Test Bank Docx Decentralized Performance Evaluation Ch.10

Managerial Accounting, 4e (Whitecotton)

Chapter 10 Decentralized Performance Evaluation

1) In a decentralized organization, lower-level managers are given a great deal of autonomy in decision making.

2) The controllability principle holds that managers should be held responsible for what they can control and for allocated costs.

3) A legal services department would be an example of a cost center.

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

5) Investment center managers have control over the investment of assets.

6) Segment margin and profit margin are identical terms.

7) The balanced scorecard attempts to focus managers' attention on more than just financial measures.

8) The balanced scorecard approach, which includes a broad set of financial and nonfinancial performance indicators, is not compatible with sustainability accounting.

9) Return on investment is calculated as the return on the segment's assets divided by the value of those assets.

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

11) Profit margin is defined as the ratio of sales revenue to operating income.

12) The hurdle rate is also called economic value added.

13) Residual income can mitigate the problems of goal incongruence.

14) Residual income is a leading indicator of financial performance.

15) In transfer pricing, the manager of the buying division is motivated to pay the highest price possible, while the manager of the selling division is motivated to sell at the lowest price possible.

16) In what type of organization is decision-making authority spread throughout the organization?

A) Centralized organization

B) Decentralized organization

C) Participative organization

D) Top-down organization

17) Which of the following is not an advantage of decentralization?

A) Allows top managers to focus on strategic issues

B) Potential duplication of resources

C) Allows for development of managerial expertise

D) Managers can react quickly to local information

18) Which of the following is a disadvantage of decentralization?

A) Develops managerial expertise

B) Managers have specialized knowledge

C) Potential duplication of resources

D) Allows top managers to focus on strategic issues

19) Which of the following is considered a disadvantage of decentralization?

A) Upper-level managers with more knowledge about lower-level managers' areas of responsibility are further away from the day-to-day decisions.

B) Decentralization does not foster managerial expertise since upper-level managers manage less.

C) Decentralization does not empower upper-level managers to focus on strategy because they are too busy managing lower-level managers.

D) Lower-level managers may have an opportunity to make decisions in their own best interest without considering the overall health of the company.

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

A) balanced scorecard.

B) controllability principle.

C) related-party transaction.

D) transfer price.

21) The part of the organization for which managers are responsible is called a:

A) related-party center.

B) responsibility center.

C) cost center.

D) shared center.

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

A) A revenue center manager is responsible for more functions than a profit center manager is.

B) A revenue center manager is responsible for fewer functions than a profit center manager is.

C) A revenue center manager is responsible for the same number of functions as a profit center manager is.

D) A revenue center manager is not responsible for any functions; only the profit center manager is responsible for functions.

23) Which of the following statements is correct about the connection between cost centers and revenue?

A) Cost centers directly generate revenue from customers.

B) Cost centers do not directly generate revenue from customers, and they have no impact on the customer experience.

C) Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality.

D) Cost centers are the primary driver of revenue from customers.

24) Which of the following is the primary tool used by cost centers to manage costs?

A) Return on investment

B) Budgetary control system

C) Balanced scorecard

D) Transfer pricing

25) The most common method of evaluating a profit center manager is the:

A) segmented income statement.

B) budgetary planning and control system.

C) sales system.

D) return on investment.

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

A) a cost center.

B) an investment center.

C) a profit center.

D) a revenue center.

27) The responsibility center in which the manager has responsibility and authority over revenues, costs, and assets is the:

A) cost center.

B) investment center.

C) profit center.

D) revenue center.

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

A) cost center.

B) investment center.

C) profit center.

D) revenue center.

29) The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

A) cost center.

B) investment center.

C) profit center.

D) revenue center.

30) Which of the following responsibility centers will use a segmented income statement as an evaluation tool?

A) The cost center

B) The revenue center

C) The profit center

D) The administrative center

31) Which of the following statements best represents the controllability principle?

A) A profit center manager should be evaluated based on residual income, not return on investment.

B) An investment center manager should be evaluated based on return on investment, not residual income.

C) A profit center manager should be evaluated based on segment margin, not profit margin.

