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Exam 22: Responsibility Accounting and Transfer Pricing

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Question 31

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Cost centers are evaluated primarily on the basis of their ability to control costs and:

A) Their return on assets.
B) Residual income.
C) The quantity and quality of the services they provide.
D) Their contribution margin ratio.

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Question 32

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Responsibility accounting systems should begin with:

A) A budget by center.
B) A performance report by center.
C) A measure of corporate performance.
D) A company-wide income statement.

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Question 33

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The company's CEO must decide which of the three factories to expand in order to increase productive capacity.She should be most interested in the:

If operations at a center are discontinued,all traceable costs attributed to the cost would be discontinued.

If a business activity qualifies as a profit center,it cannot also qualify as an investment center.

Carrier Corporation's Syracuse plant is organized into Air Conditioning and Heating Products divisions.The management of the Syracuse plant should evaluate the Heating Products division as:

Responsibility income statements Identify and discuss briefly the two concepts generally used in assigning costs to responsibility centers of a business.

Preparation of responsibility income statements Hal-Marts' Inc.has two sales departments: equipment and clothing.During February,these two departments reported the following operating results: In addition,fixed costs common to both departments amounted to $54,400. Complete the following responsibility income statement for Hal-Marts,Inc.Follow the contribution margin approach,and show percentages as well as dollar amounts.Conclude your income statement with the company's income from operations.(Round your percentage computations to nearest whole percent) HAL-MARTS,INC Income Statement by Product Lines For the Month Ended February 28,20__

The contribution margin is calculated by:

Old Jeans,Inc.has two divisions or profit centers,one makes regular fit jeans and the other makes relaxed fit jeans.The information for the two centers follows: There are also common fixed costs of $27,500. Required: Prepare a responsibility income statement by profit center and in total.

All of the following costs are traceable to a specific factory except:

The responsibility margin of the local branch is:

After the closing of Profit Center 3,the monthly income from operations for Profit Center 1,as measured by Dalton Co.should be approximately:

Business units (a)Define what is meant by each of the following: profit center,investment center,and cost center.Your answer should make clear the distinction between each of these types of centers. (b)Briefly describe the criteria used to evaluate each of the three types of centers listed in part a.

The Akron factory employs two quality control inspectors at an annual salary of $70,000 each.These salaries should be classified as:

Transfer prices and cash flow Satellite Products,Inc.owns two subsidiaries,Saturn Systems and Neptune Audio.Saturn supplies printed circuit boards used by Neptune Audio in its state of the art stereo radio.Neptune receives 20,000 boards from Saturn annually.Each radio produced requires a single board.The market price of these boards is $40.Their total variable cost of production is $20.The market price of the radios is $105.The unit variable cost of the radio is $30 excluding the cost of the circuit board. Saturn Systems is currently operating at full capacity of 35,000 boards per year (including those transferred to Neptune Audio).Demand for the boards is strong and all 35,000 could be sold to outside customers.Saturn uses the full market price as the transfer price charged to Neptune Audio. The manager of Neptune Audio argues that Saturn Systems benefits from intercompany transfers because of reduced advertising and other selling costs.Thus,he wants to negotiate a lower transfer price of $35. Required: 1.Calculate the contribution margins for the two subsidiaries using the $40 transfer price. 2.Recalculate the contribution margins at the $35 price suggested by the manager of Neptune Audio.What effect would the change in transfer price have on the company as a whole? 3.Suppose that Neptune Audio operates in a country that imposes a 40% tax rate on corporate income.Saturn Systems is located in a country where the tax rate is only 10%.What would you recommend regarding the transfer price charged by Saturn for the boards transferred to Neptune?

Traceable fixed costs that the manager of a department cannot change are called:

An accounting system designed to measure the performance of each center within a business is referred to as a profitability accounting system.

Traceable fixed costs usually cannot be eliminated even if the center is closed.

The most common value used for transfer pricing is: