UNIT 9 1.

The following data pertains to the dress division of the Cross and Allan Company: Sales $1,000,000 Invested Capital 700,000 Net Operating profit after taxes 160,000 Minimum required return 15% Residual income/(loss) is equal to: $10,000 $24,000 $45,000 $55,000 2. Return on investment can be improved by increasing income or reducing investment. True False 3. Which of the following is not a disadvantage of a decentralized organization? Managers goals may not be the same as the goals of the company as a whole. Some activities may be duplicated and incur unnecessary costs. Managers with the best information make the appropriate decisions. All of the above are disadvantages of a decentralized organization. 4. The four dimensions of performance which are considered in a balanced scorecard are financial, customer, internal process, and innovation. True False 5. Economic value added (EVA) is residual income adjusted for NOPAT. taxes and depreciation. transfer prices. accounting distortions. 6. Transfer prices should represent the opportunity costs of the transferred item. True False 7. If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the investment may increase net income.

will decrease the level of investment. may decrease the return on investment. is likely to have a positive net present value.

8. The following data pertains to the dress division of Red Dress Company: Sales $700,000 Invested Capital 200,000 Net Operating profit after taxes 48,000 Minimum required return 18% How much is residual income/(loss)? ($42,000) $36,000 ($78,000) $12,000 9. Yellow Companys Ax division has capacity of 200,000 units. Normal selling price is $22.00 per unit. At current operating levels, fixed costs are $4 per unit and variable costs are $8 per unit. Another division of Yellow Company would like to buy from the Ax division. Assume that the Ax division is operating at 80% of capacity. The Hatchet division would like to purchase 20,000 units. No variable cost would be avoided on the sale. What is the lowest price the Ax division would accept if it wishes to see no decline in profits? $6 $22 $20 $8 10. A transfer price is the price that is used to value transfers of goods and services from one subunit of a company to another subunit in the company. from Work in Process Inventory to Finished Goods Inventory in a standard costing system. from a subunit of the company to a wholesaler or retailer. back to one of the companys suppliers.