S1 S2 P1 P2 S1 0.20 0.60 0.30 S2 0.10 0.40 0.50

12/16/21, 1:36 PM Assignment Print View

1.
NHL Inc. budgets the following amounts for each of its two service departments, S1 and S2, which
service each other as well as the company's two production departments, S1 and S2:

S1 S2 P1 P2
S1 0.20 0.60 0.30
S2 0.10 0.40 0.50

The actual results for the time period were as follows:

S1 S2 P1 P2
S1 0.10 0.60 0.30
S2 0.10 0.40 0.50

Actual Cost Data for each department were:
S1: $400,000
S2: $400,000
Under the Step-Down Method, how much of department S2's costs should be allocated department
S1? Use the budgeted percentages given above and assume that S2 is allocated first.
 $40,000
 $80,000
 $100,000
 $160,000
0.10 × $400,000 = $40,000.
https://ezto.mheducation.com/hm.tpx 1/111

2.
Lyons Company consists of two divisions: A and B. Lyons Company reported a contribution margin
of $52,000 for Division A and had a contribution margin ratio of 30% in Division B, when sales in
Division B were $170,000. Operating income for the company was $25,500 and traceable fixed
expenses were $42,000 What were Lyons Company's common fixed expenses?
 $40,000
 $35,500
 $70,000
 $85,000
$52,000 + $170,000 * 0.3 - $42,000 - $25,500 = $35,500.

3.

There is a growing trend toward greater centralization for effective control as more businesses go
global.
 True
 False

4.
During the last fiscal year, HBD Inc had revenues and expenses of $200,000 and $110,000
respectively. The company had net operating assets of $450,000. The company's required rate of
return for approval of projects is 10%. What was HBD Inc's return on investment (ROI) for the year?
 10%
 30%
 20%
 18%
ROI: ($200,000 − $110,000) / $450,000 = 20%.

5.
In responsibility accounting, each segment in an organization should be charged with the costs for
which it is responsible and over which it has control plus its share of common organizational costs.
 True
 False

6.
(Appendix 11A) Which of the following would be classified as a prevention cost on a quality cost
report?
 Lost sales arising from a reputation for poor quality.
 Final product testing and inspection.
 Net cost of spoilage.
 Quality data gathering, analysis, and reporting.

7.
(Appendix 11A) Delta Manufacturing Company has two Service Departments-Custodial Services and
Maintenance-and three Production Departments-Cutting, Milling, and Assembly. Delta allocates the
cost of Custodial Services on the basis of square metres and Maintenance on the basis of labour
hours. Budgeted operating data for the year just completed follow:

Service Departments Production Departments
Custodial Maintenance Cutting Milling Assembly
Services
Budgeted costs $20,000 $8,000 $90,000 $50,000 $100,000
before
allocation
Square metres 1,000 10,500 5,000 17,000 13,000
Labour-hours 4,220 8,000 8,000
Required:
a) Prepare a schedule to allocate Service Department costs to the Production Departments by the
direct method, rounding all dollar amounts to the nearest whole dollar.
b) Prepare a schedule to allocate Service Department costs to the Production Departments by the
step-down method, allocating Custodial Services first, and rounding all amounts to the nearest
whole dollar.
a) Direct method:

Services Custodial Maintenance Cutting Milling Assembly
Budgeted costs $20,000 $8,000 $90,000 $50,000 $100,000
before allocation
Allocation of (20,000)
Custodial
Services:
Cutting: 2,857
5,000/35,000 ×
20,000
Milling: 17,000 9,714
/35,000 ×
$20,000
Assembly: 7,429
13,000/35,000 ×
$20,000
Maintenance:
Cutting: 4,220 1,670
/20,220 × $8,000
Milling: 3,165
8,000/20,220 ×
$8,000
Assembly: ______ ______ ______ ______ 3,165
8,000/20,000 ×
$8,000
Costs after $-0- $-0- $94,457 $62,879 $110,594
allocation
b) Step-down method:

Services Custodial Maintenance Cutting Milling Assembly
Budgeted costs $20,000 $8,000 $90,000 $50,000 $100,000
before allocation
Custodial
Services:
Maintenance: 4,616
10,500 /45,500 ×
$20,000
Cutting: 2,198
5,000/45,500 ×
20,000
Milling: 17,000 7,473
/45,500 ×
$20,000
Assembly: 5,714
13,000/45,500 ×
$20,000
Maintenance:
Cutting: 4,220 2,633
/20,220 × $12,616
Milling: 4,991
8,000/20,220 ×
$12,616
Assembly: ______ ______ ______ ______ 4,991
8,000/20,220 ×
$12,616
Costs after $-0- $-0- $24,831 $62,464 $110,705
allocation

8.
return for approval of projects is 25%. What was HBD Inc's residual income for the year?
 $150,000
 $200,000
 $60,000
 $30,000
Residual income = operating income − (average operating assets × minimum required rate of return)
= ($350,000 − $50,000) − (25% × $600,000) = $150,000.

9.
Contribution margin is a long-term planning tool
 True
 False
By carefully monitoring contribution margin of each segment, the manager is in a position to make
short run decisions to maximize each segment’s contribution to the overall profitability of the
organization.

10.
All other things being equal, which of the following is a consequence of an increase in a division's
traceable fixed expenses?
 The division's contribution margin ratio will decrease.
 The division's segment margin ratio will remain the same.
 The division's segment margin will decrease.
 The overall company operating income will remain the same.

11.
During the last fiscal year, MAC Inc had revenues and expenses of $300,000 and $60,000
return for approval of projects is 30%. What was MAC Inc's residual income for the year?
 Nil
 $200,000
 $60,000
 $30,000
= ($300,000 − $60,000) − (30% × $800,000) = $0.

12.
Reed Company reported total sales of $150,000 last year and a return on investment (ROI) of 12%. If
the company's turnover was 3, what was the company's operating income for the year?
 $2,000.
 $6,000.
 $18,000.
 It is impossible to determine from the data given.
(150,000 * .12)/3 = $6,000.

13.
During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense
ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's sales were closest to
which of the following?
 $22,500
 $33,333
 $60,000
 $100,000
using equation S -.6 S - 15,000 = .15S. Sales = 15,000/(1 -.6 -.15) = $60,000.

14.
(Appendix 11A) Geneva Corporation has a Castings Division that does casting work of various types.
The company's Machine Products Division has asked the Castings Division to provide it with 12,200
special castings each year on a continuing basis. The special castings would require $27 per unit in
variable production costs. The Machine Products Division has a bid from an outside supplier of $37
per unit for the castings.
In order to have time and space to produce the new casting, the Castings Division would have to
cut back production of another casting: the NW2, which it presently is producing. The NW2 sells for
$47 per unit, and requires $26 per unit in variable production costs. Boxing and shipping costs of
the NW2 are $5 per unit. Boxing and shipping costs for the new special casting would be only $3
per unit. The company is now producing and selling 113,000 units of the NW2 each year. Production
and sales of this casting would drop by 13% if the new casting were produced.
Required:
a) What is the range of transfer prices, if any, within which both the divisions' profits would increase
as a result of agreeing to the transfer of 10,000 castings per year from the Castings Division to the
Machine Products Division?
b) Is it in the best interests of Geneva Corporation for this transfer to take place? Explain.
a) From the perspective of the Castings Division, profits would increase as a result of the transfer
providing that:
Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units
transferred:
Opportunity cost =
(($47 - $26 - $5) * 10,000)/10,000 = $16
Therefore,
Transfer price > ($27 + $3) + $16 = $46
From the viewpoint of the purchasing division, the transfer price must be less than the cost of
buying the units from the outside supplier.
Transfer price < $37
Combining the two requirements, we find that no feasible range of transfer prices exists under
current conditions.
b) No, the transfer should not take place. From the viewpoint of the entire company, the cost of
transferring the units within the company is $46, but the cost of purchasing them from the outside
supplier is $37. Therefore, the company's profits decrease by $9 for each casting that is produced
within the company rather than purchased in the outside market.

15.
return for approval of projects is 20%. What was MAC Inc's return on investment (ROI) for the year?
 10%
 33.33%
 20%
 60%
ROI: ($200,000 − $50,000) / $250,000 = 60%.

16.
(Appendix 11A) Harvie Company's quality cost report is to be based on the following data:

Lost sales due to poor quality $60,000
Quality engineering $67,000
Test and inspection of incoming materials $87,000
Re-entering data because of keying errors $38,000
Net cost of scrap $48,000
Test and inspection of in-process goods $62,000
Warranty repairs and replacements $32,000
Net cost of spoilage $90,000
Technical support provided to suppliers $71,000
Required:
Prepare a quality cost report in good form with separate sections for prevention costs, appraisal
costs, internal failure costs, and external failure costs.
Prevention costs
Technical support provided to $71,000
suppliers
Quality engineering $67,000 $138,000
Appraisal costs
Test and inspection of in-process $62,000
goods
Test and inspection of incoming $87,000 $149,000
materials
Internal failure costs
Re-entering data because of $38,000
keying errors
Net cost of scrap $48,000 $176,000
External failure costs
Warranty repairs and $32,000 $92,000
replacements
$555,000

17.
Consider the following three statements:
I. A profit centre has control over both cost and revenue.

II. An investment centre has control over invested funds, but not over costs and revenue.
III. A cost centre has no control over sales.
Which statement(s) is/are correct?
 I only.
 II only.
 I and III only.
 I and II only.

18.
The salary paid to a store manager is a traceable fixed expense of the store.
 True
 False

19.
HBD Inc. has two Divisions, Division A and Division B, both of which are investment centres with
external markets. Division A produces a single component which is sells externally for $10 per unit.
The component’s variable costs amount to $5 per unit. Division B uses a component identical to the
one A produces; however Division B sources these from an external supplier for $7 per unit.
Division A is operating at 50% capacity while Division B’s production is backlogged for several
months. Divisions A and B each have a practical capacity of 100,000 units of output per period.
The head of Division A approaches the head of Division B in an attempt to obtain a greater
utilization of its plant facilities. The heads of both Divisions soon sit down to try to agree on a
transfer pricing policy. Division B requires 50,000 components from Division A. Is it in the best
interest of the entire company that the transfer takes place?
 Yes, as this would result in an overall savings of $2 per unit.
 Yes, as this would result in an overall savings of $4 per unit.
 No, as this would result in an overall loss of $2 per unit.
 No, as this would result in an overall loss of $4 per unit.
The transfer would result in an overall saving of $2 per unit (i.e. $7 − $5).

20.
(Appendix 11A) Boa Corp., uses the direct method to allocate service department overhead costs to
operating departments. Information for the month of June follows:

Service Maintenance Departments Utilities
Departmental cost incurred $29,000 $16,000
Service provided to
departments:
Maintenance 10%
Utilities 20%
Operating – A 40% 30%
Operating – B 40% 60%
What would be the amount of maintenance department costs allocated to Operating Department A
for June?
 $8,000
 $14,500
 $10,000
 $20,000
$29,000 * 0.40/0.80 = $14,500.

21.
return for approval of projects is 15%. What was MAC Inc's residual income for the year?
 $40,000
 $225,000
 $240,000
 $30,000
= ($420,000 − $60,000) − (15% × $900,000) = $225,000.

22.
A fixed cost that supports the operations of more than one segment but is not linked to just one
segment is known as:
 Traceable
 Committed
 Discretionary
 Common

23.
(Appendix 11A) An increase in appraisal costs will usually result in an increase in internal failure
costs.
 True
 False

24.
(Appendix 11A) Harwood Company's quality cost report is to be based on the following data:

Amortization of test equipment $94,000
Quality circles $51,100
Product recalls $20,000
Debugging software errors $11,000
Rework labour and overhead $40,000
Required:
Prevention costs
Technical support provided to $12,000 $63,100
suppliers
Appraisal costs
Test and inspection of incoming $82,000
materials
Depreciation of test equipment $94,000 $176,000
Rework labour and overhead $40,000 $73,000
Lost sales due to poor quality $74,000 $94,000
$406,100

25.
The Northern Division of the Smith Company had average total operating assets of $150,000 last
year. Its minimum required rate of return was 12%. The division reported operating income of
$20,000. What was the residual income for the Northern Division last year?
 $2,000
 $5,000
 $18,000
 $20,000
20,000 - 150,000 * .12 = $2,000.

26.
How is a company's return on investment calculated?
 Dividing the margin by the turnover.
 Multiplying the margin by the turnover.
 Dividing the turnover by the average operating assets.
 Multiplying the turnover by the average operating assets.

27.
MAC Inc. has two Divisions, Division A and Division B, both of which are investment centres with
The component's variable costs amount to $6 per unit. Division B uses a component identical to the
Division A is operating at 50% capacity while Division B's production is backlogged for several
The head of Division A approaches the head of Division B in an attempt to obtain a greater
utilization of its plant facilities. The heads of both Divisions soon sit down to try to agree on a
transfer pricing policy. Division B requires 50,000 components from Division A. What would be the
maximum price that Division B would pay for each of its components?
 $10
 $6
 $8
 $14
Division B would not want to pay more than the current market price of $14 for each of its
components.

28.
All other things equal, a company's return on investment is affected by a change in which of the
following?

Turnover Margin
A) Yes Yes
B) No Yes
C) No No
D) Yes No
 Option A
 Option B
 Option C
 Option D

29.
(Appendix 11A) Harui Company's quality cost report is to be based on the following data:

Net cost and spoilage $48,000
Downtime caused by quality problems $30,000
Final product testing and inspection $78,000
Quality training $93,000
Returns arising from quality problems $90,000
Required:
a) Prepare a quality cost report in good form with separate sections for prevention costs, appraisal
b) If Harui's efforts to ensure quality conformance are working, how would you expect the Quality
Cost Report next year to compare with this one?
a.
Prevention costs
Quality training $93,000 $126,000
Appraisal Costs
goods
Final product testing and $78,000 $110,000
inspection
Downtime caused by quality $30,000 $128,000
problems
External Failure Costs
Returns arising from quality $90,000
problems
Warranty repairs and $67,000 $157,000
replacements
$521,000
b. In the next year Harui should see a decline in both internal and external failure costs due to the
efforts of this year especially due to the implementation of prevention and appraisal efforts. The
total quality costs will decrease each year providing the dollars spent toward prevention and
appraisal continue to work.

30.
More Company has two divisions: L and M. During July, the contribution margin in Division L was
$60,000. The contribution margin ratio in Division M was 40%, and its sales were $250,000.
Division M's segment margin was $60,000. The common fixed expenses were $50,000, and the
company operating income was $20,000. What was the segment margin for Division L?
 $0
 $10,000
 $50,000
 $60,000
Total SM = 20,000 + 50,000 = 70,000. L's SM = 70,000 - 60,000 = $10,000.

31.
Warranty costs are considered to be external failure costs.
 True
 False
These are external failure costs because they are costs incurred after delivery to the customer.

32.
Effective decentralization is essential for which of the following management accounting practices
in organizations?
 Break-even analysis.
 Product costing.
 Segment reporting.
 Activity-based costing.

33.
(Appendix 11A) Prevention costs and appraisal costs are incurred in an effort to keep poor quality of
conformance from occurring.
 True
 False

34.
Returns and allowances arising from quality problems are considered to be:
 Prevention costs.
 Internal failure costs.
 External failure costs.
 Appraisal costs.
These costs are considered to be external failure costs since they are incurred in as a result of
subpar products getting into customersâ€™ hands.

35.
(Appendix 11A) Which of the following statements about the step-down method of allocating service
department is correct?
 It is a less accurate method of allocation than the direct method.
 It cannot be used when a company has more than two service departments.
 It is a simpler allocation than the direct method.
 It ignores some interdepartmental services.

