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Exam 11: Responsibility Accounting Systems

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Question 71

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Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently.If outside customers demand 80,000 units and if, by selling to Division Q, Division P could avoid $4 per unit in variable selling expense, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A) $33 per unit
B) $27 per unit
C) $28 per unit
D) $29 per unit

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

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Question 72

Multiple Choice

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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 net operating income for Year 1 was:

A) $240,000
B) $256,000
C) $384,000
D) $768,000

E) A) and B)
F) A) and C)

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Question 73

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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.For performance evaluation purposes, how much of the actual trucking department cost should not be charged to the plants at the end of the year?

Gretter Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $36 per shipment. The Logistics Department's fixed costs are budgeted at $399,600 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $305,040 and fixed costs totaled $418,680. The Atlantic Division had a total of 2,600 shipments and the Pacific Division had a total of 5,600 shipments for the year. For performance evaluation purposes, how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year?

Braymiller Incorporated has a $1,600,000 investment opportunity with the following characteristics: The turnover for this investment opportunity is closest to:

Division Y has asked Division X of the same company to supply it with 5,000 units of part L763 this year to use in one of its products. Division Y has received a bid from an outside supplier for the parts at a price of $33.00 per unit. Division X has the capacity to produce 20,000 units of part L763 per year. Division X expects to sell 18,000 units of part L763 to outside customers this year at a price of $34.00 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces part L763 at a variable cost of $25.00 per unit. The cost of packing and shipping the parts for outside customers is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Y.Required:a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 5,000 parts this year from Division Y to Division X?b. Is it in the best interests of the overall company for this transfer to take place? Explain.

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: The turnover for this year's investment opportunity considered alone is closest to:

Macumber Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $36 per shipment. The Logistics Department's fixed costs are budgeted at $234,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?

Mike Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 14%. In January, the Commercial Products Division had average operating assets of $970,000 and net operating income of $143,700. What was the Commercial Products Division's residual income in January?

Cominsky Products, Incorporated, has a Screen Division that manufactures and sells a number of products, including a standard screen. Data concerning that screen appear below: The company has a Home Security Division that could use this screen in one of its products. The Home Security Division is currently purchasing 6,000 of these screens per year from an overseas supplier at a cost of $96 per screen. Required: Assume that the Screen Division is selling all of the screens it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?

Serie Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $2,100,000 investment opportunity with the following characteristics: The margin for this year's investment opportunity considered alone is closest to:

Bungert Incorporated reported the following results from last year's operations: The company's minimum required rate of return is 12% and its average operating assets were $8,000,000. Last year's residual income was closest to:

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.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?

A cost center is a responsibility center.

Sauseda Corporation has two operating divisions--an Inland Division and a Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $38 per order. The Customer Service Department's fixed costs are budgeted at $433,200 for the year. The fixed costs of the Customer Service Department are determined based on the peak-period orders. At the end of the year, actual Customer Service Department variable costs totaled $303,240 and fixed costs totaled $450,280. The Inland Division had a total of 2,430 orders and the Coast Division had a total of 5,170 orders for the year.Required:a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year.b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

For performance evaluation purposes, the actual fixed costs of a service department should be charged to the departments that consume the service in proportion to the actual services provided to the consuming departments during the period.

Nafth Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly Departments. Costs of the equipment Services Department are charged to the Fabrication and Assembly Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow: For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the year. Actual variable maintenance costs for the year totaled $255,000.For performance evaluation purposes, how much of the $255,000 of actual variable maintenance cost should be charged to the Assembly Department at the end of the year just ended?

Fox Company has the following data concerning the machine-hours in its operating departments: Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes?

Trendell Products, Incorporated, has a Motor Division that manufactures and sells a number of products, including a standard motor. Data concerning that motor appear below: The company has a Automotive Division that could use this motor in one of its products. The Automotive Division is currently purchasing 8,000 of these motors per year from an overseas supplier at a cost of $66 per motor. Required: Assume that the Motor Division has enough idle capacity to handle all of the Automotive Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?

Dacker Products is a division of a major corporation. The following data are for the most recent year of operations: The division's residual income is closest to: