95,000 each; 150 are street frontage lots and
will sell for $65,000. The developer acquired the land for $1,800,000 and spent another
$1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated
to the golf course lots using value basis. (Round your intermediate percentages to 2 decimal
places.)
A) $1,920,000.
B) $720,000.
C) $1,620,800.
D) $1,579,200.
E) $1,080,000.
143) Pleasant Hills Properties is developing a golf course subdivision that includes 250 home
lots; 100 lots are golf course lots and will sell for $95,000 each; 150 are street frontage lots and
will sell for $65,000. The developer acquired the land for $1,800,000 and spent another
$1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated
to the street frontage lots using value basis. (Round your intermediate percentages to 2
decimal places.)
A) $1,920,000.
B) $720,000.
C) $1,620,800.
D) $1,579,200.
E) $1,080,000.
144) The following is a partially completed lower section of a departmental expense allocation
spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four
departments. Purchasing department expenses are allocated to the operating departments on the
basis of purchase orders. Maintenance department expenses are allocated based on square
footage. Compute the amount of Purchasing department expense to be allocated to Fabrication.
Purchasing Maintenance Fabrication Assembly
Operating costs $ 32,000 $ 18,000 $ 96,000 $ 62,000
No. of purchase orders 16 4
Sq. ft. of space 3,300 2,700
A) $6,400.
B) $9,900.
C) $8,100.
D) $17,600.
E) $25,600.
145) The following is a partially completed lower section of a departmental expense allocation
spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four
departments. Purchasing department expenses are allocated to the operating departments on the
basis of purchase orders. Maintenance department expenses are allocated based on square
footage.
Purchasing Maintenance Fabrication Assembly
Operating costs $ 32,000 $ 18,000 $ 96,000 $ 62,000
No. of purchase orders 16 4
Sq. ft. of space 3,300 2,700
Required:
Compute the amount of Purchasing department expense to be allocated to Assembly.
A) $6,400.
B) $9,900.
C) $8,100.
D) $14,400.
E) $25,600.
146) The following is a partially completed departmental expense allocation spreadsheet for
Brickland. It reports the total amounts of direct and indirect expenses for its four departments.
Purchasing department expenses are allocated to the operating departments on the basis of
purchase orders. Maintenance department expenses are allocated based on square footage.
Compute the amount of Maintenance department expense to be allocated to Fabrication.
Purchasing Maintenance Fabrication Assembly
Operating costs $ 32,000 $ 18,000 $ 96,000 $ 62,000
No. of purchase orders 16 4
Sq. ft. of space 3,300 2,700
A) $6,400.
B) $9,900.
C) $8,100.
D) $9,000.
E) $25,600.
147) The following is a partially completed lower section of a departmental expense allocation
spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four
departments. Purchasing department expenses are allocated to the operating departments on the
basis of purchase orders. Maintenance department expenses are allocated based on square
footage. Compute the amount of Maintenance department expense to be allocated to Assembly.
Purchasing Maintenance Fabrication Assembly
Operating costs $ 32,000 $ 18,000 $ 96,000 $ 62,000
No. of purchase orders 16 4
Sq. ft. of space 3,300 2,700
A) $6,400.
B) $9,900.
C) $8,100.
D) $9,000.
E) $25,600.
148) Which of the following represents the correct formula for calculating the cash conversion
cycle?
A) Days’ sales in inventory − Days’ payable outstanding.
B) Days’ sales in cost of goods sold + Days’ sales in inventory − Days’ payable outstanding.
C) Days’ sales in accounts receivable + Days’ sales in inventory − Days’ payable outstanding.
D) Days’ sales in cost of goods sold − Days’ payable outstanding.
E) Days’ sales in accounts receivable − Days’ payable outstanding.
149) Which of the following statements is not correct concerning the elements of the cash
conversion cycle time?
A) The higher the number of days in the cash conversion cycle, the more efficiently the company
is managing its cash.
B) Effectively managing working capital is important for businesses to survive and profit.
