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Exam 9: Evaluating Decentralized Operations

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Question 101

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Some items are omitted from each of the following condensed divisional income statements of Demi Inc. (a) Determine the amount of the missing items, identifying them by letter (a-f). (b) Based on income from operations, which division is the most profitable

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a.(a) $710,000  ($480,000 + $230,000)
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Question 102

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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 will Division A's income from operations increase?

A) $0
B) $75,000
C) $25,000
D) $50,000

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

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Question 103

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The sales, income from operations, and invested assets for each division of Grosbeak Company are as follows: (a)Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division. Round profit margin percentage to two decimal places, investment turnover to four decimal places, and rate of return on investment to one decimal place. (b)Which division is the most profitable per dollar invested?

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The profit margin for Chicks is

Which of the following would be most effective in a small owner/manager-operated business?

In an investment center, the manager has the responsibility for and the authority to make decisions that affect

The materials used by the Hibiscus Company's Division A are currently purchased from an outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units. (a) By how much will each division's income increase as a result of this transfer? (b) What is the total increase in income for Hibiscus Company?

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The gross profit for the Locomotive Division is:

The formula for the rate of return on investment is

The materials used by the Holly Company's Division A are currently purchased from an 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 within which the two division managers should negotiate?

Sales commission expense for a department store is an example of a direct expense.

Responsibility accounting reports for profit centers are normally in the form of income statements.

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The gross profit for the Rails Division is

Income from operations for Division H is $220,000, and income from operations before service department charges is $975,000. As  a result,

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

The primary accounting tool for controlling and reporting for cost centers is a budget.

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The profit margin for Mason is

ABC Corporation has three service departments with the following costs and activity base: What will the income of the Super Division be after all service department allocations?

The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business.

The best measure of managerial efficiency in the use of investments in assets is