D) A cost center manager should be evaluated on costs and revenues, not just costs.

32) Which of the following is not a perspective used by the balanced scorecard?

A) Financial

B) Short-term

C) Customer

D) Learning and growth

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

A) Customer

B) Internal business processes

C) Learning and growth

D) Financial

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

A) Customer

B) Internal business processes

C) Learning and growth

D) Financial

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

A) Performance measures

B) Targets

C) Strategic vision

D) Specific objectives

36) The balanced scorecard includes both leading and lagging indicators. Which of the following correctly places each indicator on the spectrum of most leading to most lagging?

A) Financial → Customer → Internal business process → Learning and growth

B) Financial → Learning and growth → Internal business process → Customer

C) Customer → Learning and growth → Internal business process → Financial

D) Learning and growth → Internal business process → Customer → Financial

37) Almond, Inc. uses a balanced scorecard. One of the measures on the scorecard is the percentage of revenue from repeat sales. Which balanced scorecard perspective would this measure most likely fit into?

A) Customer perspective

B) Learning and growth perspective

C) Internal business perspective

D) Financial perspective

38) Almond, Inc. uses a balanced scorecard. One of the measures on the scorecard is the average education level of the firm's managers. Which balanced scorecard perspective would this measure most likely fit into?

A) Customer perspective

B) Learning and growth perspective

C) Internal business perspective

D) Financial perspective

39) Almond, Inc. uses a balanced scorecard. One of the measures on the scorecard is the average age of raw materials inventory. Which balanced scorecard perspective would this measure most likely fit into?

A) Customer perspective

B) Learning and growth perspective

C) Internal business perspective

D) Financial perspective

40) 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?

A) Customer perspective

B) Learning and growth perspective

C) Internal business perspective

D) Financial perspective

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

A) The company could add an additional category to the existing balanced scorecard to capture sustainability objectives and metrics.

B) The company could create a separate balanced scorecard that focuses exclusively on sustainability objectives and metrics within the existing categories.

C) The company could focus exclusively on short-term metrics, creating sustainability in its operations.

D) The company could incorporate sustainability metrics within the existing balanced scorecard.

42) Return on investment can be calculated as:

A) sales revenue/average invested assets.

B) operating income/sales revenue.

C) operating income/average invested assets.

D) average invested assets/sales revenue.

43) Investment turnover is defined as:

A) the ratio of sales revenue to average invested assets.

B) the ratio of net operating income to average invested assets.

C) the ratio of net operating income to sales revenue.

D) the ratio of profit margin to return on investment.

44) Profit margin can be calculated as:

A) sales revenue/average invested assets.

B) operating income/sales revenue.

C) operating income/average invested assets.

D) average invested assets/sales revenue.

45) Investment turnover can be calculated as:

A) sales revenue/average invested assets.

B) operating income/sales revenue.

C) operating income/average invested assets.

D) average invested assets/sales revenue.

46) Investment turnover is defined as:

A) the ratio of sales revenue to average invested assets.

B) the ratio of net operating income to average invested assets.

C) the ratio of net operating income to sales revenue.

D) the ratio of profit margin to return on investment.

47) Residual income is the difference between:

A) net operating income and the minimum profit the organization must earn to cover the ROI.

B) net operating income and the minimum acceptable profit.

C) net operating income and the hurdle rate.

D) net operating income times the hurdle rate, less average invested assets.

48) 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?

A) 8%

B) 10%

C) 16%

D) 20%

49) 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 profit margin?

A) 8%

B) 10%

C) 16%

D) 20%

50) 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 investment turnover?

A) 10

B) 5

C) 2

D) 16

51) 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%. Return on investment is:

A) 7%

B) 14%

C) $75,000

D) $30,000

52) 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

53) 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 investment turnover is:

A) 7%

B) 14%

C) 2.00

D) 0.50

54) 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?

A) $200,000

B) $66,667

C) $450,000

D) $150,000

55) Devon Inc. has a profit margin of 12% and an investment turnover of 2.5. Sales revenue is $600,000. What is the operating income?