36.
(Appendix 11A) Parker Company has two service departments-cafeteria and engineering-and two
operating departments. The number of employees in each department is given below:

Cafeteria 10
Engineering 40
Operating Department 1 500
Operating Department 2 200
The costs of the Cafeteria are allocated to other departments on the basis of the number of
employees in the departments. If these costs are budgeted at $69,375, what would be the amount
of cost allocated to Engineering under the direct method?
 $0
 $3,700
 $3,750
 $17,344

37.
(Appendix 11A) Half-life Company has two Service Departments-Factory Administration and
Maintenance-and two Producing Departments. Selected information relating to these departments
follow:

Factory Producing Departments
Administration Maintenance X Y
Number of 35 45 220 320
employees
Total labour hours 21,000 31,000 401,000 636,000
Overhead costs $320,200 $270,000 $860,000 $1,000,000
The company allocates Service Department costs using the step-down method. Costs of Factory
Administration are allocated on the basis of the number of employees. Costs of Maintenance are
allocated on the basis of labour hours. Allocation begins with the Factory Administration
Department.
Required:
Prepare a schedule showing the allocation of Service Department costs to the other departments.
Factory Producing Department

Administration Maintenance X Y
Overhead costs $320,200 $270,000 $860,000 $1,000,000
Allocation:
Factory Admin. ($320,200) 24,631 120,417 175,152
Maintenance ________ (294,631) 113,932 180,699
Overhead costs $-0- $-0- $1,094,349 $1,355,851
after allocation

38.
Which of the following is NOT one of the four perspectives of key performance measures on the
balanced scorecard?
 cost leadership
 customer
 internal business processes
 learning and growth
The four perspectives of key performance measures in the balances scorecard are: learning and
growth, internal business processes, customer, and financial.

39.
Reardon Retail Company consists of two stores: A and B. During March, Store A had sales of
$80,000, a contribution margin ratio of 25%, and a segment margin of $11,000. The company as a
whole had sales of $170,000, a contribution margin ratio of 36%, and segment margins for the two
stores totalling $36,000. If net income for the company was $15,000 for the month, what were the
traceable fixed expenses in Store B?
 $16,000
 $20,000
 $16,200
 $31,000
CM for B = $170,000 * 0.36 - $80,000 * 0.25 = $41,200;

Segment margin B = $36,000 - $11,000 = $25,000;
Traceable FC for B = $41,200 - $25,000 = $16,200.

40.
Testing and inspection costs are considered to be appraisal failure costs.
 True
 False
These are appraisal costs because they are costs incurred prior to production with the intention of
minimizing defects.

41.
Premium Retail Company has two stores: D and G. During March, Store G had sales of $120,000, a
segment margin of 25%, and traceable fixed expenses of $23,000. The company as a whole had a
contribution margin ratio of 25% and $60,000 in total contribution margin. Based on this
information, what were the total variable expenses in Store D for the month?
 $140,000
 $113,000
 $300,000
 $360,000
Total VC = $60,000/0.25 * 0.75 = $180,000;

VC of G = $120,000 - ($120,000 * 0.25 + $23,000) = $120,000 - $53,000 = $67,000;
VC of D = $180,000 - $67,000 = $113,000.

42.
(Appendix 11A) Which of the following would be classified as an appraisal cost on a quality cost
report?
 Quality circles.
 Downtime caused by quality problems.
 Supplies used in testing and inspection.
 Quality engineering.

43.
 $40,000
 $120,000
 $240,000
 $30,000
= ($420,000 − $60,000) − (15% × $800,000) = $240,000.

44.
(Appendix 11A) The following data have been extracted from the year-end reports of two
companies: Company X and Company Y:

Company X Company Y
Sales $3,000,000 ?
Operating Income $250,000 ?
Average Operating Assets ? $1,700,000
Margin ? 7.0%
Turnover ? 2.5
Return on Investment 14.11% ?
Required:
Fill in the missing data on the above table. (Round to the nearest whole number).
Company X Company Y
Sales $3,000,000 $4,312,500
Operating Income $250,000 $ 345,000
Average Operating Assets $1,771,084 $1,725,000
Margin 8.3% 7.0%
Turnover 1.7 2.5
Return on Investment 14.11% 17.50%

45.
Plant utilities incurred on a company's test facility would be classified as:
 Prevention costs.
 Appraisal costs.
These costs are considered to be appraisal costs since they are incurred in the evaluation process.

46.
Cumberland Beverage Company had the following results for the year just ended:

Operating Income $4,200
Turnover 3
Return on Investment 25%
What were Cumberland Beverage Company's average operating assets during the year?
 $16,800
 $12,500
 $22,000
 $200,000
$4,200/ 0.25 = $16,800.

47.
Allocations of corporate headquarters expenses to divisions used in return on investment

calculations should be limited to the cost of those actual services provided by central headquarters,
which the divisions otherwise would have to provide for themselves.
 True
 False

48.
Common fixed costs should be allocated equally amongst segments.
 True
 False
Common fixed costs are not allocated to segments. The total amount of these costs is deducted to
arrive at the income of the company as a whole.

49.
Performance measures of the Balanced Scorecard's learning and growth perspective include:
 number of repeat customers.
 number of process improvements.
 employees' satisfaction rating.
 ROI.

50.
(Appendix 11A) Falstaff Company's quality cost report is to be based on the following data:

Quality data gathering, analysis, and reporting $46,000
Supervision of testing and inspection activities $43,000
Liability arising from defective products $35,000
Disposal of defective products $75,000
Cost of field servicing and handling complaints $51,000
Required:
Prevention costs
suppliers
Quality data gathering, analysis, $46,000 $93,000
and reporting
Appraisal costs
goods
Supervision of testing and $43,000
inspection activities
problems
Cost of fielding servicing and $51,000
handling complaints
Liability arising from defective $35,000 $86,000
products
$519,000

51.
Residual income is the operating income that an investment centre earns above the minimum
required return on the investment in operating assets.
 True
 False

52.
 10%
 33.33%
 20%
 25%
ROI: ($200,000 − $50,000) / $450,000 = 33.33%.

53.
Jim-N-John Inc. budgets the following amounts for each of its two service departments, S1 and S2,
which service each other as well as the company's two production departments, S1 and S2:

S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.20 0.40 0.50


S1 S2 P1 P2
S1 0.10 0.60 0.30
S2 0.10 0.40 0.50

• S1: $200,000
• S2: $200,000
Under the Step-Down Method, how much of department S2's costs should be allocated department
S1? Use the budgeted percentages given above and assume that S2 is allocated first.
 $20,000
 $80,000
 $100,000
 $160,000
0.10 × $200,000 = $20,000.

54.
Cable Company had the following results for the year just ended:

Turnover 4
Return on Investment 20%
What were Cable Company's average operating assets during the year?
 $10,000
 $12,500
 $50,000
 $200,000
2,500/.20 = $12,500.

55.
In computing the margin in a ROI analysis, which of the following is used?
 Sales in the denominator.
 Operating income in the denominator.
 Average operating assets in the denominator.
 Residual income in the denominator.

56.
(Appendix 11A) Which of the following would be classified as an external failure cost on a quality
cost report?
 Amortization of test equipment.
 Test and inspection of in-process goods.
 Test and inspection of incoming materials.
 Warranty repairs and replacements.

57.
An investment center manager has control over and should be held accountable only for invested
capital.
 True
 False
An investment center manager has control over and should be held accountable investments,
revenues and costs.

58.
In a decentralized organization, decision making is spread throughout the organization.
 True
 False
11

59.
NHL Inc. budgets the following amounts for each of its two service departments, S1 and S2, which
service each other as well as the company's two production departments, S1 and S2:

S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.40 0.40 0.20


S1 S2 P1 P2
S1 0.10 0.60 0.30
S2 0.10 0.40 0.50

S1: $100,000
S2: $240,000
Under the Direct Method, how much of department S2's costs should be allocated department P1?
 Nil
 $40,000
 $50,000
 $160,000
Under the direct method, service department costs are never allocated to other service
departments − only to production departments. P1 gets 0.40 / (0.40 + 0.20) of S2’s costs, or
$160,000.

60.
Lost sales due to poor quality would be classified as:
 Prevention costs.
 Appraisal costs.
These costs are considered to be external failure costs since they are incurred in as a result of
subpar products getting into customersâ€™ hands.

61.
The performance of the manager of Division A is evaluated by residual income. Which of the
following would improve the manager's performance?
 Increase in average operating assets.
 Decrease in average operating assets.
 Increase in minimum required return.
 Decrease in operating income.

62.
Fixed costs that can be identified with a particular segment and at arise because of the existence of
the segment are known as:
 Committed
 Discretionary
 Common
 Traceable

63.
Financial data for Bingham Company for last year appear below:

Bingham Company
Statements of Financial Position
Beginning Balance Ending Balance
Assets:
Cash $120,700 $220,000
Accounts receivable 225,000 475,000
Inventory 317,000 390,000
Plant and equipment (net) 940,000 860,000
Investment in Carr Company 100,000 98,000
Land (undeveloped) 198,000 65,000
Total assets $1,900,700 $2,108,000
Liabilities and owners' equity:
Accounts payable $178,700 $8,000
Long-term debt 512,000 600,000
Owners' equity 1,210,000 1,500,000
Total liabilities and owners' $1,900,700 $2,108,000
equity

Bingham Company
Income Statement
Sales $4,500,000
Less operating expenses 4,000,000
Net operating income 500,000
Less interest and taxes:
Interest expense $97,000
Tax expense 127,000 224,000
The "Investment in Carr Company" on the statement of financial position represents an investment
in the stock of another company.
Required:
a) Compute the company's margin, turnover, and return on investment for last year.
b) The Board of Directors of Beaker Company have set a minimum required return of 15%. What
was the company's residual income last year?
a) Operating assets do not include investments in other companies or in undeveloped land.

Cash $120,700 $220,000
Inventory 317,000 390,000
Total operating assets $1,602,700 $1,945,000
Average operating assets = ($1,602,700 + $1,945,000) ÷ 2

= $1,773,850
Margin = net operating income ÷ Sales

= $500,000 ÷ $4,500,000
= 11.11%
Turnover = Sales ÷ Average operating assets

= $4,500,000 ÷ $1,773,850
= 2.54
ROI = Net operating income ÷ Average operating assets

= $500,000 ÷ 1,773,850
= 28.19%
b)
Minimum required return (15% × $1,773,850) 266,077.50
Residual income $233,922.50

64.
HBD Inc. has two Divisions, Division A and Division B, both of which are investment centres with
The component's variable costs amount to $4 per unit. Division B uses a component identical to the
Division A is operating at 50% capacity while Division B's production is backlogged for several
Recently, Division B's only component supplier went out of business, leaving it with a backlog of
orders. Division A thus becomes Division B's only possible sourcing option for these components.
The heads of both Divisions soon sit down to try to agree on a transfer pricing policy. Division B
requires 50,000 components from Division A. What would be the minimum price that Division A
would accept for each of its components?
 $10
 $4
 $8
 $16
The minimum transfer price that Division A would accept would be $4 per unit, given that it has
enough capacity to satisfy Division B’s short-term needs.

65.
ZZZ Inc. has two divisions. Contribution margins for Divisions A & B were $60,000 and $200,000
respectively. Division A has a contribution margin ratio of 30% while Division B has a contribution
margin ratio of 50%. Total fixed costs were $100,000 of which $20,000 were common fixed costs.
The remaining fixed costs were allocated as follows: 30% to Division A and 70% to Division B. What
was Division B's segment margin?
 $144,000
 $32,000
 $30,000
 $54,000
Segment margin for Division B is calculated as follows: $200,000 − $80,000 × 0.70 = $144,000.

66.
were ZZZ Inc's total sales for the period?
 $120,000
 $100,000
 $300,000
 $900,000
Total sales were calculated as follows: ($200,000 / 0.40) + ($80,000 / 0.20) = $900,000.

67.

S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.40 0.40 0.20


S1 S2 P1 P2
S1 0.10 0.60 0.30
S2 0.10 0.40 0.50

• S1: $100,000
• S2: $120,000
 Nil
 $40,000
 $50,000
 $80,000
departments – only to production departments. P1 gets 0.40 / (0.40 + 0.20) of S2’s costs, or
$80,000.

68.

S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.10 0.40 0.50


S1 S2 P1 P2
S1 0.20 0.60 0.20
S2 0.20 0.60 0.20

• P1: $500,000
• P2: $800,000
• S1: $100,000
• S2: $100,000
Under the Step-Down Method, what are the total costs should be allocated department P2? Use
the budgeted percentages given above and assume that S2 is allocated first.
 $75,000
 $82,500
 $905,000
 $882,500
$110,000 × (0.40 / 0.90) + $100,000 × (0.40 / 1.0) + $800,000 = $882,500.

69.

S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.20 0.40 0.40


S1 S2 P1 P2
S1 0.20 0.40 0.40
S2 0.20 0.40 0.40

• S1: $200,000
• S2: $100,000
 $100,000
 $40,000
 $50,000
 $80,000
departments – only to production departments. In this case, S1’s costs would be split evenly
between production departments, i.e. 50% × $200,000 = $100,000.

70.
(Appendix 11A) Which of the following would be classified as an internal failure cost on a quality cost
report?
 Re-entering data because of keying errors.
 Supplies used in testing and inspection.

71.
(Appendix 11A) Rigoletto Company's quality cost report is to be based on the following data:

Maintenance of test equipment $68,000
Required:
Prevention costs
and reporting
Appraisal costs
goods
Test and inspection of incoming $100,000 $210,000
materials
Lost sales due to poor quality $35,000 $90,000
$565,000

72.
(Appendix 11A) Which of the following would be classified as an external failure cost on a quality
cost report?
 Product recalls.
 Quality engineering.
 Quality training.
 Systems development.

73.
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 consider before
deciding to institute it?
 This method does not make allowance for difference in the size of compared divisions.
 Opportunities may be undertaken that will decrease the overall return on investment.
 The minimum required rate of return may eliminate desirable opportunities from
consideration.
 Residual income does not measure how effectively the division manager controls costs.

74.
A division set up to produce components to be sold internally to another division would be

considered a cost center.
 True
 False
A cost center has no external market or external revenue generating ability.

75.
respectively. The company had net operating assets of $1,000,000. The company's required rate of
return for approval of projects is 10%. What was MAC Inc's return on investment (ROI) for the year?
 15%
 20%
 8%
 10%
ROI: ($200,000 − $120,000) / $1,000,000 = 8%.

76.
Fixed costs that are traceable to a segment may become common if the segment is divided into
smaller units.
 True
 False

77.
(Appendix 11A) Godunov Company's quality cost report is to be based on the following data:

Downtime caused by quality problem $12,000
Systems development $38,000
Required:
Prevention costs
Systems development $38,000 $72,000
Appraisal costs
goods
Downtime caused by quality $12,000
problems
Warranty repairs and $60,000
replacements
Returns arising from quality $97,000 $157,000
problems
$425,000

78.
(Appendix 11A) When an intermediate market price for a transferred item exists, it represents a
lower limit on the charge that should be made on transfers between divisions.
 True
 False

79.
 $150,000
 $200,000
 $60,000
 $80,000
= ($250,000 − $50,000) − (20% × $600,000) = $80,000.

80.
(Appendix 11A) Division X of Charter Corporation makes and sells a single product that is used by
manufacturers of forklift trucks. Presently, it sells 12,000 units per year to outside customers at $24
per unit. The annual capacity is 20,000 units, and the variable cost to make each unit is $16.
Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its
products. There would be no cost savings from transferring the units within the company rather
than selling them on the outside market. What should be the lowest acceptable transfer price from
the perspective of Division X?
 $16.00
 $17.60
 $21.40
 $24.00
16 + {(24 - 16) * (10,000 - 8,000)}/10,000 = $17.60.

81.
 10%
 20%
 50%
 18%
ROI: ($200,000 − $120,000) / $160,000 = 50%.

