Chapter 12 Segment Reporting and Decentralization True/False Questions
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At the end of the year, actual Order Fulfillment Department variable costs totaled $621,600 and fixed costs totaled $473,970. The Consumer Division had a total of 1,840 orders and the Commercial Division had a total of 6,560 orders for the year. For purposes of evaluation performance, how much Order Fulfillment Department cost should be charged to the Commercial Division at the END of the year? A) $831,680 B) $855,588 C) $840,918 D) $846,240 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Easy
Order Fulfillment Department cost charged to Commercial Division = ($73 per order × 6,560 orders) + ($470,400 × 75%) = $478,880 + $352,800 = $831,680 49. Schabel 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 $72 per order. The Customer Service Department's fixed costs are budgeted at $695,400 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.
At the end of the year, actual Customer Service Department variable costs totaled $891,089 and fixed costs totaled $709,820. The Consumer Division had a total of 2,610 orders and the Commercial Division had a total of 9,580 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the END of the year? A) $13,409 B) $0
C) $14,420 D) $27,829 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Actual Customer Service Department cost incurred = $891,089 + $709,820 = $1,600,909 Customer Service Department cost charged to operating divisions = [$72 per order × (2,610 orders + 9,580 orders)] + $695,400 = [$72 per order × 12,190 orders] + $695,400 = $877,680 + $695,400 = $1,573,080 Actual Customer Service Department cost not charged to operating divisions = $1,600,909 − $1,573,080 = $27,829 50. Mangiamele Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:
For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year? A) $234,000 B) $500,500 C) $279,900 D) $300,300 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Maintenance Department cost charged to Paints Division = ($4 per case × 18,000 cases) + ($693,000 × 30%) = $72,000 + $207,900 = $279,900 51. Tabarez Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:
For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the END of the year? A) $989,002 B) $1,041,416 C) $967,920 D) $1,019,520 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 12B LO: 5 Level: Medium
Maintenance Department cost charged to Stains Division = ($2 per case × 84,960 cases) + ($1,140,000 × 70%) = $169,920 + $798,000 = $967,920 Use the following to answer questions 52-56:
For each of the following questions, refer back to the original data. 52. If Store B sales increase by $20,000 with no change in traceable fixed expenses, the overall company net operating income should: A) increase by $2,500 B) increase by $5,000 C) increase by $8,000 D) increase by $12,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Medium Solution: Store B contribution margin ratio = $80,000 ÷ $200,000 = 40% Additional net operating income = $20,000 × 40% = $8,000 53. The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, overall company net operating income should: A) decrease by $800 B) decrease by $5,800 C) increase by $5,800 D) increase by $10,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Medium
Store A contribution margin ratio = $28,000 ÷ $100,000 = 28% Change in net operating income = ($15,000 × 28%) − $5,000 = $4,200 − $5,000 = $800 decrease 54. A proposal has been made that will lower variable expenses in Store A to 62% of sales. However, this reduction can only be accomplished by an increase in fixed expenses of $8,000. If this proposal is implemented and sales remain constant, overall company net operating income should: A) remain the same B) decrease by $4,200 C) increase by $2,000 D) increase by $8,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Medium Solution: New amount for Store A variable expenses = $100,000 × 62% = $62,000 Change in net operating income = ($72,000 − $62,000) − $8,000 = $10,000 − $8,000 = $2,000 increase 55. If sales in Store B increase by $30,000 as a result of a $7,000 expenditure in fixed expenses: A) the contribution margin should increase by $18,000 B) the segment margin should increase by $12,000 C) the contribution margin should increase by $11,000 D) the segment margin should increase by $5,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Store B contribution margin ratio = $80,000 ÷ $200,000 = 40% Change in segment margin = ($30,000 × 40%) − $7,000 = $12,000 − $7,000 = $5,000 increase 56. Currently the sales clerks receive a salary of $7,000 per month in Store B. A proposal has been made to change from a fixed salary to a sales commission of 5%. Assume that this proposal is adopted, and that as a result sales increase by $20,000. The new segment margin for Store B should be: A) $29,000 B) $32,000 C) $39,000 D) $45,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Hard Solution:
