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Exam 10: Decentralized Performance Evaluation

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Question 41

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Rapid Industries has multiple divisions.One division,Iron Products,makes a component that another division,Austin,is currently purchasing on the open market.Iron Products currently has a capacity to produce 500,000 components at a variable cost of $7.50 and a full cost of $10.00.Iron Products has outside sales of 460,000 components at a price of $12.50 per unit.Austin currently purchases 50,000 units from an outside supplier at a price of $12.00 per unit.Assume that Austin desires to use a single supplier for its component. a.What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 50,000 units Austin needs are either purchased 100% internally or 100% externally. b.What is the minimum transfer price? c.What is the maximum transfer price?

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a.$175,000 increase in profits = $425,00...

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Question 42

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The transfer pricing method that uses the price the company would charge external customers is the:

A) market-price method.
B) cost-based method.
C) negotiation method.
D) balanced scorecard method.

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

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Question 43

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Palm Inc.has a profit margin of 15% and an investment turnover of 2.Sales revenue is $800,000.What is the operating income?

Swan Company has two divisions,Hill and Paradise.Hill produces a unit that Paradise could use in its production.Paradise currently is purchasing 5,000 units from an outside supplier for $56.Hill is operating at less than full capacity and has variable costs of $30.80 per unit.The full cost to manufacture the unit is $43.40.Hill currently sells 450,000 units at a selling price of $61.60.How much will Paradise save by not purchasing from outside if a transfer price of $42 is agreed upon?

Which of the following statements is not correct about using the balanced scorecard for sustainability accounting?

Tint Company has two divisions,Blue and Green.Blue produces an item that Green could use in its production.Green currently is purchasing 150,000 units from an outside supplier for $23 per unit.Blue is currently operating at full capacity of 1,600,000 units and has variable costs of $14 per unit.The full cost to manufacture the unit is $18.Blue currently sells 1,600,000 units at a selling price of $25 per unit. a.What will be the effect on Tint Company's operating profit if the transfer is made internally? b.What is the minimum transfer price from Blue's perspective? c.What is the maximum transfer price from Green's perspective?

Colonial has an ROI of 18% based on revenues of $300,000.The investment turnover is 1.5 and residual income is $20,000.What is the hurdle rate?

Eureka Corp.has a hurdle rate of 8%.Calculate the missing values on each line.(Each line is independent of the others).

The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:

National Company has two divisions,Walton and Iowa.Walton produces an item that Iowa could use in its production.Iowa currently is purchasing 50,000 units from an outside supplier for $9.10 per unit.Walton has sufficient capacity and has variable costs of $5.25 per unit.The full cost to manufacture the unit is $7.70.Walton currently sells 450,000 units at a selling price of $9.80 per unit. a.What will be the effect on National Company's operating profit if the transfer is made internally? b.What will be the change in profits for Walton if the transfer price is $7 per unit? c.What will be the change in profits for Iowa if the transfer price is $7 per unit?

Crawford Corp.has an ROI of 15% and a residual income of $10,000.If operating income equals $30,000,what is the amount of average invested assets?

The responsibility center in which the manager does not have responsibility and authority over revenues is:

The responsibility center in which the manager does not have responsibility and authority over costs is the:

Return on investment can be calculated as:

Investment turnover is defined as:

When negotiating a transfer price,the highest price the buyer will be willing to pay is the ________,while the lowest price the seller will be willing to accept is the ________.

Almond,Inc.uses a balanced scorecard.One of the measures on the scorecard is the change in stock price.Which balanced scorecard perspective would this measure most likely fit into?

Residual income is a leading indicator of financial performance.

Avocado Company has an operating income of $80,000 on revenues of $1,000,000.Average invested assets are $500,000,and Avocado Company has an 8% cost of capital.What is the return on investment?

The DuPont method breaks residual income into profit margin and investment turnover.