zMSQ-04 - Responsibility Acctg, Transfer Pricing - GP Analysis
zMSQ-04 - Responsibility Acctg, Transfer Pricing - GP Analysis
zMSQ-04 - Responsibility Acctg, Transfer Pricing - GP Analysis
2. An effective management by objectives (MBO) program can increase organizational 6. Which of the following types of responsibility centers has accountability for revenues?
effectiveness. Which of the following contributes to an effective MBO program? A. Cost centers and investment centers. C. Expense and investment centers.
A. Emphasis on "should do" rather than "must do" objectives. B. Cost centers and profit centers. D. Profit centers and investment centers.
B. Objectives that are quantified, clearly measurable, and state target dates for completion.
C. Managers who hold their subordinates strictly accountable for achieving their objectives 7. A formal report in responsibility accounting is covered by the guideline of
precisely as they have been written. A. GAAP C. PICPA
D. All of the answers are correct. B. Management D. SEC
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2. It should be prompt, timely and regularly issued. cannot influence, and seeks to arrest risks and sensitivity factors.
3. It should easily be understood by users as to the contents, their significance and how to
use them. 13. The following costs may be controllable at certain levels within a manufacturing concern,
4. It should be able to pinpoint who is to blame as a pre-requisite to explain variances. except:
5. It should highlight efficiencies and inefficiencies. A. Insurance costs of plant and equipment.
6. It should be comparative and analytical. B. Power rates imposed by government agency.
7. It should be comprehensive as to include all details that can possibly be contained in the C. Basic salary of permanent manufacturing personnel.
report. D. Monthly maintenance cost of equipment covered by an annual contract.
A. All except 4 and 7. C. Statements 1, 2, 3, 4 and 7 only.
B. All except 4, 5 and 6. D. All seven statements. 14. Managers are most likely to accept allocations of common costs based on
A. Ability to bear. C. Cause and effect.
10. In responsibility accounting, there are two (2) types of reports distinguished as to goals and B. Benefits received. D. Fairness.
objectives
A. Horizontal reporting and vertical reporting. Performance evaluation
B. Trends analysis reporting and comparative reporting. 15. This practice is irrelevant in evaluating performance of an activity
C. Operations reporting and financial condition reporting. A. Planning for future activities
D. Responsibility performance reporting and information reporting. B. Fixed budgets for mixed costs
C. Flexible budget for mixed costs
11. Which of the following items of cost would be least likely to appear in a performance report D. Difference between planned cost and actual
based on responsibility accounting technique for the supervisor of an assembly line in a large
manufacturing situation? 16. The following information pertains to Bala Co. for the year ended December 31, 1991:
A. Direct labor. C. Repairs and maintenance. Sales $600,000
B. Materials. D. Supervisor’s salary. Income 100,000
Capital investment 400,000
12. Among the management accounting concepts is controllability which means (3) Which of the following equations should be used to compute Bala’s return on investment?
A. Accounting information must be of such quality that confidence can be placed in it. A. (4/6) x (1/6) = ROI C. (6/4) x (1/6) = ROI
B. Management accounting must ensure that flexibility is maintained in assembling and B. (4/6) x (6/1) = ROI D. (6/4) x (6/1) = ROI
interpreting information.
C. It is necessary at all times to identify the responsibilities and key result areas of the 17. Maplewood Industries wants its division managers to concentrate on improving profitability.
individuals within the organization. The performance evaluation measures that are most likely to encourage this behavior are
D. Management accounting identified elements or activities which management can or A. Dividends per share, return on equity, and times interest earned.
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B. Turnover of operating assets, gross profit margin, and return on equity. B. increase sales and expenses by the same percentage
C. Return on operating assets, the current ratio, and the debts-to-equity ratio. C. decrease sales and expenses by the same percentage
D. Turnover of operating assets, dividends per share, and times interest earned. D. increase sales dollars by the same amount as total assets
18. Compared to a jewelry store, a supermarket has E. decrease sales and expenses by the same dollar amount
A. Higher margin and higher turnover. C. Lower margin and higher turnover.
B. Higher margin and lower turnover. D. Lower margin and lower turnover. 23. ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a return on
investment of 20 percent. Division A has a return on investment of 25 percent. If ABC Corp.
