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Exam 11: Responsibility Accounting Systems

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Question 81

Multiple Choice

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Gauntlett Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,300,000 investment opportunity with the following characteristics: If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:

A) 12.83
B) 2.65
C) 1.90
D) 3.34

E) All of the above
F) None of the above

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Question 82

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Given the following data: Return on investment (ROI) is:

A) 30%
B) 5%
C) 20%
D) 12%

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

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Question 83

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Familia Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 13%. Required: 1. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 2. What is the return on investment related to this year's investment opportunity? (Round to the nearest 0.1%.) 3. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall return on investment will this year? (Round to the nearest 0.1%.) 4. If Westerville's chief executive officer earns a bonus only if the return on investment for this year exceeds the return on investment for last year, would the chief executive officer pursue the investment opportunity? Would the owners of the company want the chief executive officer to pursue the investment opportunity?

Last year a company had sales of $370,000, a turnover of 2.1, and a return on investment of 56.7%. The company's net operating income for the year was:

The Downstate Block Company has a trucking department that delivers crushed stone from the company's quarry to its two cement block production facilities-the West Plant and the East Plant. Budgeted costs for the trucking department are $700,000 per year in fixed costs and $0.50 per ton variable cost. Last year, 75,000 tons of crushed stone were budgeted to be delivered to the West Plant and 90,000 tons of crushed stone to the East Plant. During the year, the trucking department actually delivered 74,000 tons of crushed stone to the West Plant and 92,000 tons to the East Plant. Its actual costs for the year were $81,000 variable and $708,000 fixed. The level of budgeted fixed costs is determined by peak-period requirements. The West Plant requires 45% of the peak-period capacity and the East Plant requires 55%. The company allocates fixed and variable costs separately.How much variable trucking department cost should be charged to the West Plant at the end of the year?

The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000. The corporation requires a return on investment of 18%. Required: a. Calculate the company's return on investment (ROI) and residual income (RI). b. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. Would it be in the best interests of the company to make this investment? c. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a return on investment of 20% and its manager is evaluated based on the division's return on investment, will the division manager be inclined to request funds to make this investment? d. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a residual income of $50,000 and its manager is evaluated based on the division's residual income, will the division manager be inclined to request funds to make this investment?

Wolley Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%. Required: 1. What was last year's margin? (Round to the nearest 0.1%.) 2. What was last year's turnover? (Round to the nearest 0.01.) 3. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 4. What is the margin related to this year's investment opportunity? (Round to the nearest 0.1%.) 5. What is the turnover related to this year's investment opportunity? (Round to the nearest 0.01.) 6. What is the return on investment related to this year's investment opportunity? (Round to the nearest 0.1%.) 7. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.) 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.) 9. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall return on investment will this year? (Round to the nearest 0.1%.) 10. If Westerville's chief executive officer earns a bonus only if the return on investment for this year exceeds the return on investment for last year, would the chief executive officer pursue the investment opportunity? Would the owners of the company want the chief executive officer to pursue the investment opportunity?

Residual income can be used most effectively in comparing the performance of divisions of different size.

Oberley Products, Incorporated, has a Receiver Division that manufactures and sells a number of products, including a standard receiver that could be used by another division in the company, the Industrial Products Division, in one of its products. Data concerning that receiver appear below: The Industrial Products Division is currently purchasing 5,000 of these receivers per year from an overseas supplier at a cost of $58 per receiver.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $6 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Yearout Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 9,000 of these valves per year from an overseas supplier at a cost of $53 per valve.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $1 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Valve and Pump Division financially better off than if the Pump Division were to continue buying its valves from the outside supplier?

The medical services department of Fischer Company budgeted $31 of variable medical expenses per employee for May, based on 1,700 employees in operating departments. During May an average of 1,680 employees were employed in operating departments. Actual variable medical expenses totaled $53,700 for the month. How much variable medical expenses should be charged to operating departments at the end of May for performance evaluation purposes?

Ahart Products, Incorporated, has a Transmitter Division that manufactures and sells a number of products, including a standard transmitter that could be used by another division in the company, the Remote Devices Division, in one of its products. Data concerning that transmitter appear below: The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from an overseas supplier at a cost of $59 per transmitter.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below: The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $7 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Chesley Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below: The company has a Transmission Division that could use this connector in one of its products. The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $82 per connector. Required: a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions? b. Assume that the Connector Division is selling all of the connectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions? c. Assume again that the Connector Division is selling all of the connectors it can produce to outside customers. Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Ghia Manufacturing Corporation charges its Maintenance Department's service costs to two operating departments, Fabrication and Assembly. Charges are made on the basis of machine-hours. Information pertaining to machine-hours for the year follows: The following costs pertain to the Maintenance Department: For performance evaluation purposes, how much of the Maintenance Department's variable cost should be charged to the Fabrication Department at year-end?

Lumpkins Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 9,000 of these valves per year from an overseas supplier at a cost of $59 per valve.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that none of the variable expenses can be avoided on transfers within the company. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1.The sales for Year 2 were:

Fingado Products, Incorporated, has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below: The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector.What is the maximum price that the Commercial Security Division should be willing to pay for detectors transferred from the Detector Division?

Othman Incorporated has a $800,000 investment opportunity with the following characteristics: The margin for this investment opportunity is closest to:

Leneau Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below: The Transmission Division is currently purchasing 12,000 of these connectors per year from an overseas supplier at a cost of $52 per connector. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Valve and Pump Division financially better off than if the Pump Division were to continue buying its valves from the outside supplier?