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Exam 9: Responsibility Accounting

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Question 61

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Retail Sales and Wholesale Sales are the only divisions of Terra Company.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ The company has $1,200,000 in operating assets that are not assigned to either of the divisions and $500,000 in corporate expenses that are not reflected in the information above.Based on this information,what is the ROI for the company as a whole?

A) 17.7%
B) 16.9%
C) 15.0%
D) The answer cannot be determined using the information provided.

E) A) and D)
F) C) and D)

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Question 62

Multiple Choice

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Prentiss Company is decentralized with three divisions.While all three division managers have responsibility for costs,only the Division Three manager has responsibility for generating revenues.Select the correct statement from the following.

A) Prentiss Company is not large enough to benefit from preparing responsibility reports.
B) Responsibility reports should be prepared for Division Three only.
C) Responsibility reports should be prepared for all three divisions.
D) Responsibility reports should be prepared for Divisions One and Two only.

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

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Question 63

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The preferred method for establishing transfer prices for transactions between divisions of the same firm is to base the transfer price on some form of competitive market price.

The preferred method for setting transfer prices generally is some form of:

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

Joseph Company has an investment in assets of $450,000,operating income that is 10% of sales,and an ROI of 18%.From this information the amount of operating income would be:

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{|l|lr|}\hline \text { Revenues } & \$ & 800,000 \\\hline \text { Operating expenses } & \$ & 720,000 \\\hline \text { Operating income } & \$ & 144,000 \\\hline \text { Operating assets } & \$ & 1,200,000 \\\hline\end{array}$ Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division.The Electronic Division's turnover (asset utilization) is:

Indicate whether each of the following statements about responsibility centers is

The research and development department of Apple Computers would likely be organized as:

Packrall Company makes computer chips.Curtis is manager of the company's maintenance department.Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment,Curtis has been authorized to contract to perform maintenance for outside customers.In this company,the maintenance department is likely organized as:

Indicate whether each of the following statements is

Which of the following statements regarding cost centers is incorrect?

Indicate whether each of the following statements about return on investment is

Which of the following is not a characteristic of an effective responsibility accounting system?

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ Terra Company has set a target return on investment (ROI) of 15% for both divisions.Based on ROI,which division appears to have performed better?

Thanks to his firm's decentralization and use of responsibility accounting,Matt has more time to review a proposed new joint venture with one of the firm's business partners.What advantage of decentralization does this illustrate?

The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000.Budgeted expenses were $600,000 while actual expenses were $550,000.Based on this information,the responsibility report for the manager of this profit center would show:

Joanne Graves is manager of a production department of Fordham Company.Her department makes one product;the following information for her department was accumulated for the current year: $\begin{array}{l}\begin{array}{|l|}\hline\\\hline \text {Number of units } \\\hline \text {Direct materials cost } \\\hline \text {Direct labor cost } \\\hline \text {Variable manufacturing overhead } \\\hline \text {Fixed manufacturing overhead} \\\hline \text { Total } \\\hline\end{array}\begin{array}{c|}\hline \text { Static Budget }\\\hline 100,000 \\\hline \$ 400,000 \\\hline 200,000 \\\hline 100,000 \\\hline \underline {145,000} \\\hline \$ 845,000 \\\hline\end{array}\begin{array}{c|}\hline \text { Actual Results }\\\hline \$ 94,000 \\\hline 380,000 \\\hline 185,000 \\\hline 94,000 \\\hline \underline {148,000} \\ \hline \$ 807,000 \\\hline\end{array}\end{array}$ Required: 1)Prepare a flexible budget for the department's actual level of activity. 2)Use the flexible budget to evaluate the performance of Ms.Graves' department. 3)Why does the budget not include sales revenue and net income?