19. Presently, the Alligator Division of Animal Crackers Co. has a profit margin of 30 percent. If evaluates its managers on the basis of return on investment, how would the Division A
total sales rise by $100,000, both the numerator and the denominator of the profit margin will manager and the ABC Corp. president react to a new investment that has an estimated return
increase. The net result will be on investment of 23 percent?
A. no change in the profit margin ratio. A. B. C. D.
B. a decrease in the profit margin ratio to below 30 percent. Division A manager Accept Accept Reject Reject
C. an increase in the profit margin ratio to above 30 percent. ABC Corp. president Accept Reject Accept Reject
D. a change in the profit margin ratio that cannot be determined from this information.
24. Residual income is a better measure for performance evaluation of an investment center
20. A subunit of an organization is evaluated on the basis of its ROI. If this subunit's sales and manager than return on investment because
expenses both increase by $30,000, how will the following measures be affected? A. Returns do not increase as assets are depreciated.
A. B. C. D. B. Only the gross book value of assets needs to be calculated.
ROI Increase Indeterminate No change No change C. The problems associated with measuring the asset base are eliminated.
Asset turnover Increase Increase Increase Decrease D. Desirable investment decisions will not be neglected by high return divisions.
Profit margin Increase Decrease Decrease No change
25. Delmar Corporation is considering the use of residual income as a measure of the
performance of its divisions. What major disadvantage of this method should the company
21. Which combination of changes in asset turnover and income as a percentage of sales will
consider before deciding to institute it?
maximize the return on investment?
A. opportunities may be undertaken which will decrease the overall return on investment.
A. B. C. D. B. this method does not make allowance for difference in the size of compared divisions.
Asset turnover Increase Increase Decrease Decrease C. residual income does not measure how effectively the division manager controls costs.
Income as a percentage of sales Increase Decrease Increase Decrease D. the minimum required rate of return may eliminate desirable opportunities from
consideration.
22. Which of the following changes would NOT change return on investment (ROI)?
A. increase total assets 26. Power Corporation has two divisions, X and Y, Division X is evaluating a project that will earn a
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return which is more than the imputed interest charged for the invested capital, but less than A. the lowest outside price for the good.
the division’s historical return on invested capital. Division Y is considering a project that will B. incremental costs in the selling division.
earn a rate of return which is greater than the division’s historical return on invested capital, C. the extent of idle capacity in the buying division.
but less than the imputed interest charge for invested capital. If the corporate objective is to D. negotiations between the buying and selling division.
maximize residual income, the division should decide as follows:
A. Y accept and X accept. C. Y reject and X accept.
B. Y accept and X reject. D. Y reject and X reject.
27. A prospective project under consideration by P Division of C Co. has an estimated residual
income of a negative $20,000. If the project requires an investment of $400,000, the
A. company's target rate is 15 percent.
B. project's return on investment is zero.
C. project generates a negative return on investment.
D. project's return on investment is 5 percent less than the company's target rate.
28. Suppose a manager is to be measured by residual income. Which of the following will not result
in an increase in the residual income figure for this manager, assuming other factors remain
constant?
A. An increase in sales.
B. A decrease in expenses.
C. A decrease in operating assets.
D. An increase in the minimum required rate of return.
Transfer pricing
29. In a decentralized company in which divisions may buy goods from one another, the
transfer-pricing system should be designed primarily to
A. Increase in the consolidated value of inventory.
B. Allow division managers to buy from outsiders.
C. Minimize the degree of autonomy of division managers.
D. Aid in the appraisal and motivation of managerial performance.
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3. Hatch Company has two divisions, O and E. During the year just ended, Division O had a the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of
segment margin of $9,000 and variable costs equal to 70% of sales. Traceable fixed costs for $200,000 and a contribution margin ratio of 30%. Net income for the company was $20,000
Division E were $19,000. Hatch Company as a whole had a contribution margin of 40%, a and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common
segment margin of $25,000, and sales of $200,000. Given this data, the sales for Division E fixed costs for last year were:
for last year were: A. $40,000. C. $70,000.