82.
was Division A's segment margin?
 $66,000
 $32,000
 $30,000
 $54,000
Segment margin for Division A is calculated as follows: $90,000 − $80,000 × 0.30 = $66,000.

83.
Quality of conformance refers to the degree to which a product or service meets or exceeds its
design specifications and is free of defects and other problems that mar its appearance or degrade
its performance.
 True
 False
Quality of conformance refers to the degree to which a product or service meets or exceeds its
design specifications and is free of defects and other problems that mar its appearance or degrade
its performance.

84.
Testing and inspection costs are considered to be internal failure costs.
 True
 False
These are appraisal costs because they are costs incurred prior to production with the intention of
minimizing defects.

85.
Division B had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the
division's average operating assets last year were $450,000, what was the division's residual
income for last year?
 $22,500
 $37,500
 $45,000
 $67,500
450,000 * .15 - 450,000 * .10 = $22,500.

86.
If a company has a well-run quality program, when prevention and appraisal costs are increased,
internal and external failure costs should decrease.
 True
 False

87.
In a decentralized organization, decision making is confined to a few top executives
 True
 False

88.
Assuming that a segment has both variable expenses and traceable fixed expenses, an increase in
sales should increase operating income by an amount equal to the sales multiplied by the segment
margin ratio.
 True
 False

89.
Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
Assets:
Cash $58,000 $78,000
Inventory 36,000 40,000
Investment in Cedar Company 82,000 102,000
Land (underdeveloped) 170,000 170,000
Total assets $497,000 $530,000
Liabilities and owners' equity:
Accounts payable $57,000 $70,000
Long-term debt 270,000 270,000
Owners' equity 170,000 190,000
Total liabilities and owners' $497,000 $530,000
equity

Beaker Company
Income Statement
Sales $413,000
Less operating expenses 352,000
Net operating income 61,000
Less interest and taxes:
Interest expense $30,000
Tax expense 13,000 43,000
The company paid dividends of $2,000 last year. The "Investment in Cedar Company" on the
statement of financial position represents an investment in the stock of another company.
Required:
a) Compute the company's margin, turnover, and return on investment for last year.
b) The Board of Directors of Beaker Company have set a minimum required return of 20%. What
was the company's residual income last year?
a) Operating assets do not include investments in other companies or in undeveloped land.

Cash $58,000 $78,000
Inventory 36,000 40,000
Total operating assets $245,000 $258,000
Average operating assets = ($245,000 + $258,000) ÷ 2

= $251,500
Margin = Net operating income ÷ Sales

= $61,000 ÷ $413,000
= 14.77%
Turnover = Sales ÷ Average operating assets

= $413,000 ÷ $251,500
= 1.64
ROI = Margin × Turnover

= 14.77% × 1.64
= 24.22
b)
Net operating income $51,000
Minimum required return (20% × $251,500) 50,300
Residual income $700

90.
The company president’s salary should be treated as a:
 Common fixed cost
 Traceable fxed cost

91.
Granting subordinates autonomy and profit responsibility almost invariably also grants them the
right to make mistakes.
 True
 False

92.
The following data are available for the North Division of Chemicals Products, Inc., and the single
product it makes:

Unit Selling Price $25
Variable Cost per Unit $15
Annual Fixed Costs $320,000
Average Operating Assets $1,500,000
How many units must South sell each year to have an ROI of 18%?
 32,760 units.
 35,760 units.
 240,000 units.
 1,300,000 units.
(320,000 + 1,500,000 * .18/(25 - 15) = 32,760 units.

Note: Students will need to have an understanding of CVP analysis from chapter 4.

93.
(Appendix 11A) Central Medical Clinic has two Service Departments-Building Services and Energy-
and three Operating Departments-Pediatrics, Geriatrics, and Surgery. Central allocates the cost of
Building Services on the basis of square metres and Energy on the basis of patient days. Budgeted
operating data for the year just completed follow:

Building & Personnel Operating A Operating B
Grounds
Departmental costs $64,000 $200,000 $650,000 $800,000
Square Metres 1,000 3,000 12,000 18,000
Occupied
Number of 10 5 45 55
Employees
Professional Hours 76,000 92,000
Required:
a) Prepare a schedule to allocate Service Department costs to Operating Departments by the direct
method, rounding all dollar amounts to the nearest whole dollar.
b) Prepare a schedule to allocate Service Department costs to Operating Departments by the step-
down method, allocating Building Services first, and rounding all amounts to the nearest whole
dollar.
a) Direct method:

Service Departments Operating Departments
Building Energy Pediatrics Geriatrics Surgery
Services
Budgeted costs $20,000 $10,000 $90,000 $60,000 $100,000
before allocation
Building Services:
Pediatrics: 3,333
6,000/36,000 ×
$20,000
Geriatrics: 10,000
18,000/36,000 ×
$20,000
Surgery: 6,667
12,000/36,000 ×
$20,000
Energy:
Pediatrics: 2,500
5,500/22,000 ×
$10,000
Geriatrics: 3,500
1,700/22,000 ×
$10,000
Surgery: ____ ____ ____ ____ 4,000
8,800/22,000 ×
$10,000
Costs after $-0- $-0- $95,833 $73,500 $110,667
allocation
b) Step-down method:

Building Energy Pediatrics Geriatrics Surgery
Services
Budgeted costs $20,000 $10,000 $90,000 $60,000 $100,000
before allocation
Building Services:
Pediatrics: 3,333
6,000/36,000 ×
$20,000
Geriatrics: 10,000
18,000/36,000 ×
$20,000
Surgery: 6,667
12,000/36,000 ×
$20,000
Energy:
Pediatrics: 2,500
5,500/22,000 ×
$10,000
Geriatrics: 3,500
1,700/22,000 ×
$10,000
Surgery: ____ ____ ____ ____ 4,000
8,800/22,000 ×
$10,000
Costs after $-0- $-0- $95,833 $73,500 $110,667
allocation

94.
(Appendix 11A) External failure costs result when a defective product is shipped to a customer.
 True
 False

95.
According to some experts, there are three potentially successful generic strategic approaches to
outperforming competitors. Which of the following is NOT one of those three generic strategies?
 cost leadership
 differentiation
 focus or niche
 customer selection
According to some experts, there are three potentially successful generic strategic approaches to
outperforming competitors: cost leadership, differentiation, focus or niche.

96.
(Appendix 11A) Internal failure costs result when a defective product is used within the company.
 True
 False

97.
Many firms tend to adopt a focus or a niche strategy instead of either a cost leadership or a
differentiation strategy.
 True
 False

98.
Which of the following best describes a segment of a business responsible for both revenues and
costs?
 A cost centre.
 An investment centre.
 A profit centre.
 A residual income centre.

99.
Disadvantages of decentralization include all of the following except:
 Top management can concentrate on bigger issues, such as overall strategy.
 Lower level managers may make decisions inconsistent

100.
The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model
12. The following data were gathered on activities last month:

Model 11 Model 12
Sales in units 6,000 4,000
Selling price per unit $50 $100
Variable production costs per $12 $28
unit
Traceable fixed production costs $100,000 $150,000
Variable selling expenses per $6 $7
unit
Traceable fixed selling expenses $5,000 $7,500
Allocated division administrative $57,000 $67,000
expenses
Required:
a. Prepare a segmented income statement in the contribution format for last month, showing both
"Amount" and "Percent" columns for the company as a whole and for each model.
b. Why might it be very difficult to calculate separate break-even sales for each model?
c. Refer to the original data and, if necessary, the results of the segmented income statement
prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last
month, assuming that none of the fixed production costs and fixed selling expenses is traceable.
Allocate the total break-even sales between the two models.
d. Again, refer to the original data and, if necessary, the results of the segmented income statement
prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last
month, assuming that the "allocated" amounts of the company's administrative expenses are
actually traceable. Allocate the total break-even sales between the two models.
e. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) given the
actual results for last month?
a.
Segments
Total Company Model 11 Model 12
Sales $700,000 100% $300,000 100% $400,000 100.0%
Variable 248,000 35.43 108,000 36 140,000 35
expense
Contribution $452,000 64.57 $192,000 64% $260,000 65%
margin
Traceable fixed 262,500 37.50 105,000 35 157,500 39.38
expenses
Segment $189,500 27.07 $87,000 29% $102,500 25.63%
margins
Common fixed 124,000 17.71
expenses
Operating 65,500 9.36%
Income
b. All fixed expenses have to be traceable to the two products in order to calculate separate break-
even sales for each product. However, the total administrative expenses of the division are not
traceable to the two products. This is the main difficulty. The expenses are rather common as
indicated in the segmented income statement.
c. Total fixed expenses = $262,500 + $124,000
= $386,500
Weighted average contribution (WACM) ratio (rounded) = 64.57% (Part a)
WACM ($) = $452,000 /10,000
= $45.20 (rounded)
Total break-even $ sales = $386,500 /64.57%

