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Exam 24: Performance Evaluation for Decentralized Operations

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Question 31

True/False

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

A) True
B) False

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Question 32

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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?

A) $32,000
B) $112,000
C) $80,000
D) $150,000

E) A) and B)
F) None of the above

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Question 33

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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:

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 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.

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

If income from operations for a division is $6,000, 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.

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:

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

The Creative Division of the Barry Company reported the following results for December 2012: Invested Assets $1,200,000 Profit Margin 25% Return on Investment 30% Required: Based on this information, what were the sales?

The costs of services charged to a profit center on the basis of its use of those services are called:

The sales, income from operations, and invested assets for each division of Marcus Company are as follows: Determine the minimum rate of return for invested assets.

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

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?

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?

Most manufacturing plants are considered cost centers because they have control over

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2.

Using the data from the Ace Guitar Company, determine the divisional income from operations for the A and B regions. Allocate service department expenses proportional to the sales of each region. Round percentage of sales allocation to one decimal place.

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.