A. $50,000. C. $116,667. B. $50,000. D. $90,000.
B. $87,500. D. $150,000.
8. Denner Company has two divisions, A and B, that reported the following results for October:
4. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during March, Division A Division B
a segment margin of 30%, and traceable fixed expenses of $26,000. The company as a whole Sales $90,000 $150,000
had a contribution margin ratio of 25% and $120,000 in total contribution margin. Based on this Variable expenses as a percentage of sales 70% 60%
information, total variable expenses in Store M for the month must have been: Segment margin $ 2,000 $ 23,000
A. $140,000. C. $300,000. If common fixed expenses were $31,000, total fixed expenses must have been:
B. $260,000. D. $360,000. A. $31,000. C. $62,000.
B. $52,000. D. $93,000.
5. Reardon Retail Company consists of two stores, A and B. Store A had sales of $80,000
during March, a contribution margin ratio of 30%, and a segment margin of $11,000. The 9. A firm prepared a segmented income statement that included the following data for its
company as a whole had sales of $200,000, a contribution margin ratio of 36%, and segment suburban marketing segment:
margins for the two stores totaling $31,000. If net income for the company was $15,000 for the Fixed costs controllable by the suburban marketing segment manager $150,000
month, the traceable fixed expenses in Store B must have been: Fixed suburban marketing costs controllable by corporate management $250,000
A. $16,000. C. $28,000. Fixed manufacturing costs allocated to the suburban marketing segment $110,000
B. $20,000. D. $31,000. Variable manufacturing costs $200,000
Variable selling costs $100,000
6. More Company has two divisions, L and M. During July, the contribution margin in Division L Variable administrative costs $130,000
was $60,000. The contribution margin ratio in Division M was 40% and its sales were Net sales $950,000
$250,000. Division M's segment margin was $60,000. The common fixed expenses were
The best measure of the economic performance of the suburban marketing segment is:
$50,000 and the company net income was $20,000. The segment margin for Division L was:
A. $10,000 C. $370,000
A. $0. C. $50,000.
B. $120,000 D. $520,000
B. $10,000. D. $60,000.
Performance evaluation
7. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for
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12. If Division C has a 10% return on sales, income of $5,000, and an investment turnover of 4 17. If the operating asset turnover increased by 50 percent and the operating income margin
times, its ROI is increased by 50 percent, the ROI would increase by
A. 10% C. 100% A. 25% C. 125%
B. 40% D. 500% B. 50% D. 225%
13. Largo Company recorded for the past year sales of $750,000 and average operating assets of 18. If the operating asset turnover increased by 30 percent and the operating income margin
$375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI decreased by 30 percent, the ROI would
of 15%? A. stay the same D. increase by 69 percent
A. 2.00% C. 9.99%
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Plant and equipment 17,200 The long-term debt has an interest rate of 8%, and its fair value equaled its book value at year-end.
If the imputed interest charge is 15% and Webb wants to achieve a residual income target of The fair value of the equity capital is $2 million greater than its book value. Dzyubenko’s income tax
$2,000,000, what will costs have to be in order to achieve the target? rate is 25%, and its cost of equity capital is 10%.
A. $9,000,000 C. $25,150,000
B. $10,800,000 D. $25,690,000 30. What is the weighted-average cost of capital (WACC) to be used in the economic value added
(EVA) calculation?