C) The cash conversion cycle measures the average time it takes to convert cash outflows into
cash inflows from customers.
D) Lean manufacturers may reduce the total cash conversion cycle time.
E) The cash conversion cycle is based on accounts receivable, accounts payable, and inventory.
150) Using the information below, compute the cash conversion cycle:
Days’ sales in accounts receivable 35 days
Days’ sales in inventory 52 days
Days’ payable outstanding 45 days
A) 12 days.
B) 87 days.
C) 42 days.
D) 47 days.
E) 51 days.
151) Using the information below, compute the cycle efficiency:
Days’ sales in accounts receivable 15 days
Days’ sales in inventory 72 days
Days’ payable outstanding 35 days
A) 51 days.
B) 87 days.
C) 37 days.
D) 52 days.
E) 63 days.
152) When the selling division in an internal transfer has unsatisfied demand from outside
customers for the product that is being transferred, then the lowest acceptable transfer price as far
as the selling division is concerned is:
A) variable cost of producing a unit of product.
B) the full absorption cost of producing a unit of product.
C) the market price charged to outside customers.
D) the amount that the purchasing division would have to pay an outside seller to acquire a
similar product for its use.
E) all the costs of producing a unit of product.
153) Division M 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 $ 50
Total fixed costs $ 400,000
Capacity in units 25,000
Division O of the same company would like to use the part manufactured by Division M in one
of its products. Division O currently purchases a similar part made by an outside company for
$70 per unit and would substitute the part made by Division M. Division O requires 5,000 units
of the part each period. Division M can sell every unit it produces on the outside market. What
should be the lowest acceptable transfer price?
A) $75
B) $66
C) $16
D) $50
E) $25
154) Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct
materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed
manufacturing overhead is $3. Southwestern Division sells Part AR3 to other companies for $30.
The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products. The
Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the
Northeastern Division would require. What is the lowest transfer price at which the Southwestern
Division should be willing to sell Part AR3 to the Northeastern Division?
A) $30
B) $26
C) $23
D) $27
E) $21
155) Part 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is
variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of
Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough
idle capacity to produce all of the units of Part 7B that the Northern Division would require.
What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B
to the Northern Division?
A) $30
B) $21
C) $47
D) $17
E) $20
156) Division P of Launch Corporation has the capacity for making 75,000 wheel sets per year
and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per
wheel set, and the variable production cost per unit is $65. Division Q of Launch Corporation
currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside
supplier at a price of $90 per wheel set. If Division Q were to buy the 30,000 wheel sets it needs
annually from Division P at $87 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) $600,000
B) $225,000
C) $750,000
D) $135,000
E) $700,000
157) Division X makes a part that it sells to customers outside of the company. Data concerning
this part appear below:
Selling price to outside customers $ 50
Variable cost per unit $ 30
Total fixed costs $ 400,000
Capacity in units 25,000
Division Y of the same company would like to use the part manufactured by Division X in one
of its products. Division Y currently purchases a similar part made by an outside company for
$49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units
of the part each period. Division X has ample excess capacity to handle all of Division Y’s needs
without any increase in fixed costs and without cutting into outside sales. What is the lowest
transfer price Division X will accept?
A) $50
B) $49
C) $46
D) $30
E) $20
158) Division A makes a part that it sells to customers outside of the company. Data concerning
this part appear below:
Selling price to outside customers $ 40
Variable cost per unit $ 30
Total fixed costs $ 10,000
Capacity in units 20,000
Division B of the same company would like to use the part manufactured by Division A in one of
its products. Division B currently purchases a similar part made by an outside company for $38
per unit and would substitute the part made by Division A. Division B requires 5,000 units of the
part each period. Division A has ample capacity to produce the units for Division B without any
increase in fixed costs and without cutting into sales to outside customers. If Division A sells to
Division B rather than to outside customers, the variable cost be unit would be $1 lower. What is
the lowest acceptable transfer price Division A should accept?