*Variable expenses ÷ Sales = $120,000 ÷ $200,000 = 60% Use the following to answer questions 57-59:
A) $45,000 B) $105,000 C) $150,000 D) $570,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Medium Solution:
58. The contribution margin ratio for Product C for June was: A) 0% B) 30%
C) 38% D) 70%
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Company variable expenses = $1,500,000 × (100% − 38%) = $1,500,000 × 62% = $930,000 Product C variable expenses = $930,000 − $450,000 − $270,000 = $210,000 Product C contribution margin = $300,000 − $210,000 = $90,000 Product C contribution margin ratio = $90,000 ÷ $300,000 = 30% 59. Common fixed expenses for Higgins Company for June were: A) $45,000 B) $420,000 C) $150,000 D) $105,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Common fixed expenses = Total fixed expenses – Traceable fixed expenses = $525,000 – ($180,000 + $150,000 + $90,000) = $525,000 – $420,000 = $105,000 Use the following to answer questions 60-62: Azuki Corporation operates in two sales territories, urban and rural. Shown below is last year's income statement segmented by territory:
Azuki's common fixed expenses were $25,000 last year. 60. What was Azuki Corporation's overall net operating income for last year? A) $33,000 B) $45,000 C) $58,000 D) $83,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy Solution:
61. If urban sales were 10% higher last year, by approximately how much would Azuki's net operating income have increased? (Assume no change in the revenue or cost structure.) A) $4,400 B) $6,400 C) $11,200 D) $32,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Urban contribution margin ratio = $112,000 ÷ $320,000 = 35% Increase in net operating income = $320,000 × 10% × 35% = $11,200
A) $5,000 increase B) $6,000 increase C) $11,000 increase D) $24,000 decrease Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Rural segment margin = Contribution margin − Traceable fixed expenses = $24,000 − $30,000 = ($6,000) Net operating income would have increased by $6,000 if operations in rural areas would have been discontinued at the beginning of last year. Use the following to answer questions 63-65: Tubaugh Corporation has two major business segments—East and West. In December, the East business segment had sales revenues of $690,000, variable expenses of $352,000, and traceable fixed expenses of $104,000. During the same month, the West business segment had sales revenues of $140,000, variable expenses of $56,000, and traceable fixed expenses of $24,000. The common fixed expenses totaled $162,000 and were allocated as follows: $89,000 to the East business segment and $73,000 to the West business segment. 63. The contribution margin of the West business segment is: A) $84,000 B) $234,000 C) $422,000 D) $145,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: West contribution margin = Sales − Variable expenses = $140,000 − $56,000 = $84,000 64. A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is: A) $352,000 B) $145,000 C) $234,000 D) $249,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy Solution:
65. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $294,000 B) $422,000 C) $132,000 D) -$30,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Use the following to answer questions 66-68: Data for January for Bondi Corporation and its two major business segments, North and South, appear below:
In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South business segment. 66. The contribution margin of the South business segment is: A) $198,000 B) $496,000 C) $219,000 D) $105,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
67. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A) $105,000 B) $383,000 C) $198,000 D) $184,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
68. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) -$7,000 B) $172,000 C) $351,000 D) $496,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Use the following to answer questions 69-71: Ferrar Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for March appear below:
In addition, common fixed expenses totaled $210,000 and were allocated as follows: $122,000 to the Consumer business segment and $88,000 to the Commercial business segment. 69. The contribution margin of the Commercial business segment is: A) $137,000 B) $184,000 C) $62,000 D) $423,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
70. A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is: A) $164,000 B) $62,000 C) $394,000 D) $184,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
71. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $66,000 B) -$144,000 C) $423,000 D) $276,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement LO: 1 Level: Easy
Use the following to answer questions 72-73: The Tipton Division of Dudley Company reported the following data last year:
72. Tipton Division's average operating assets last year were: A) $625,000 B) $250,000 C) $416,677 D) $333,333 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2; 3 Level: Hard
Residual income = Average operating assets × (ROI − Minimum required rate of return) Average operating assets = Residual income ÷ (ROI − Minimum required rate of return) = $50,000 ÷ (20% − 12%) = $50,000 ÷ 8% = $625,000 73. The division's net operating income last year was: A) $250,000 B) $125,000 C) $100,000 D) $75,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2; 3 Level: Hard Solution: ROI = Net operating income ÷ Average operating assets Net operating income = ROI × Average operating assets = 20% × $625,000 = $125,000 Use the following to answer questions 74-75:
74. Turk's return on investment for the year was: A) 4% B) 15%
C) 36% D) 20%
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: ROI = Net operating income ÷ Average operating assets = $36,000 ÷ $180,000 = 20% 75. If the residual income for the year was $9,000, the minimum required rate of return must have been: A) 15%
B) 4% C) 20%
D) 36% Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard Solution: Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $9,000 = $36,000 − ($180,000 × Minimum required rate of return) = $27,000 ÷ $180,000 Minimum required rate of return = 15% Use the following to answer questions 76-77: The Hum Division of the Ho Company reported the following data for last year:
76. The residual income for the Hum Division last year was: A) $126,000 B) $46,000 C) $78,000 D) $22,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $150,000 − ($600,000 × 12%) = $150,000 − $72,000 = $78,000 77. The return on investment last year for the Hum Division was: A) 75%
B) 25% C) 35%
D) 12% Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: ROI = Net operating income ÷ Average operating assets = $150,000 ÷ $600,000 = 25% Use the following to answer questions 78-79: The following selected data pertain to Beck Co.'s Beam Division for last year:
Note: the traceable fixed expenses do not include any interest expense. 78. How much is the residual income? A) $400,000 B) $200,000 C) $300,000 D) $500,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Source: CPA; adapted Solution:
Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $300,000 − ($500,000 × 20%) = $300,000 − $100,000 = $200,000 79. How much is the return on the investment? A) 25%
B) 45% C) 20%
D) 60% Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA; adapted Solution: ROI = Net operating income ÷ Average operating assets = $300,000 ÷ $500,000 = 60% Use the following to answer questions 80-81: Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. 80. Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 2 Level: Easy 81. If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum required rate of return of 8%, what decision would be preferred by Edith Carolina and Michael Sanders?
Ans: C AACSB: Analytic AICPA BB: Decision Making AICPA FN: Reporting LO: 3 Level: Easy Use the following to answer questions 82-83: The following information relates to the Quilt Division of TDS Corporation for last year:
82. What was the Quilt Division's return on investment (ROI) for last year? A) 13% B) 18%
C) 40% D) 45%
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $65,000 ÷ $500,000 = 13% 83. Assume that Quilt was being evaluated solely on the basis of residual income. Which of the following investment opportunities would Quilt want to invest in?
