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Exam 10: Decentralized Performance Evaluation

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Question 1

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Florida Inc.has revenues of $1,500,000 resulting in an operating income of $105,000.Average invested assets total $750,000;the cost of capital is 10%.The profit margin is:

A) 7%
B) 14%
C) 2.00
D) 0.50

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

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Question 2

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Hubbard Division of the Market Company has an opportunity to invest in a new project.The project will yield an incremental operating income of $36,750 on average invested assets of $460,000.Hubbard currently has operating income of $210,000 on average invested assets of $2,050,000.Market Company requires a 6% rate of return on new projects. a.What is Hubbard's ROI before making an investment in the project? b.What is Hubbard's residual income before making an investment in the project? c.What is Hubbard's ROI after making the investment in the project? d.What is Hubbard's residual income after making the investment in the project?

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a.10.24% = $210,000/$2,050,000
b.$87,000...

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Question 3

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Which of the following statements is correct about the functions that fall within various responsibility centers?

Dade Corp.has residual income of $10,000.If operating income equals $30,000 and the minimum required rate of return is 8%,what are average invested assets?

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Profit margin can be calculated as:

Ontario Company has two divisions with the following results: Ontario Company has a hurdle rate of 10%. a.Calculate the return on investment for each division. b.Break each division's return on investment down into its component parts using the DuPont method. c.Calculate the residual income for each division.

A profit center manager often also supervises revenue and cost center managers.

Warren Company has two divisions with the following results: Warren Company has a hurdle rate of 12%. a.Calculate the return on investment for each division. b.Break each division's return on investment down into its component parts using the DuPont method. c.Calculate the residual income for each division.

One of the most important concepts in responsibility accounting is the:

The hurdle rate is also called economic value added.

Killian Corp.has a residual income of $30,000 on invested assets of $450,000.If the hurdle rate is 10%,what is the operating income?

Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at less than full capacity,what would be the maximum transfer price Tulip would pay internally?

Which of the following is not something that should be compiled for each dimension of the balanced scorecard?

Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at capacity,what would be the maximum transfer price Tulip would pay internally?

Calculate the missing values:

Which of the following balanced scorecard perspectives measures an organization's ability to change?

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 profit will Hill receive from the transfer if a transfer price of $42 is agreed upon?

Which of the following balanced scorecard perspectives measures how an organization satisfies its stakeholders?

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the cost savings if the transfer were made and Marlin currently is purchasing 100,000 units on the open market?