= $598,575 (rounded)
Allocations:
Sleds ($300,000 /$700,000) × $598,575 = $256,532 (rounded)
Saucers ($400,000 /$700,000) × $598,575 = $342,043 (rounded)
Total break-even sales (units) = $386,500 /$45.20

= 8,551 (rounded)
Allocations:
Sleds (6,000/ 10,000) × 8,551 = 5,131 (rounded)
Saucers (4,000 /10,000) × 8,551 = 3,420 (rounded)
d. This is the standard case where break-even sales can be calculated separately for each product
because there are no common or joint costs.

MODEL 11 MODEL 12 TOTAL
Total fixed expenses (A) $162,000 $224,500
Contribution margin:
Per Unit (B) $32 $65
Ratio (C) 64% 65%
Break-even sales:
Units (A/B) rounded 5,063 3,454 8,517
$(A/C) rounded $253,125 $345,385 $601,510
e. The total break-even sales numbers are reasonable in both cases because they are less the
reported total actual sales volume. In other words, the company reported positive profits when
actual sales exceeded the break-even sales.

101.
A division set up to produce components to be sold internally to another division would be

considered a cost center.
 True
 False
A cost center has no external market or external revenue generating ability.

102.
The following data have been extracted from the year-end reports of two companies: Company X
and Company Y:

Company X Company Y
Sales $800,000 ?
Operating income $56,000 ?
Average operating assets ? $125,000
Margin ? 4%
Turnover ? 6
Return on investment 14% ?
Required:
Fill in the missing data on the above table.
Company X Company Y
Sales $800,000 $750,000
Operating income $56,000 $30,000
Average operating assets $400,000 $125,000
Margin 7% 4%
Turnover 2 6
Return on investment 14% 24%

103.
For the past year, Largo Company recorded sales of $750,000 and average operating assets of
$375,000. What margin did Largo Company need to earn to achieve an ROI of 15%?
 2.00%
 7.50%
 9.99%
 15.00%
Margin = .15/(750,000/375,000) = 7.5%.

104.
(Appendix 11A) Which of the following would be classified as an internal failure cost on a quality cost
report?
 Supplies used in testing and inspection.
 Net cost of scrap.

105.
internal and external failure costs should also increase.
 True
 False

106.
Divisions A and B of Denner Company reported the following results for October:

Division A Division B
Sales $90,000 $150,000
Variable Expenses as a 70% 60%
Percentage of Sales
Segment Margin $2,000 $23,000
If common fixed expenses were $31,000, what were the total fixed expenses?
 $31,000
 $52,000
 $62,000
 $93,000
31,000 + (90,000 * (1 -.70) - 2,000) + (150,000 * (1 -.60) - 23,000) = $93,000.

107.
A profit center would normally have discretion over product offerings.
 True
 False
A profit center manager can do whatever is necessary to generate profits – including deciding on
product offerings.

108.

A company had the following results last year: sales, $700,000; return on investment, 28%; and
margin, 8%. What were the average operating assets last year?
 $200,000
 $540,000
 $2,450,000
 $2,500,000
.08 * 700,000/x = .28 so operating assets = 700,000/3.5 = $200,000.

109.
was Division A's segment margin?
 $48,000
 $32,000
 $30,000
 $36,000
Segment margin for Division A is calculated as follows: $80,000 − $80,000 × 0.40 = $48,000.

110.
(Appendix 11A) Galben Company's quality cost report is to be based on the following data:

Cost of field servicing and handling complaints $68,00
Required:
Prevention Costs
suppliers
and reporting
Appraisal Costs
goods
Internal Failure Costs
problems
Cost of field servicing and $68,000
handling complaints
Liability arising from defective $37,000 $105,000
products
$523,550

111.
(Appendix 11A) Which of the following would be classified as a prevention cost on a quality cost
report?
 Cost of field servicing and handling complaints.
 Warranty repairs and replacements.
 Systems development.
 Rework labour and overhead.

112.
Which of the following is a correct definition of operating income?
 Sales minus variable expenses.
 Sales minus variable expenses and traceable fixed expenses.
 Contribution margin minus traceable and common fixed expenses.
 Income before interest and taxes (EBIT).

113.
A quality cost report must be reported to a company's external stakeholders.
 True
 False
Quality cost reports are for internal use only and designed to highlight problem areas to managers.

114.
(Appendix 11A) Division A makes a part that it sells to customers outside of the company. Data
concerning this part appear below:

Selling Price to Outside Customers $40
Variable cost per Unit $30
Total Fixed Costs $10,000
Capacity in Units 20,000
Division B of the same company would like to use the part manufactured by Division A in one of its
products. Division B currently purchases a similar part made by an outside company for $38 per
unit and would substitute the part made by Division A. Division B requires 5,000 units of the part
each period. Division A has ample capacity to produce the units for Division B without any increase
in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B
rather than to outside customers, the variable cost per unit would be $1 lower. What should be the
lowest acceptable transfer price from the perspective of Division A?
 $29
 $30
 $38
 $40
30 - 1 = $29.
Ieso Company has two stores: J and K. During November, Ieso Company reported operating income
of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of
sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses were
$60,000 in Store J, and $40,000 in Store K.

115.
What were the total sales in Store J?
 $100,000
 $150,000
 $250,000
 $400,000
100,000/.40 = $250,000.

116.
What were the total variable expenses in Store K?
 $70,000
 $110,000
 $130,000
 $200,000
CM for K = 30,000 + 40,000 = $70,000. Sales K = 450,000 - 250,000 = 200,000. VC for K =

200,000 - 70,000 = $130,000.

117.
What were Ieso Company's total fixed expenses for the year?
 $40,000
 $100,000
 $140,000
 $170,000
Total SM = 30,000 + 40,000 = 70,000 so, Common FC = 70,000 - 30,000 = 40,000. Total FC =
40,000 + 60,000 + 40,000 = $140,000.

118.
What was the segment margin ratio in Store J?
 16%
 24%
 40%
 60%
(100,000 - 60,000)/250,000 = 16%.
Canon Company has two sales areas: North and South. During last year, the contribution margin in
the North was $57,000, or 20% of sales. The segment margin in the South was $16,000, or 8% of
sales. Traceable fixed costs were $16,000 in the North and $10,000 in the South. During last year,
the company reported total operating income of $28,000.

119.
What were the total fixed costs (traceable and common) for Canon Company for the year?
 $55,000
 $25,000
 $49,000
 $50,000
TOTAL SM = $57,000 - $16,000 + $16,000 = $57,000.

TOTAL FC = ($57,000 - $28,000) + $16,000 + $10,000 = $55,000.

120.
What were the variable costs for the South area for the year?
 $65,000
 $174,000
 $185,000
 $230,000
South Sales = $16,000/ 0.08 = $200,000.

CM = $16,000 + $10,000 = $26,000
VC = $200,000 – $26,000 = $174,000.
Packer Company's quality cost report is to be based on the following data:

Re-entering data because of keying errors $82,000

121.
(Appendix 11A) What will be the total prevention cost appearing on the quality cost report?
 $103,000
 $145,000
 $151,000
 $157,000
$70,000 + $87,000 = $157,000.