A) $180,000

B) $28,800

C) $72,000

D) $240,000

56) Devon Inc. has a profit margin of 12% and an investment turnover of 2.5. Sales revenue is $600,000. What is the amount of average invested assets?

A) $240,000

B) $1,500,000

C) $50,000

D) $72,000

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

A) $240,000

B) $60,000

C) $120,000

D) $400,000

58) Palm Inc. has a profit margin of 15% and an investment turnover of 2. Sales revenue is $800,000. What is the amount of average invested assets?

A) $240,000

B) $400,000

C) $120,000

D) $60,000

59) Grove Corp. has revenues of $1,500,000 resulting in an operating income of $105,000. Average invested assets total $750,000. Calculate the ROI if sales increase by 10% and the profit margin and investment level remain constant.

A) 7.7%

B) 14.0%

C) 15.4%

D) 7.0%

60) Grove Corp. has revenues of $1,500,000 resulting in an operating income of $105,000. Average invested assets total $750,000. If sales increase by 10% and the investment level remains constant, what is the investment turnover?

A) 2.00

B) 2.20

C) 7.0%

D) 7.7%

61) Tropic Corp. has sales revenue of $500,000 resulting in operating income of $54,000. Average invested assets total $600,000, and the cost of capital is 6%. Calculate the return on investment if sales increase by 10% and the profit margin and invested assets remain the same.

A) 9.0%

B) 9.9%

C) 10.8%

D) 6.0%

62) Residual income can be calculated as:

A) Operating income − (hurdle rate × average invested assets)

B) Segment margin − (hurdle rate × average invested assets)

C) Operating income − (ROI × average invested assets)

D) Operating income − investment turnover

63) If the ROI of a project is greater than the hurdle rate, the residual income will be:

A) equal to operating income.

B) greater than zero.

C) greater than operating income.

D) greater than average invested assets.

64) 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 residual income?

A) $100,000

B) $20,000

C) $120,000

D) $40,000

65) Miami Corp. has an operating income of $120,000, average invested assets of $600,000, and a cost of capital of 7%. What is the residual income?

A) $100,000

B) $166,667

C) $78,000

D) $42,000

66) 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?

A) $125,000

B) $375,000

C) $250,000

D) $500,000

67) 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?

A) $30,000

B) $45,000

C) $3,000

D) $75,000

68) Pine Corp. has revenues of $500,000 resulting in an operating income of $54,000. Invested assets total $600,000. Residual income is $18,000. Calculate the new residual income if sales increase by 10% and the profit margin and invested assets remain the same.

A) $23,400

B) $0

C) $3,240

D) $36,000

69) Which of the following is not a limitation of return on investment?

A) Use of ROI may lead to goal incongruence.

B) ROI is a lagging indicator of financial performance.

C) ROI evaluates the short term.

D) ROI is a commonly used measure for financial performance.

70) Which of the following statements contrasting residual income with return on investment is correct?

A) ROI may lead to goal incongruence while residual income does not.

B) ROI is a lagging indicator while residual income is a leading indicator.

C) Residual income is a financial measure while return on investment emphasizes the customer perspective.

D) Residual income is a long-term measure while ROI is a short-term measure.

71) Howard has an ROI of 16% based on revenues of $400,000. The investment turnover is 2. What is the residual income if the cost of capital is 9%?

A) $64,000

B) $36,000

C) ($4,000)

D) $14,000

72) Coral has a profit margin of 16% based on revenues of $400,000, and investment turnover is 2. What is the residual income when the cost of capital is 10%?

A) $44,000

B) $20,000

C) $40,000

D) $64,000

73) Reef Corp. has revenues of $500,000 resulting in an operating income of $54,000. Invested assets total $600,000, and the cost of capital is 6%. Calculate the increase in residual income if sales increase by 10% and the profit margin and invested assets remain the same.

A) $5,400

B) $24,000

C) $0

D) $7,500

74) King Corp. has revenues of $1,500,000 resulting in an operating income of $105,000. Average invested assets total $750,000, and the hurdle rate is 6%. Calculate the residual income if sales increase by 10% and the profit margin and invested assets remain constant.

A) $115,500

B) $45,000

C) $0

D) $70,500

75) 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?

