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Exam 24: Evaluating Decentralized Operations

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Question 1

True/False

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The underlying principle of allocating indirect operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.

A) True
B) False

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Question 2

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The minimum acceptable divisional operating income is set by top management by establishing a minimum return considered acceptable on invested assets.

A) True
B) False

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Question 3

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In a profit center, the manager has responsibility and authority for making decisions that affect

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n) _____ center.

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable return on assets set by upper management.

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.​ -Jefferson Company's total operating income will increase by

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Which of the following is not​ a commonly used approach to setting transfer prices?

Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of cost drivers.

The operating income of the Micro Division after all support department allocations will be

The approach that requires the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the _____ approach.

If operating income for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover is 1.3.

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. a.If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total operating income increase? b.Assuming a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the operating income of Division A increase? c.Assuming a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the operating income of Division B increase? d.If the negotiated price approach is used, what would be the range of acceptable transfer prices?

The support department cost that will be allocated to the Micro Division is

Which of the following would be most effective in a small owner/manager-operated business?

Mason Corporation had $650,000 in invested assets, sales of $700,000, operating income amounting to $99,000, and a desired minimum return on investment of 15%. -The residual income for Mason Corporation is

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the

The right or license granted to an individual or group to market another company's goods or services is called a franchise.

The Southern Division of Knucklehead Company has a return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

A cost driver is used to allocate support department expenses. Match each of the following cost drivers with the appropriate department (a-h). -Number of advertising campaigns A)Purchasing B)Payroll Accounting C)Human Resources D)Maintenance E)Information Systems F)Marketing G)President's Office H)Transportation