A) $40
B) $38
C) $30
D) $29
E) $10
159) The Mixed Nuts Division of Yummy Snacks, Inc. had the following operating results last
year:
Sales (140,000 pounds of product) $ 70,000
Variable expenses 42,000
Contribution margin $ 28,000
Fixed expenses 12,000
Income $ 16,000
Yummy expects identical operating results in the division this year. The Mixed Nuts Division
has the ability to produce and sell 200,000 pounds of product annually. Assume that the Trail
Mix Division of Yummy wants to purchase an additional 20,000 pounds of nuts from the Mixed
Nuts Division. Mixed Nuts will be able to increase its profit by accepting any transfer price
above:
A) $0.25 per pound
B) $0.08 per pound
C) $0.15 per pound
D) $0.30 per pound
E) $0.10 per pound
160) The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results
last year:
Sales (150,000 pounds of chocolate) $ 60,000
Variable expenses 37,500
Contribution margin 22,500
Fixed expenses 12,000
Profit $ 10,500
Assume that the Dark Chocolate Division is currently operating at its capacity of 150,000 pounds
of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional
20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per
pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its
current profit?
A) $0.40 per pound
B) $0.08 per pound
C) $0.15 per pound
D) $0.25 per pound
E) $0.30 per pound
161) Division X makes a part with the following characteristics:
Production capacity 25,000 units
Selling price to outside customers $ 18
Variable cost per unit $ 11
Fixed costs, total $ 100,000
Division Y of the same company would like to purchase 10,000 units each period from Division
X. Division Y now purchases the part from an outside supplier at a price of $17 each. Suppose
Division X has ample excess capacity to handle all of Division Y’s needs without any increase in
fixed costs and without cutting into sales to outside customers. If Division X refuses to accept
the $17 price internally and Division Y continues to buy from the outside supplier, the company
as a whole will be:
A) worse off by $70,000 each period.
B) better off by $10,000 each period.
C) worse off by $60,000 each period.
D) worse off by $20,000 each period.
E) better off by $60,000 each period.
162) Division A produces a part with the following characteristics:
Capacity in units 50,000
Selling price per unit $ 30
Variable cost per unit $ 18
Fixed cost per unit $ 3
Division B, another division in the company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at $28 per unit. If Division A
sells to Division B, $1 in variable costs can be avoided. Suppose Division A is currently
operating at capacity and can sell all of the units it produces on the outside market for its usual
selling price. From the point of view of Division A, any sales to Division B should be priced no
lower than:
A) $27
B) $29
C) $20
D) $28
E) $21
163) Match the appropriate definition with the following terms:
(a) A department or unit that incurs costs without directly generating revenues.
(b) A department or unit that generates revenues and incurs costs, in which the manager is also
responsible for investments made in operating assets.
(c) Costs that are incurred for the joint benefit of more than one department and cannot be
readily traced to only one department.
(d) Costs readily traced to a specific department because they are incurred for the sole benefit of
that department.
(e) Costs incurred to produce or purchase two or more products at the same time.
(f) Costs for which a manager has the power to determine or at least significantly affect.
(g) A department that generates revenues and incurs costs.
________ (1) Direct expenses
________ (2) Profit center
________ (3) Controllable costs
________ (4) Indirect expenses
________ (5) Cost center
________ (6) Joint cost
________ (7) Investment center
164) Match the appropriate definition a through h with the following terms:
(a) A department whose manager is judged on the ability to generate revenues in excess of the
department’s costs.
(b) A department or unit that generates revenues and incurs costs, in which the manager is also
responsible for investments made in operating assets.
(c) Set up to control costs and evaluate managers’ performances by assigning costs to the
managers responsible for controlling them.
(d) Compares actual and budgeted costs and expenses under the control of a manager.
(e) A department whose manager is judged on the ability to control costs by keeping them within
a satisfactory range.
(f) A measure of departmental sales less direct expenses.
________ (1) Investment center
________ (2) Performance report
________ (3) Cost center
________ (4) Departmental contribution to overhead
________ (5) Profit center
________ (6) Responsibility accounting system
165) What is a profit center and how is its performance evaluated?