A) 18%

B) 12%

C) 8%

D) 15%

76) Estate has an ROI of 16% based on revenues of $400,000. The residual income is $14,000 and the investment turnover is 2. What is the hurdle rate?

A) 16%

B) 8%

C) 9%

D) 18%

77) Indigo Corp. has an ROI of 15% and a residual income of $10,000. If operating income equals $30,000, what is the hurdle rate?

A) 15%

B) 10%

C) 33.3%

D) 18.3%

78) A ________ is the amount that one division charges when it sells goods or services to another division within the same company.

A) residual income

B) negotiated price

C) related price

D) transfer price

79) Which of the following is not a method used to determine transfer prices?

A) The market-price method

B) The cost-based method

C) Negotiation

D) The balanced scorecard method

80) 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.

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

A) market-price method.

B) cost-based method.

C) negotiation.

D) balanced scorecard method.

82) 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 ________.

A) market price; full cost

B) full cost; variable cost

C) market price; variable cost

D) variable cost; market price

83) Evergreen Corp. has two divisions, Fern and Bark. Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs, plus the cost of the widget, to manufacture. Fern's variable costs are $60 per widget, and fixed manufacturing costs are applied at a rate of $36 per widget. Widgets sell on the open market for $105 each. Evergreen's policy is that internal transfers will be made at variable cost. If Bark purchases the widgets from Fern, what will be the transfer price?

A) $60

B) $96

C) $100

D) $175

84) Evergreen Corp. has two divisions, Fern and Bark. Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs, plus the cost of the widget, to manufacture. Fern's variable costs are $60 per widget, and fixed manufacturing costs are applied at a rate of $36 per widget. Widgets sell on the open market for $105 each. Evergreen's policy is that internal transfers will be made at full cost. If Bark purchases the widgets from Fern, what will be the transfer price?

A) $60

B) $96

C) $105

D) $175

85) Evergreen Corp. has two divisions, Fern and Bark. Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs, plus the cost of the widget, to manufacture. Fern's variable costs are $60 per widget, and fixed manufacturing costs are applied at a rate of $36 per widget. Widgets sell on the open market for $105 each. Evergreen's policy is that internal transfers will be made at variable cost plus 20%. If Bark purchases the widgets from Fern, what will be the transfer price?

A) $72.00

B) $115.20

C) $126.00

D) $210.00

86) Evergreen Corp. has two divisions, Fern and Bark. Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs, plus the cost of the widget, to manufacture. Fern's variable costs are $60 per widget, and fixed manufacturing costs are applied at a rate of $36 per widget. Widgets sell on the open market for $105 each. Evergreen's policy is that internal transfers will be made at full cost plus 20%. If Bark purchases the widgets from Fern, what will be the transfer price?

A) $72.00

B) $115.20

C) $126.00

D) $210.00

87) 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?

A) $4.00

B) $5.00

C) $7.00

D) $12.00

88) 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 maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

A) $4.00

B) $5.00

C) $7.00

D) $12.00

89) 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?

A) $0

B) $700,000

C) $800,000

D) $1,200,000

90) 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 is operating at capacity, what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

A) $4.00

B) $5.00

C) $7.00

D) $12.00

91) 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 is operating at capacity, what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

A) $4.00

B) $5.00

C) $7.00

D) $12.00

92) 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 is operating at capacity, what would be the cost savings if the transfer were made and Marlin currently is purchasing 100,000 units on the open market?

A) $0

B) $700,000

C) $800,000

D) $1,200,000

93) 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?

A) $6.00

B) $9.35

C) $12.50

D) $13.00

94) 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?

A) $6.00

B) $9.35

C) $12.50

D) $13.00

95) 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 minimum transfer price Daffodil would accept for an internal transfer?

A) $6.00

B) $9.35

C) $12.50

D) $13.00

96) 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 minimum transfer price Daffodil would accept for an internal transfer?

A) $6.00

B) $9.35

C) $12.50

D) $13.00

97) Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units from an outside supplier for $50. Parsley is operating at less than its full capacity of 550,000 and has variable costs of $27 per unit. The full cost to manufacture the unit is $38. Parsley currently sells 450,000 units at a selling price of $54. If an internal transfer is made, variable shipping and administrative costs of $2 per unit could be avoided. What would be the impact on Spice Company's overall profits if the internal transfer were made?

