Question 1

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Accepted Answer

A)   Market Price
B)   Cost Price
C)   Negotiated Price
D)   Variable PriceE) All of the above
F) B) and D)

Question 2

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A) True 
 B)False

Question 3

The following is a measure of a manager's performance working in a cost center.

Accepted Answer

A)   budget performance report
B)   rate of return and residual income measures
C)   divisional income statements
D)   balance sheetE) C) and D)
F) None of the above

Question 4

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:

Accepted Answer

The answer of Bentz Co. has two divisions, A and...

Question 5

Income from operations of the Commercial Aviation Division is $2,225,000. If income from operations before service department charges is $3,250,000:

Accepted Answer

A)   operating expenses are $1,025,000
B)   total service department charges are $1,025,000
C)   noncontrollable charges are $1,025,000
D)   direct manufacturing charges are $1,025,000E) C) and D)
F) B) and D)

Question 6

The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price.

Accepted Answer

A) True 
 B)False

Question 7

Separation of businesses into more manageable operating units is termed decentralization.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)   $57,960
B)   $14,790
C)   $27,240
D)   $47,280E) B) and D)
F) C) and D)

Question 9

In an investment center, the manager has responsibility and authority for making decisions that affect:

Accepted Answer

A)   costs
B)   revenues
C)   assets
D)   costs, revenues, and assetsE) B) and D)
F) None of the above

Question 10

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

Accepted Answer

A)   Insurance on merchandise inventory
B)   Sales salaries
C)   Depreciation on store equipment
D)   Salary of vice-president of financeE) None of the above
F) All of the above

Question 11

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

A)   20%
B)   28%
C)   14%
D)   78.4%E) A) and D)
F) None of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

ABC Corporation has three service departments with the following costs and activity base:  ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
 How much service department cost would be allocated to the Super Division?

Accepted Answer

A)   $350,000
B)   $100,000
C)   $125,000
D)   $550,000E) B) and D)
F) B) and C)

Question 15

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)   Profit centers
B)   Centralization
C)   Investment centers
D)   Cost centersE) B) and C)
F) C) and D)

Question 17

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:

Accepted Answer

A)   7.1%
B)   20%
C)   15.2%
D)   14.1%E) None of the above
F) A) and B)

Question 18

Which of the following is not one of the common types of responsibility centers?

Accepted Answer

A)   Cost Center
B)   Profit Center
C)   Investment Center
D)   Revenue CenterE) A) and B)
F) A) and C)

Question 19

To calculate income from operations, total service department charges are:

Accepted Answer

A)   added to income from operations before service department charges
B)   subtracted from operating expenses
C)   subtracted from income from operations before service department charges
D)   subtracted from gross profit marginE) A) and B)
F) A) and C)

Question 20

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?

Accepted Answer

A)   81.3%
B)   20.2%
C)   40.7%
D)   60%E) B) and C)
F) A) and D)

Exam 8: Performance Evaluation for Decentralized Operations

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To calculate income from operations, total service department charges are:

Correct AnswerverifiedShow Answer

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Correct AnswerverifiedShow Answer

The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price.

Correct AnswerverifiedShow Answer

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.

Correct AnswerverifiedShow Answer

Which of the following is not one of the common types of responsibility centers?

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

Correct AnswerverifiedShow Answer

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?

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A centralized business organization is one in which all major planning and operating decisions are made by top management.

Correct AnswerverifiedShow Answer

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

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In an investment center, the manager has responsibility and authority for making decisions that affect:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The following is a measure of a manager's performance working in a cost center.

Correct AnswerverifiedShow Answer

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:

Correct AnswerverifiedShow Answer

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: How much service department cost would be allocated to the Super Division?

Correct AnswerverifiedShow Answer

Income from operations of the Commercial Aviation Division is $2,225,000. If income from operations before service department charges is $3,250,000:

Correct AnswerverifiedShow Answer

Separation of businesses into more manageable operating units is termed decentralization.

Correct AnswerverifiedShow Answer

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