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Exam 24: Performance Evaluation for Decentralized Operations

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Question 41

Multiple Choice

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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: What will the income of the Macro Division be after all service department allocations?

A) $780,000
B) $375,000
C) $575,000
D) $435,000

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

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Question 42

Multiple Choice

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Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:

A) decentralized
B) consolidated
C) diversified
D) centralized

E) All of the above
F) B) and C)

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Question 43

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

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?

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: What is the service department charge rate for the Accounting Department?

Data for Divisions A, B, C, D, and E are as follows: Round percentage values to one decimal point.

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

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:

Piano Company's costs were over budget by $47,000. The Piano Company is divided in two regions. The first region's costs were over budget by $5,000. Determine the amount that the second region's cost was over or under budget.

The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income.

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?

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

It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue.

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

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

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?

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

Using the data from the Coffee & Cocoa Company,

The minimum amount of desired divisional income from operations is set by top management by establishing a maximum rate of return considered acceptable for invested assets.

A portion of the divisional income statement for the year just ended is presented below in condensed form. The operating expenses of Department B include $50,000 for direct expenses. It is estimated that the discontinuance of Department B would not have affected the sales of the other departments nor have reduced the indirect expenses of the business. Assuming the accuracy of these estimates, determine the effect (increase or decrease and amount) on the income from operations of the business if Department B had been discontinued.