A) no change in overall profits

B) $1,250,000 increase in profits

C) $200,000 decrease in profits

D) $700,000 increase in profits

98) Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units from an outside supplier for $50. Parsley is operating at less than full capacity and has variable costs of $27 per unit. The full cost to manufacture the unit is $38. Parsley currently sells 450,000 units at a selling price of $54. If an internal transfer is made, variable shipping and administrative costs of $2 per unit could be avoided. What would be the minimum transfer price?

A) $25

B) $27

C) $36

D) $52

99) Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units from an outside supplier for $50. Parsley is operating at less than full capacity and has variable costs of $27 per unit. The full cost to manufacture the unit is $38. Parsley currently sells 450,000 units at a selling price of $54. If an internal transfer is made, variable shipping and administrative costs of $2 per unit could be avoided. What would be the maximum transfer price?

A) $25

B) $27

C) $38

D) $50

100) Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. If the internal transfer is made, what would be the impact on Tiffany Company's overall profits?

A) $625,000 increase

B) $1,125,000 increase

C) $225,000 decrease

D) No change in profits

101) Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. How much profit will Gold receive from the transfer if a transfer price of $22.50 is agreed upon?

A) $225,000

B) $275,000

C) $500,000

D) $725,000

102) Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. How much will Silver save by not purchasing from outside if a transfer price of $22.50 is agreed upon?

A) $225,000

B) $250,000

C) $175,000

D) $125,000

103) 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. What would be the impact on Swan Company's overall profits if the internal transfer is made?

A) $28,000 increase

B) $126,000 increase

C) $7,000 decrease

D) No change in profits

104) 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?

A) $7,000 loss

B) $98,000 loss

C) $35,000 profit

D) $56,000 profit

105) 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?

A) $70,000

B) $56,000

C) $7,000 more cost

D) $28,000

106) Appletree Co. focuses on sustainability metrics in conjunction with its core operations: producing and selling fruit. Match each of the following environmental and sustainability metrics with each of the four dimensions of the balanced scorecard.

a. Crop yield (number of apples) per tree

b. The number of repeat customers

c. The number of employees who attend educational events focused on environmental and sustainability topics

d. Level of carbon emissions from automatic pickers

e. The number of subscribers to the electronic newsletter (instead of the paper newsletter)

f. The number of employees who are LEED associates (i.e., hold professional credentials related to Leadership in Energy & Environmental Design)

g. Change in results of annual environmental impact audit year-over-year

h. The number of unsold inventory items (apples)

i. Annual sales

j. The percentage increase in the number of likes on Facebook (Appletree Co. page) and followers on Instagram (Appletree Co.)

k. The percentage of unsold inventory items (apples) disposed of via secondary distribution channels (e.g., food banks) versus the percentage of unsold inventory items discarded

l. Revenue from disposal of unsold inventory in secondary distribution channels (e.g., food banks)

m. The operations ratio with and without sustainability measures in place

n. The percentage of repeat customers expressed as a percentage of total customers

o. Percentage of investment portfolio invested in sustainable investments

p. The number of mentions of "Appletree Co." via social media

q. The percent increase in the number of blog posts with "environmental" or "sustainability" subject matter

r. Amount of annual contributions to charitable causes

107) Calculate the missing values for each unique company.

108) Calculate the missing values:

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

110) The Marine Division of Pacific Corp. has average invested assets of $110,000,000. Sales revenue of $50,250,000 results in an operating income of $9,967,000. The hurdle rate is 7%.

a. Calculate the return on investment.

b. Calculate the profit margin.

c. Calculate the investment turnover.

d. Calculate the residual income.

111) 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?

112) 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.

113) Madison Corp. has a hurdle rate of 9%. Calculate the missing values:

114) The Walnut Division of Benton Corp. has average invested assets of $22,500,000. Sales revenue of $27,000,000 results in an operating income of $2,379,500. The hurdle rate is 8%.

a. Calculate the return on investment.

b. Calculate the profit margin.

c. Calculate the investment turnover.

d. Calculate the residual income.