122.
(Appendix 11A) What will be the total appraisal cost appearing on the quality cost report?
 $128,500
 $165,000
 $195,500
 $196,000
$62,000 + $97,500 + $36,000 = $195,500.

123.
(Appendix 11A) What will be the total internal failure cost appearing on the quality cost report?
 $134,000
 $143,000
 $150,000
 $158,000
$68,000 + $82,000 = $150,000.

124.
(Appendix 11A) What will be the total external failure cost appearing on the quality cost report?
 $120,000
 $143,000
 $277,000
 $628,000
$78,000 + $42,000 = $120,000.
Eade Company's quality cost report is to be based on the following data:

Systems development $32,000

125.
 $43,000
 $45,000
 $47,000
 $51,000
32,000 + 11,000 = $43,000.

126.
 $70,000
 $97,000
 $110,000
 $119,000
13,000 + 57,000 + 40,000 = $110,000.

127.
 $54,000
 $75,000
 $80,000
 $121,000
62,000 + 18,000 = $80,000.

128.
 $54,000
 $95,000
 $175,000
 $328,000
59,000 + 36,000 = $95,000.
Belle Company's quality cost report is based on the following data:

Quality training $71,100

129.
 $102,000
 $150,100
 $130,000
 $163,100
$71,100 + $92,000 = $163,100.

130.
 $75,000
 $92,000
 $103,500
 $107,200
$32,200 + $65,000 + $10,000 = $107,200.

131.
 $64,000
 $113,000
 $121,000
 $124,000
$87,000 + $26,000 = $113,000.

132.
 $124,000
 $132,000
 $245,000
 $524,000
$94,000 + $38,000 = $132,000.
Faast Company's quality cost report is to be based on the following data:


133.
 $69,000
 $139,000
 $148,000
 $178,000
86,000 + 53,000 = $139,000.

134.
 $102,000
 $108,000
 $121,000
 $247,000
92,000 + 16,000 = $108,000.

135.
 $99,000
 $102,000
 $158,000
 $211,000
96,000 + 86,000 + 29,000 = $211,000.

136.
 $75,000
 $109,000
 $286,000
 $533,000
13,000 + 62,000 = $75,000.
Fabricity Company's quality cost report is to be based on the following data:

Statistical process control activities $68,000

137.
 $64,000
 $73,000
 $78,000
 $84,000
$16,000 + $68,000 = $84,000.

138.
 $83,000
 $127,000
 $140,000
 $157,000
$47,000 + $36,000 = $83,000.

139.
 $211,100
 $127,000
 $146,000
 $217,000
$91,100 + $23,000 + $97,000 = $211,100.

140.
 $80,000
 $111,000
 $324,000
 $481,000
$53,000 + $58,000 = $111,000.
Faust Company's quality cost report is to be based on the following data:


141.
 $41,000
 $103,000
 $107,000
 $140,000
68,000 + 35,000 = $103,000.

142.
 $74,000
 $78,000
 $81,000
 $181,000
72,000 + 6,000 = $78,000.

143.
 $71,000
 $74,000
 $132,000
 $163,000
76,000 + 68,000 + 19,000 = $163,000.

144.
 $59,000
 $79,000
 $22,000
 $403,000
3,000 + 56,000 = $59,000.
Thais Company's quality cost report is to be based on the following data:

Statistical process control activities $77,000

145.
 $84,000
 $104,000
 $98,000
 $113,000
$27,000 + $77,000 = $104,000.

146.
 $99,000
 $155,000
 $170,000
 $197,000
$57,000 + $42,000 = $99,000.

147.
 $104,000
 $147,000
 $166,000
 $252,000
$107,000 + $39,000 + $106,000 = $252,000.

148.
 $100,000
 $126,000
 $127,200
 $570,000
$62,200 + $65,000 = $127,200.
Westmore Company has two Service Departments and two Operating Departments. Budgeted costs
and other data relating to these departments are presented below:

Grounds
Departmental $54,000 $200,000 $650,000 $800,000
costs
Square Metres 1,000 3,000 12,000 15,000
Occupied
Employees
Direct Labour 76,000 92,000
Hours
The costs of Building & Grounds are allocated first on the basis of square metres of space occupied.
Personnel costs are allocated on the basis of number of employees. The departmental costs for the
Operating Departments are overhead costs. Predetermined overhead rates in the Operating
Departments are calculated on the basis of direct labour hours.

149.
(Appendix 11A) Assume that the company uses the direct method of allocating Service Department
costs to Operating Departments. How much Building & Grounds cost would be allocated to
Operating Department A?
 $20,903
 $21,600
 $24,000
 $29,700
$54,000 * 12,000/27,000 = $24,000.

150.
(Appendix 11A) Assume that the company uses the step-down method of allocating Service
Department costs to Operating Departments and Building and Grounds costs are allocated first.
How much Personnel Department cost would be allocated to Operating Department A?
 $0
 $90,000
 $92,430
 $205,400
(200,000 + 54,000 * 3,000/30,000) * 45/100 = $92,430.

151.
Department costs to Operating Departments and Building and Grounds costs are allocated first.
How much Personnel Department cost would be allocated to Operating Department B?
 $0
 $107,368
 $107,590
 $112,970
(200,000 + 54,000 * 3,000/30,000) * 55/100 = $112,970.

152.
(Appendix 11A) Assume again that the company uses the step-down method. What would be the
total amount of cost allocated from the two Service Departments to the Operating Departments for
the year?
 $254,000
 $850,000
 $1,450,000
 $1,704,000
54,000 + 200,000 = $254,000.
The following information is available on Company A:

Sales $900,000
Shareholders' Equity $100,000
Average Operating Assets $180,000
Minimum Required Rate of Return 15%

153.
What is Company A's residual income?
 $9,000
 $21,000
 $24,000
 $45,000
36,000 - 180,000 * .15 = $9,000.

154.
What is Company A's return on investment (ROI)?
 4%
 15%
 20%
 36%
36,000/180,000 = 20%.

155.
What is the turnover for Company A?
 25
 5
 9
 2
$900,000/180,000 = 5.
The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle
Division's single product follow:

Unit Selling Price $70
Unit Variable Cost $50

156.
If Axle sells 15,000 units per year, what would be the residual income?
 $10,000
 $33,576
 $52,133
 $100,000
(15,000 * ($70-$50)- $180,000) - $720,200 * 0.12 = $33,576.

157.
If Axle sells 16,000 units per year, what would be the return on investment? (Round your final
answer to nearest whole percent).
 12%
 15%
 19%
 18%
(16,000 * ($70 - $50) - $180,000)/$720,200 = 19.44%= 19% (rounded).

158.

Suppose the manager of Axle desires a return on investment of 22%. In order to achieve this goal,
Axle must sell how many units per year? (Round your answer up to the nearest whole unit).
 14,500 units.
 16,750 units.
 16,923 units.
 19,500 units.
($180,000 + $720,200 * 0.22)/ ($70 - $50) = 16,922.20→16,923 units.

159.
Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve
this, Axle should sell how many units per year? (Round your answer up to the nearest whole unit).
 14,500 units.
 16,750 units.
 15,572 units.
 19,500 units.
OI = $45,000 + $720,200 * 0.12 =$131,424;

Units = ($180,000 + $131,424) / ($70- $50) = 15,571.20→15,572 units.
Estes Company has assembled the following data for its divisions for the past year:

Division A Division B
Average Operating Assets $500,000 ?
Sales ? $520,000
Operating Income $100,000 $20,300
Turnover 1.25 4
Margin ? 3.9%
Minimum Required Rate of 14% ?
Return
Residual Income ? $6,000

160.

What were Division A's sales?
 $125,000
 $200,000
 $400,000
 $625,000
500,000 * 1.25 = $625,000.

161.

What was Division A's residual income?
 $20,000
 $30,000
 $35,000
 $45,000
100,000 - 500,000 * .14 = $30,000.

162.
What were Division B's average operating assets rounded to the nearest dollars?
 $81,200
 $130,128
 $1,333,333
 $2,080,000
ROI = 3.9% * 4 = 15.6%. Avg. Op. Assets = 20,300/.156 = $130,128.20.
The Holmes Division recorded operating data as follows for the past year:

Sales $250,000
Residual Income $15,000

163.