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 3 Level: Medium Use the following to answer questions 84-87: Cecille Products is a division of a major corporation. Last year the division had total sales of $7,940,000, net operating income of $254,080, and average operating assets of $2,000,000. The company's minimum required rate of return is 12%. 84. The division's margin is closest to: A) 3.2%
B) 25.2% C) 12.7%
D) 28.4% Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Level: Easy Solution: Margin = Net operating income ÷ Sales = $254,080 ÷ $7,940,000 = 3.2% 85. The division's turnover is closest to: A) 0.13
B) 3.52 C) 3.97
D) 31.25 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Turnover = Sales ÷ Average operating assets = $7,940,000 ÷ $2,000,000 = 3.97 86. The division's return on investment (ROI) is closest to: A) 2.6%
B) 12.7% C) 0.4%
D) 50.4% Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $254,080 ÷ $2,000,000 = 12.7% 87. The division's residual income is closest to: A) $(698,720) B) $494,080 C) $254,080 D) $14,080 Ans: D 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) = $254,080 − ($2,000,000 × 12%) = $254,080 − $240,000 = $14,080 Use the following to answer questions 88-91: Deanda Products is a division of a major corporation. The following data are for the last year of operations:
88. The division's margin is closest to: A) 4.0% B) 16.4%
C) 24.4% D) 28.4%
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Margin = Net operating income ÷ Sales = $1,145,200 ÷ $28,630,000 = 4.0% 89. The division's turnover is closest to: A) 4.09
B) 0.16 C) 25.00
D) 3.51 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Turnover = Sales ÷ Average operating assets = $28,630,000 ÷ $7,000,000 = 4.09 90. The division's return on investment (ROI) is closest to: A) 16.4%
B) 3.2% C) 67.1%
D) 0.6% Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $1,145,200 ÷ $7,000,000 = 16.4% 91. The division's residual income is closest to: A) $(4,008,200) B) $2,405,200 C) $(114,800) D) $1,145,200 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) = $1,145,200 − ($7,000,000 × 18%) = $1,145,200 − $1,260,000 = $(114,800) Use the following to answer questions 92-94:
A) 8%
B) 12% C) 20%
D) 40% Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $24,000 ÷ $120,000 = 20% 93. Last year at Uptown the margin amounted to: A) 8%
B) 12% C) 20%
D) 40% Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Margin = Net operating income ÷ Sales = $24,000 ÷ $300,000 = 8% 94. At Uptown the turnover last year was: A) 0.4
B) 2.5 C) 3.2
D) 5.0 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Turnover = Sales ÷ Average operating assets = $300,000 ÷ $120,000 = 2.5 Use the following to answer questions 95-97: Ahartz Industries is a division of a major corporation. Data concerning the most recent year appears below:
95. The division's margin is closest to: A) 22.3% B) 25.6%
C) 5.7% D) 31.3%
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Margin = Net operating income ÷ Sales = $445,740 ÷ $7,820,000 = 5.7% 96. The division's turnover is closest to: A) 3.20
B) 17.54 C) 0.22
D) 3.91 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Turnover = Sales ÷ Average operating assets = $7,820,000 ÷ $2,000,000 = 3.91 97. The division's return on investment (ROI) is closest to: A) 18.2%
B) 4.5% C) 22.3%
D) 1.3% Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $445,740 ÷ $2,000,000 = 22.3% Use the following to answer questions 98-100: Beade Industries is a division of a major corporation. Last year the division had total sales of $16,760,000, net operating income of $770,960, and average operating assets of $4,000,000. 98. The division's margin is closest to: A) 28.5%
B) 23.9% C) 4.6%
D) 19.3% Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Margin = Net operating income ÷ Sales = $770,960 ÷ $16,760,000 = 4.6% 99. The division's turnover is closest to: A) 21.74
B) 4.19 C) 3.51
D) 0.19 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Turnover = Sales ÷ Average operating assets = $16,760,000 ÷ $4,000,000 = 4.19 100. The division's return on investment (ROI) is closest to: A) 16.1%
B) 0.9% C) 19.3%
D) 3.7% Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: ROI = Net operating income ÷ Average operating assets = $770,960 ÷ $4,000,000 = 19.3% Use the following to answer questions 101-102: The West Division of Cecchetti Corporation had average operating assets of $240,000 and net operating income of $42,200 in August. The minimum required rate of return for performance evaluation purposes is 19%. 101. What was the West Division's minimum required return in August? A) $45,600 B) $42,200 C) $53,618 D) $8,018 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Minimum required return = Minimum required rate of return × Average operating assets = 19% × $240,000 = $45,600 102. What was the West Division's residual income in August? A) -$8,018 B) $3,400 C) -$3,400 D) $8,018 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) = $42,200 − ($240,000 × 19%) = $42,200 − $45,600 = -$3,400 Use the following to answer questions 103-104: The Consumer Products Division of Goich Corporation had average operating assets of $800,000 and net operating income of $81,300 in May. The minimum required rate of return for performance evaluation purposes is 10%. 103. What was the Consumer Products Division's minimum required return in May? A) $81,300 B) $8,130 C) $88,130 D) $80,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Minimum required return = Minimum required rate of return × Average operating assets = 10% × $800,000 = $80,000 104. What was the Consumer Products Division's residual income in May? A) -$1,300 B) $8,130 C) $1,300 D) -$8,130 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) = $81,300 − ($800,000 × 10%) = $81,300 − $80,000 = $1,300 Use the following to answer questions 105-108:
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently. 105. If outside customers demand only 50,000 units per year, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division? A) $35
B) $33 C) $28
D) $23 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Medium Solution: Transfer price Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = $23 + ($0 ÷ 15,000) = $23 106. If outside customers demand 80,000 units, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division? A) $35
B) $33 C) $28
D) $23 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Medium Solution: Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = $23 + [($35 − $23) × 15,000] ÷ 15,000 = $23 + $12 = $35 107. If outside customers demand 80,000 units and if, by selling to Division Q, Division P could avoid $4 per unit in variable selling expense, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division? A) $35
B) $21 C) $31
D) $33 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Hard Solution: Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = $23 + [($35 − $23 − $4) × 15,000] ÷ 15,000 = $23 + $8 = $31 108. If outside customers demand 70,000 units, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division for each of the 15,000 units needed by Q? A) $33
B) $27 C) $28
D) $29 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Hard Solution: Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = $23 + [($35 − $23) × 5,000*] ÷ 15,000 = $23 + ($12 ÷ 3) = $23 + $4 = $27 *Lost sales units = 15,000 − (80,000 − 70,000) = 15,000 − 10,000 = 5,000 Use the following to answer questions 109-110: (Appendix 12A) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation. 109. Assume that the Plastics Division is currently operating at full capacity. Also assume that the Components Division wants to increase the number of parts it purchases from Plastics. In order to maintain its current level of profitability, the Plastics Division should not accept any transfer price on these additional parts that is below the: A) variable cost of the additional parts. B) full (absorption) cost of the additional parts. C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation. D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Medium 110. Assume that the Plastics Division is currently operating with idle capacity. Also assume that the Components Division wants to purchase from Plastics all of the additional parts that could be made with this idle capacity. In order to increase its current level of profitability, the Plastics Division should accept any transfer price on these additional parts that is above the: A) variable cost of the additional parts. B) full (absorption) cost of the additional parts. C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation. D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 4 Level: Medium Use the following to answer questions 111-112: (Appendix 12B) Ampulla Production Studios charges the Sound Effects Department's costs to two operating departments, Audio and Video. Charges are made on the basis of labor-hours. Information pertaining to the labor-hours for the year follow:
The following costs pertain to the Sound Effects Department:
111. How much of the Sound Effects Department's variable cost should be charged to the Video Department at year-end for performance evaluation purposes? A) $175,000 B) $175,500 C) $177,450 D) $191,100 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
Variable cost charged to Video Department = Budgeted variable cost per lab-hour × Actual labor-hours = [$315,000 ÷ (18,000 + 27,000)] × 27,300 = ($315,000 ÷ 45,000) × 27,300 = $7 × 27,300 = $191,100
A) $264,600 B) $283,500 C) $302,400 D) $307,125 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium Solution: Fixed cost charged to Audio department = Audio’s percent of total capacity × Budgeted fixed costs = [15,000 ÷ (15,000 + 25,000)] × $756,000 = (15,000 ÷ 40,000) × $756,000 = 37.5% × $756,000 = $283,500 Use the following to answer questions 113-114: (Appendix 12B) Wollan Corporation has two operating divisions-an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $44 per shipment. The Logistics Department's fixed costs are budgeted at $237,600 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 $332,880 and fixed costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division had a total of 3,000 shipments for the year. 113. How much Logistics Department cost should be allocated to the West Division at the end of the year? A) $289,176 B) $229,644 C) $241,167 D) $274,560 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Logistics Department cost allocated to West Division = (Budgeted variable cost per unit × Actual shipments) + (Budgeted fixed costs × Percent of peak capacity required) = ($44 per shipment × 3,000 shipments) + (($237,600 × 60%) = $132,000 + $142,560 = $274,560 114. How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year? A) $28,040 B) $0
C) $16,360 D) $11,680 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
Actual cost = $332,880 + $253,960 = $586,840 Cost allocated to operating divisions = [$44 per shipment × (4,300 + 3,000 shipments)] + $237,600 = [$44 per shipment × 7,300 shipments] + $237,600 = $321,200 + $237,600 = $558,800 Actual Logistics Department cost not allocated to operating divisions = $586,840 − $558,800 = $28,040 Use the following to answer questions 115-116: (Appendix 12B) Azotea 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 $56 per order. The Order Fulfillment Department's fixed costs are budgeted at $233,700 for the year. The fixed costs of the Order Fulfillment Department are budgeted based on the peak period orders.