115) Superior Division of the Monroe Company has an opportunity to invest in a new project. The project will yield an incremental operating income of $73,350 on average invested assets of $900,000. Superior Division currently has operating income of $425,000 on average invested assets of $4,325,000. Monroe Company has a 7% hurdle rate for new projects.

a. What is Superior Division's ROI before making an investment in the project?

b. What is Superior Division's residual income before making an investment in the project?

c. What is Superior Division's ROI after making the investment in the project?

d. What is Superior Division's residual income after making the investment in the project?

116) 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.

117) The following information is available about the status and operations of the Manufacturing Division of Taylor Company, which has a hurdle rate of 6%.

a. Compute the ROI for the Manufacturing Division.

b. Break the Manufacturing Division ROI down using the DuPont formula.

c. Compute the residual income for the Manufacturing Division.

118) Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 25,000 units from an outside supplier for $24 per unit. Polk is currently operating at less than its full capacity of 600,000 units and has variable costs of $12 per unit. The full cost to manufacture the unit is $18. Polk currently sells 450,000 units at a selling price of $25.50 per unit.

a. What will be the effect on Avery Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Polk's perspective?

c. What is the maximum transfer price from Bishop's perspective?

119) Sandy Company has two divisions, Huron and Cortez. Huron produces an item that Cortez could use in its production. Cortez currently is purchasing 50,000 units from an outside supplier for $24 per unit. Huron is currently operating at full capacity of 600,000 units and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $19.50. Huron currently sells 600,000 units at a selling price of $25.50 per unit.

a. What will be the effect on Sandy Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Huron's perspective?

c. What is the maximum transfer price from Cortez' perspective?

120) 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?

121) Sugar Company has two divisions, Lenox and Berkshire. Lenox produces an item that Berkshire could use in its production. Berkshire currently is purchasing 100,000 units from an outside supplier for $43 per unit. Lenox is currently operating at full capacity of 750,000 units and has variable costs of $28 per unit. The full cost to manufacture the unit is $35. Lenox currently sells 750,000 units at a selling price of $44 per unit.

a. What will be the effect on Sugar Company's operating profit if the transfer is made internally?

b. What will be the change in profits for Lenox if the transfer price is $40 per unit?

c. What will be the change in profits for Berkshire if the transfer price is $40 per unit?

122) Concord Company has two divisions, Rice and Pine. Rice produces an item that Pine could use in its production. Pine currently is purchasing 12,000 units from an outside supplier for $18 per unit. Rice is currently operating at less than its full capacity of 500,000 units and has variable costs of $10 per unit. The full cost to manufacture the unit is $14. Rice currently sells 450,000 units at a selling price of $20 per unit.

a. What will be the effect on Concord Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Rice's perspective?

c. What is the maximum transfer price from Pine's perspective?

123) 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?

124) Dickens Company has two divisions, Bloom and Heath. Bloom produces an item that Heath could use in its production. Heath currently is purchasing 5,000 units from an outside supplier for $44 per unit. Bloom has sufficient capacity and has variable costs of $35 per unit. The full cost to manufacture the unit is $41. Bloom currently sells 450,000 units at a selling price of $48 per unit.

a. What will be the effect on Dickens Company's operating profit if the transfer is made internally?

b. What will be the change in profits for Bloom if the transfer price is $41 per unit?

c. What will be the change in profits for Heath if the transfer price is $41 per unit?

125) Washington Company has two divisions, Jefferson and Adams. Jefferson produces an item that Adams could use in its production. Adams currently is purchasing 100,000 units from an outside supplier for $78.40 per unit. Jefferson is currently operating at full capacity of 900,000 units and has variable costs of $46.40 per unit. The full cost to manufacture the unit is $59.20. Jefferson currently sells 900,000 units at a selling price of $86.40 per unit.

a. What will be the effect on Washington Company's operating profit if the transfer is made internally?

b. What will be the change in profits for Jefferson if the transfer price is $67.20 per unit?

c. What will be the change in profits for Adams if the transfer price is $67.20 per unit?

126) 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?