Questions 28 and 29 are based on the following information. A. 8.0% C. 9%
T Division of the Alphabet Co. has the following statistics for its 2002 operations: B. 8.89% D. 10%
Assets available for use $2,000,000
T Division's return on investment 25% 31. The EVA is
T Division's residual income 200,000 A. $1,380,000 C. $1,830,000
Return on investment (entire Alphabet Co.) 20% B. $1,620,000 D. $3,000,000
Questions 30 and 31 are based on the following information. 32. How many units must South sell each year to have an ROI of 16%?
Dzyubenko Co. reported these data at year-end: A. 52,000. C. 240,000.
Pre-tax operating income $4,000,000 B. 65,000. D. 1,300,000.
Current assets 4,000,000
Long-term assets 16,000,000 33. If South wants a residual income of $50,000 and the minimum required rate of return is 10%,
Current liabilities 2,000,000 the annual turnover will have to be:
Long-term liabilities 5,000,000 A. 0.32. C. 1.25.
B. 0.80. D. 1.50.
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B. $225,000. D. $750,000.
Transfer pricing
34. The First Division of Furrow Company produces Part 1 that is used by OEN’s as a key part in Gross profit variance analysis
their products. Costs and sales data of Part 1 are as follows: 37. Casablanca Inc. has a practical production capacity of two million units. The current year’s
Selling price per unit P100 budget was based on the production and sales of 1.4 million units during the current year.
Variable cost per unit 60 Actual statistics came out to be production of 1.44 million units and sales of 1.2 million units.
Fixed cost per unit (Based on 40,000 units capacity per annum) 24 Selling price is at P20 each and the contribution margin ratio is 30%. The peso value that best
Furrow Company’s Second Division is introducing a new product that will use Part 1. An quantifies the marketing division’s failure to achieve budgeted performance for the year is
outside supplier has quoted Second Division a price of P96 per unit. This represents the usual A. P4,000,000 unfavorable. C. P1,200,000 unfavorable.
P100 price less a quantity discount due to the large number of Second Division’s requirement. B. P4,800,000 unfavorable. D. P1,440,000 unfavorable.
If the Second Division would buy 15,000 units of Part 1 from the First Division, the effect on the
corporate profits would be 38. The income data of Penny Corporation for the years 1984 and 1985 are as follows:
A. Reduce by P60,000. C. Increase by P240,000. (in P000s)
B. Increase by P210,000. D. Increase by P1,500,000. 1985 1984 Increase
Net Sales 6,900 5,100 1,800
35. Division A of Harkin Company has the capacity for making 3,000 motors per month and Cost of Goods Sold 3,795 3,060 735
regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 Gross Profit 3.105 2,040 1,065
per motor. Division B of Harkin Company would like to obtain 1,400 motors each month from If the sales prices in 1985 are approximately 20% higher than those of 1984, the P1,800,000
Division A. What should be the lowest acceptable transfer price from the perspective of increase in net sales is accounted for as follows:
Division A? Increase(Decrease) A. B. C. D.
A. $15.50 C. $35.70 Sales Price P 650,000 P 800,000 P1,000,000 P1,150,000
B. $26.57 D. $62.00 Sales Volume P1,150,000 P1,000,000 P 800,000 P 650,000
36. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year and 39. The budgeted sales of product YUM in August were 2,400 units. Beechcrafters, the company
regularly sells 60,000 each year on the outside market. The regular sales price is $100 per that manufactures YUM, uses a standard costing system, and the standard cost per unit of
wheel set, and the variable production cost per unit is $65. Division Q of Turbo Corporation product YUM is P21.00. The company recorded the following variances for the month:
currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside
Sales price variance P300 adverse
supplier at a price of $90 per wheel set. If Division Q were to buy the 30,000 wheel sets it
Sales volume profit variance P1,200 favorable
needs annually from Division P at $87 per wheel set, the change in annual net operating
income for the company as a whole, compared to what it is currently, would be: During August, 2700 units of product YUM were actually sold. What was the budgeted profit
A. $135,000. C. $600,000. for product YUM in August?
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