At the end of the year, actual Order Fulfillment Department variable costs totaled $237,390 and fixed costs totaled $239,140. The Consumer Division had a total of 1,240 orders and the Commercial Division had a total of 2,860 orders for the year. 115. How much Order Fulfillment Department cost should be allocated to the Commercial Division at the end of the year? A) $300,380 B) $309,078 C) $332,409 D) $323,180 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Order Fulfillment Department cost allocated to Commercial Division = ($56 per order × 2,860 orders) + ($233,700 × 60%) = $160,160 + $140,220 = $300,380 116. How much actual Order Fulfillment Department cost should not be allocated to the operating divisions at the end of the year? A) $7,790 B) $5,440 C) $13,230 D) $0 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Actual cost = $237,390 + $239,140 = $476,530 Cost allocated to operating divisions = [$56 per order × (1,240 + 2,860 orders)] + $233,700 = [$56 per order × 4,100 orders] + $233,700 = $229,600 + $233,700 = $463,300 Actual Order Fulfillment cost not allocated to operating divisions = $476,530 − $463,300 = $13,230 Use the following to answer questions 117-118: (Appendix 12B) Frame Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined by the number of cases produced by the operating departments during the peak period. Data appear below:
117. How much Maintenance Department cost should be allocated to the Stains Division at the end of the year? A) $395,313 B) $414,187 C) $405,610 D) $386,960 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
Maintenance Department cost allocated to Stains Division = ($6 per case × 28,960 cases) + ($328,000 × 65%) = $173,760 + $213,200 = $386,960 118. How much actual Maintenance Department cost should not be allocated to the operating divisions at the end of the year? A) $12,134 B) $8,194 C) $0
D) $3,940 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Actual cost = $254,014 + $331,940 = $585,954 Maintenance Department cost allocated to operating divisions = [$6 per case × (12,010 + 28,960 cases)] + $328,000 = [$6 per case × 40,970 cases] + $328,000 = $245,820 + $328,000 = $573,820 Maintenance Department cost not allocated to operating divisions = $585,954 − $573,820 = $12,134 Directory: 2015 2015 -> 587 Return function, r i(X) r i(0) r i(1) r i(2) r i(3) 1 0 2 4 6 Thermal Station, I 2 0 1 5 6 3 0 3 5 6 10 2015 -> Fall 2013 Spring 2014 Program Data: Standard 1 Exhibit 4d 2015 -> Police Militarization 2015 -> Medical Radiography Program 2015 -> 2015 ihbb championships: hs history Bowl Round 4 – Prelims First Quarter 2015 -> Desk review yemen 2015 -> Wrtp/big step · 3841 W. Wisconsin Ave., Milwaukee, wi 53208 2015 -> 1. naclo 2015 – North American Computational Linguistics Olympiad 2015 -> Rao bulletin 1 December 2015 html edition this bulletin contains the following articles 2015 -> Volume Ⅴ (2015) On The 2015 China Victory Day Parade Download 0.52 Mb. Share with your friends:
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