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Flashcards in Final 4 Deck (21):
1

A responsibility accounting system should include the revenues and costs under a division manager's control.

T

2

Ann Arbor Division of the Michigan Company has the following statistics for its most recent operations:

Assets available for use (Market Value) $3,600,000
Assets available for use (Book Value) $2,000,000
Ann Arbor Division's return on investment 25%
Ann Arbor Division's residual income 200,000
Return on investment (entire Michigan Company) 20%

Refer to Michigan Company. What is the target rate of return in Michigan Company?

15%

3

The Engine Division of Magnificent Motor Corporation uses 5,000 carburetors per month in its production of automotive engines. It presently buys all of the carburetors it needs from two outside suppliers at an average cost of $100. The Carburetor Division of Magnificent Motor Corporation manufactures the exact type of carburetor that the Engine Division requires. The Carburetor Division is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at $106 per unit. Its cost structure (on 15,000 units) is:

Variable production costs $70
Variable selling costs 10
All fixed costs 10

Assume that the Carburetor Division would not incur any variable selling costs on units that are:

transferred internally.

4

Refer to Magnificent Motor Corporation. What is the maximum of the transfer price range for a transfer between the two divisions?

$100

5

Decentralization is a transfer of authority from the top to the lower level of an organization.

T

6

Ann Arbor Division of the Michigan Company has the following statistics for its most recent operations:

Assets available for use (Market Value) $3,600,000
Assets available for use (Book Value) $2,000,000
Ann Arbor Division's return on investment 25%
Ann Arbor Division's residual income 200,000
Return on investment (entire Michigan Company) 20%

Refer to Michigan Company. If Michigan Company evaluates its managers on the basis of return on investment, the manager of Ann Arbor Division would invest in a project costing $100,000 only if it increased net segment income by at least

$25,000.

7

Return on investment is computed by dividing income by:

assets invested.

8

The return on investment (ROI) ratio measures:

both asset turnover and earnings as a percent of sales.

9

Corporate taxes and tariffs are particular transfer-pricing concerns of:

multinational corporations.

10

Texas Company has established a target rate of return of 16% for all divisions. For the most recent year, San Marcos Division generated sales of $10,000,000 and expenses of $7,500,000. Total assets at the beginning of the year were $5,000,000 and total assets at the end of the year were $7,000,000.

Refer to Texas Company. For the most recent year, what was San Marcos Division's return on investment?

41.67%

11

In a responsibility accounting system, costs are classified into categories on the basis of:

controllable and noncontrollable costs.

12

In a decentralized company in which divisions may buy goods from one another, the transfer pricing system should be designed primarily to:

aid in the appraisal and motivation of managerial performance.

13

Office Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip" that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip $50
Variable costs per chip $20
Fixed production costs $60,000
Fixed SG&A costs $90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Refer to Office Systems Corporation. Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the minimum of the transfer price range for a possible transfer of the super chip from one division to the other?

$20

14

In computing a transfer price, the maximum price should be no higher than the lowest market price at which the buying segment can obtain the good or service externally

T

15

Office Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip" that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip $50
Variable costs per chip $20
Fixed production costs $60,000
Fixed SG&A costs $90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Refer to Office Systems Corporation. Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the maximum of the transfer price range for a possible transfer of the chip from one division to the other?

$45

16

Tax deferral is the most desirable form of tax treatment for employee compensation elements.

F

17

Triumph Division of Traveling Fantasies, is evaluated based on residual income generated. In the most recent year, the Triumph Division generated a residual income of $2,000,000 and net income of $5,000,000. The target rate of return for all divisions of Traveling Fantasies is 20%. What was the return on investment for the Triumph Division?

33%

18

Texas Company has established a target rate of return of 16% for all divisions. For the most recent year, San Marcos Division generated sales of $10,000,000 and expenses of $7,500,000. Total assets at the beginning of the year were $5,000,000 and total assets at the end of the year were $7,000,000.
Refer to Texas Company. In the most recent year, what was San Marcos Division's residual income?

$1,540,000

19

The segment margin of a profit or investment center includes allocated common costs

F

20

Non-financial measures are generally less timely than are financial performance measures.

F

21

The minimum potential transfer price is determined by:

incremental costs in the selling division.