Formulas

Question 1

residual income

Answer 1

division income - (total assets x cost of capital)

Question 2

residual income

Answer 2

division income - imputed interest charge / division assets

Question 3

what is imputed interest charge

Answer 3

is normally the target ROI set by company’s management or the corporation’s Cost of Capital

Question 4

material price variance

Answer 4

actual and budgeted input price x actual input volume (purchased)

Question 5

DM price variance

Answer 5

actual cost - standard cost X actual units

Question 6

efficiency variance

Answer 6

(AQ-SQ)DM

Question 7

optimal transfer price

Answer 7

mfg. divisions (variable cost) opportunity cost of production + any avoidance fixed cost + any foregone contribution from mfg. the product

Question 8

controllable segment margin

Answer 8

CM - Fixed cost

Question 9

Expected payoff with perfect information

Answer 9

highest expected payoff for hot weather plus highest expected payoff in the cold weather

Question 10

total fixed cost

Answer 10

fixed mfg. cost + fixed SG&A

Question 11

Direct usage variance

Answer 11

AQ-SQ x SP