Chapter 12 Segment Reporting and Decentralization True/False Questions
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*$255,000 + $59,800 = $314,800 35. Miscavage Corporation has two divisions: the Beta Division and the Alpha Division. The Beta Division has sales of $580,000, variable expenses of $301,600, and traceable fixed expenses of $186,500. The Alpha Division has sales of $510,000, variable expenses of $178,500, and traceable fixed expenses of $222,100. The total amount of common fixed expenses not traceable to the individual divisions is $235,500. What is the company's net operating income? A) $374,400 B) $201,300 C) $609,900 D) ($34,200) Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy Solution:
36. J Corporation has two divisions. Division A has a contribution margin of $79,300 and Division B has a contribution margin of $126,200. If total traceable fixed costs are $72,400 and total common fixed costs are $34,900, what is J Corporation's net operating income? A) $168,000 B) $170,600 C) $133,100 D) $98,200 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
*$79,300 + $126,200 = $205,500 37. Kop Corporation has provided the following data:
Kop Corporation's residual income is: A) $1,800 B) $5,400 C) $2,700 D) $3,600 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2; 3 Level: Medium
Net operating income = Sales × Margin on sales = $120,000 × 7.5% = $9,000 Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $9,000 − ($60,000 × 12%) = $9,000 − $7,200 = $1,800
What is Spar's return on investment for this investment center? A) 50.0% B) 12.5%
C) 15.0% D) 25.0%
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CPA; adapted Solution: Return on investment = Margin × Turnover = 25% × 0.5 times = 12.5% 39. 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? A) $7,900 B) -$20,118 C) $20,118 D) -$7,900 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $143,700 − ($970,000 × 14%) = $143,700 − $135,800 = $7,900 40. In November, the Universal Solutions Division of Keaffaber Corporation had average operating assets of $480,000 and net operating income of $46,200. The company uses residual income, with a minimum required rate of return of 11%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in November? A) -$6,600 B) $5,082 C) $6,600 D) -$5,082 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $46,200 − ($480,000 × 11%) = $46,200 − $52,800 = -$6,600 41. If operating income is $60,000, average operating assets are $240,000, and the minimum required rate of return is 20%, what is the residual income? A) 40%
B) 25% C) $12,000 D) $48,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $60,000 − ($240,000 × 20%) = $60,000 − $48,000 = $12,000 42. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:
Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A is already selling all of the units it can produce to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be $1 lower. What is the lowest acceptable transfer price from the standpoint of the selling division? A) $40 B) $39
C) $38 D) $37
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting Appendix: 12A LO: 4 Level: Hard Solution: Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = ($30 − $1) + [($40 − $30) × 5,000] ÷ 5,000 = $29 + $10 = $39 43. Product A, which is produced by the Parts Division of BYP Corporation, sells for $14.25 on the outside market. The costs to make Product A as recorded by the company's cost accounting system are:
The Assembly Division of BYP Corporation requires a part much like Product A to make one of its products. The Assembly Division can buy this part from an outside supplier for $14.15. However, the Assembly Division could use Product A instead of this part purchased from an outside supplier. What is the most the Assembly Division would be willing to pay the Parts Division for Product A? A) $13.50 B) $14.25 C) $14.15 D) $14.00 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting Appendix: 12A LO: 4 Level: Easy
Transfer price ≤ Cost of buying from outside supplier = $14.15 44. 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 Altlantic Division at the end of the year for performance evaluation purposes? A) $198,000 B) $109,800 C) $118,800 D) $96,800 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Labor department cost charged to Atlantic Division = (1,100 shipments × $36 per shipment) + ($234,000 × 30%) = $39,600 + $70,200 = $109,800 45. Erholm 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 $31 per shipment. The Logistics Department's fixed costs are budgeted at $411,800 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 $290,700 and fixed costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments and the Pacific Division had a total of 5,100 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the END of the year for performance evaluation purposes? A) $391,453 B) $425,770 C) $445,498 D) $409,502 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Logistics department cost charged to Pacific Division = (5,100 shipments × $31 per shipment) + ($411,800 × 65%) = $158,100 + $267,670 = $425,770 46. 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? A) $28,920 B) $9,840 C) $19,080 D) $0
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium Solution: Actual Logistics Department cost incurred = $305,040 + $418,680 = $723,720 Logistics Department charged to operating divisions = [$36 per shipment × (2,600 shipments + 5,600 shipments)] + $399,600 = [$36 per shipment × 8,200 shipments] + $399,600 = $295,200 + $399,600 = $694,800 Actual Logistics Department cost not charged to operating divisions = $723,720 − $694,800 = $28,920 47. Bockoven Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $46 per order. The Customer Service Department's fixed costs are budgeted at $181,500 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.
How much Customer Service Department cost should be charged to the Consumer Division at the beginning of the year for performance evaluation purposes? A) $123,200 B) $166,650 C) $111,100 D) $133,320 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Customer Service Department cost charged to Consumer Division = ($46 per order × 1,100 orders) + ($181,500 × 40%) = $50,600 + $72,600 = $123,200 48. Levar Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $73 per order. The Order Fulfillment Department's fixed costs are budgeted at $470,400 for the year. The fixed costs of the Order Fulfillment Department are determined based on the peak period orders.
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