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125. In an investment center, the manager has responsibility and authority for making decisions that affect:
126. The profit margin is the:
127. The investment turnover is the:
128. Identify the formula for the rate of return on investment.
129. Which of the following expressions is termed the profit margin factor as used in determining the rate of
return on investment?
130. Which of the following expressions is termed the investment turnover factor as used in determining the
rate of return on investment?
131. The profit margin for Atlantic Division is 28% and the investment turnover is 2.8. What is the rate of
return on investment for Atlantic Division?
132. Pacific Division for Bean Company has a rate of return on investment of 28% and an investment turnover
of 1.4. What is the profit margin?
133. The Eastern Division of Kentucky Company has a rate of return on investment of 28% and a profit margin
of 20%. What is the investment turnover?
134. What additional information is needed to find the rate of return on investment if income from operations is
known?
135. The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment
turnover of 1.2. What is the profit margin?
136. The best measure of managerial efficiency in the use of investments in assets is:
137. Two divisions of Central Company (Divisions X and Y) have the same profit margins. Division X's
investment turnover is larger than that of Division Y (1.2 to 1.0). Income from operations for Division X is
$55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment
than Division Y by:
138. The profit margin for Division B is 8% and the investment turnover is 1.20. What is the rate of return on
investment for Division B?
139. The excess of divisional income from operations over a minimum amount of divisional income from
operations is termed:
140. Assume that divisional income from operations amounts to $192,000 and top management has established
15% as the minimum rate of return on divisional assets totaling $1,000,000. The residual income for the
division is:
141. Which one of the following is NOT a measure that management can use in evaluating and controlling
investment center performance?
142. A factor in determining the rate of return on investment--the ratio of income from operations to sales--is
called:
143. A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:
144. Assume that Division J has achieved income from operations of $165,000 using $900,000 of invested
assets. If management desires a minimum rate of return of 11%, the residual income is:
145. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000.
What is the rate of return on investment for Division A?
146. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000.
What is the profit margin for Division A?
147. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000.
What is the investment turnover for Division A?
148. Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating
expenses of $58,000, and invested assets of $150,000.
What is the rate of return on investment for Division X?
149. Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating
expenses of $58,000, and invested assets of $150,000.
What is the profit margin for Division X?
150. Investment centers differ from profit centers in that they
151. Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of
their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of
return on assets?
152. The balanced scorecard measures financial and nonfinancial performance of a business. The balanced
scorecard measures four areas. Identify one of the following that is not included as a performance
measurement.
153. The following is a measure of a manager’s performance working in an investment center.
154. The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of
$1,050,000.
What is the profit margin?
155. The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of
$1,050,000.
What is the investment turnover?
156. The balanced scorecard measures
157. Which of the following is not a commonly used approach to setting transfer prices?
158. Determining the transfer price as the price at which the product or service transferred could be sold to
outside buyers is known as the:
159. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased
from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6.
Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per
unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no
reduction in Division 6's current sales.
How much would Division 3's income from operations increase?
160. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased
from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6.
Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per
unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no
reduction in Division 6's current sales.
How much would Division 6's income from operations increase?
161. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased
from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6.
Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per
unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no
reduction in Division 6's current sales.
How much would Square Yard Products total income from operations increase?
162. Materials used by Jefferson Company in producing Division C's product are currently purchased from
outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit.
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in
Division A's current sales.
How much would Division C's income from operations increase?
163. Materials used by Jefferson Company in producing Division C's product are currently purchased from
outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit.
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in
Division A's current sales.
How much would Division A's income from operations increase?
164. Materials used by Jefferson Company in producing Division C's product are currently purchased from
outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit.
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in
Division A's current sales.
How much would Jefferson's total income from operations increase?
165. The Ukulele Company's radio division currently is purchasing transistors from the Xiang Co. for $3.50
each. The total number of transistors needed is 8,000 per month. Ukulele Company's electronics division can
produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The
$4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs.
What should be the range of a possible transfer price?
166. Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?
167. The transfer price which uses a variety of cost concepts is the
168. The transfer price that must be less than the market price but greater than the supplying division’s variable
costs per unit is called
169. Mandolin Company has two divisions. Division A is interested in purchasing 10,000 units from Division
B. Capacity is available for Division B to produce these units. The per unit market price is $30 per unit, with a
variable cost of $17. The manager of Division A has offered to purchase the units at $15 per unit. In an effort to
make this transfer price beneficial for the company as a whole, what is the range of prices that should be used
during negotiations between the two divisions?
170. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What is the service department charge rate for Graphics Production?
171. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What is the service department charge rate for the Personnel Department?
172. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What is the service department charge rate for the Accounting Department?
173. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
How much service department cost will be allocated to the Micro Division?
174. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
How much service department cost would be allocated to the Macro Division?
175. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
How much service department cost would be allocated to the Super Division?
176. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What will the income of the Micro Division be after all service department allocations?
177. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What will the income of the Macro Division be after all service department allocations?
178. ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for Allocation
Graphics Production
$200,000
# of copies
Accounting
$500,000
# of invoices processed
Personnel Department
$400,000
# of employees
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
Micro
Macro
Super
Direct Revenues
$700,000
$850,000
$650,000
Direct Operating Expenses
$50,000
$70,000
$100,000
# of copies made
20,000
30,000
50,000
# invoices processed
700
800
500
# of employees
130
145
125
What will the income of the Super Division be after all service department allocations?
