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Exam 23: Performance Evaluation for Decentralized Operations

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Question 101

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Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

A) True
B) False

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Question 102

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Which of the following expenses incurred by a department store is an indirect expense?

A) Insurance on merchandise inventory
B) Sales salaries
C) Depreciation on store equipment
D) Salary of vice-president of finance

E) B) and D)
F) B) and C)

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Question 103

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The Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places.

The transfer price which uses a variety of cost concepts is the

Several items are missing from the following table of rate of return on investment and residual income. Determine the missing items, identifying each item by the appropriate letter. Round percentage values to one decimal point.

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

The budget for Department 10 of Treble Company for the current month ending March 31 is as follows: During March, the costs incurred in Department 10 of Treble Company were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456.

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?

The manager of a profit center does not make decisions concerning the fixed assets invested in the center.

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:

The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's profit margin?

If income from operations for a division is $5,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Property tax expense for a department store's store equipment is an example of a direct expense.

The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar.

Using the data from the Coffee & Cocoa Company,

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n) :

The materials used by the Holly Company Division A are currently purchased from outside supplier. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The normal price that Division B normally sells its units is $53 per unit. What is the range of transfer prices that the two division managers should negotiate?