For the past year, what was the return on investment?
 15.75%
 20.50%
 27.00%
 31.25%
$27,000 / $100,000 = 27%.

164.

For the past year, what was the margin?
 12.50%
 13.00%
 10.80%
 15.00%
$27,000/$250,000 = 10.80%.

165.

For the past year, what was the turnover?
 2.5
 4.0
 10.5
 25.0
$250,000 /$100,000 = 2.5.

166.

For the past year, what was the minimum required rate of return?
 11%
 12%
 13%
 14%
($27,000 - $15,000) /$100,000 = 12.00%.
The Baily Division recorded operating data as follows for the past two years:

Year 1 Year 2
Sales ? $1,200,000
Shareholders' Equity $540,000 $720,000
Average Operating Assets $600,000 ?
Margin 15% ?
Return on Investment 22.5% 18%
Baily Division's turnover was exactly the same in both Year 1 and Year 2.

167.
What were the sales in Year 1? (Round your intermediate calculations to one decimal place.)
 $400,000
 $750,000
 $900,000
 $1,200,000
Turnover = .225/.15 = 1.5. Sales = 1.5 * 600,000 = $900,000.

168.
What was the operating income in Year 1?
 $90,000
 $135,000
 $140,000
 $150,000
900,000 * .15 = $135,000.

169.
What was the margin in Year 2?
 12.00%
 18.75%
 22.50%
 27.00%
.18/1.5(turnover) = 12%.

170.
What were the average operating assets in Year 2?
 $720,000
 $750,000
 $800,000
 $900,000
1,200,000/1.5(turnover) = $800,000.
The following selected data pertain to the belt division of Allen Corp. for last year:

Sales $540,000
Turnover 2.5
Minimum Required Return 20%

171.
What was the return on investment?
 15%
 16%
 20%
 42%
$84,000/ $200.000 = 42%.

172.
What was the residual income?
 $44,000
 $80,000
 $100,000
 $420,000
$84,000 - $200,000 * 0.2 = $44,000.
The following selected data pertain to Beck Co.'s Beam Division for last year:

Sales $400,000
Variable Expenses $100,000
Traceable Fixed Expenses $250,000

173.

What was the residual income?
 $10,000
 $40,000
 $50,000
 $80,000
(400,000 - 100,000 - 250,000) - 200,000 * .20 = $10,000.

174.

What was the return on investment?
 12.5%
 20.0%
 25.0%
 40.0%
(400,000 - 100,000 - 250,000)/200,000 = 25.0%.
The Northern Division of the Gordon Company reported the following data for last year:

Sales $900,000
Operating Expenses $700,000
Interest Expense $50,000
Tax Expense $60,000

175.
What was the return on investment last year for the Northern Division?
 18.000%
 28.125%
 40.000%
 62.500%
(900,000 - 700,000)/500,000 = 40.00%.

176.

What was the residual income for the Northern Division last year?
 $48,000
 $90,000
 $125,000
 $135,000
900,000 - 700,000 - 500,000 * .15 = $125,000.
Kalin Corporation has provided the following data for the past year:

Sales $700,000
Gross Margin $78,000
Residual Income $27,000

177.
What was the margin for the past year?
 8.0%
 11.2%
 14.4%
 10%
$70,000 /$700,000 = 10%.

178.
What was the return on investment for the past year?
 8%
 20%
 28%
 36%
$70,000 / $250,000 = 28%.

179.
What was the turnover for the past year?
 2.80
 2.50
 2.98
 6.94
$700,000 / $250,000 = 2.80.

180.

What was the minimum required rate of return for the past year?
 8.70%
 17.20%
 36.20%
 40.70%
($70,000 - $27,000)/$250,000 = 17.20%.
The Millard Division's operating data for the past two years are provided below:

Year 1 Year 2
Return on Investment 12% 36%
Shareholders' Equity $800,000 $500,000
Operating Income ? $360,000
Turnover ? 3
Margin ? ?
Sales $3,200,000 ?
Millard Division's margin in Year 2 was 150% of the margin in Year 1.

181.
What was the operating income for Year 1?
 $240,000
 $256,000
 $384,000
 $768,000
Yr. 2 margin = .36/3 = 12%. Yr. 1 margin = .12/1.5 = 8%. Op. Income = 3,200,000 * .08 = $256,000.

182.

What was the turnover for Year 1?
 1.2
 1.5
 3.0
 4.0
.12 margin of year 2/.08(margin of year 1) = 1.5.

183.

What were the sales for Year 2?
 $1,200,000
 $3,000,000
 $3,200,000
 $3,333,333
360,000/.12(margin of year 2) = $3,000,000.

184.

What were the average operating assets for Year 2?
 $1,000,000
 $1,080,000
 $1,200,000
 $1,388,889
3,000,000/3 = $1,000,000.
Russet Company has two Service Departments and two Producing Departments. Budgeted costs
and budgeted activity in the various departments for the most recent year are presented below:

Custodial Services Cafeteria Cutting Assembly
Department Department
Overhead Costs $360,000 $140,000 $670,000 $900,000
Square Metres of 1,700 2,000 8,000 10,800
Space Occupied
Number of 20 36 150 204
Employees
Machine Hour 40,000 60,000
Service Department costs are allocated to Producing Departments with the costs of Custodial
Services allocated first on the basis of square metres of space occupied. The costs of the Cafeteria
are allocated on the basis of number of employees. Predetermined overhead rates in the Cutting
and Assembly departments are based on machine hours.

185.
(Appendix 11A) Under the direct method of allocation, what would be the amount of Custodial
Services cost allocated to the Cutting Department? (Do not round intermediate calculations and
round your final answer to nearest whole dollar).
 $170,191
 $96,000
 $100,800
 $153,191
$360,000 * 8,000/ 18,800 = $153,191.

186.

(Appendix 11A) Under the direct method of allocation, what would be the predetermined overhead
rate for the year in the Assembly Department? (Do not round intermediate calculations and round
your final answer to the nearest two decimal places).
 $3.17
 $3.67
 $19.17
 $19.79
($900,000 + $360,000 * 10,800/ 18,800 + $140,000 * 10,800/ 18,800) / 60,000 hrs = $19.79.

187.
(Appendix 11A) Under the step-down method of allocation, what would be the amount of Custodial
Services cost allocated to the Assembly Department?
 $0
 $120,000
 $126,000
 $186,923
360,000 * 10,800 / 20,800 = $186,923.
Division A makes a part with the following characteristics:

Production Capacity in Units 20,000 units
Selling Price to Outside Customers $30
Variable Cost per Unit $20
Division B, another division of the same company, would like to purchase 5,200 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier at a
price of $29 each.

188.

(Appendix 11A) Suppose that Division A has ample idle capacity to handle all of Division B's needs
without any increase in fixed costs and without cutting into sales to outside customers. If Division B
continues to purchase parts from an outside supplier rather than from Division A, what will be the
effect on the operating income of the company as a whole?
 Lower by $46,800 each period.
 Lower by $10,000 each period.
 Higher by $15,800 each period.
($29- $20) * 5,200 = $46,800 (lower by $46,800 each period).

189.

(Appendix 11A) Suppose that Division A is operating at capacity and can sell all of its output to
outside customers at its usual selling price. If Division A sells the parts to Division B at $29 per unit
(Division B's outside price), what will be the effect on the operating income of company as a whole?
 Lower by $5,200 each period.
 There will be no change in the status of the company as a whole.
Lowest TP = $20 + (($30 - $20) * 5,200) / 5,200 = $30;

Effect = ($29-$30) * 5,200 = Lower by $5,200 each period.
Division A produces a part with the following characteristics:

Capacity in Units 53,020 units
Selling Price per Unit $32
Variable Costs per Unit $20
Fixed Costs per Unit $7
Division B, another division in the company, would like to buy this part from Division A. Division B is
presently purchasing the part from an outside source at $30 per unit. If Division A sells to Division B,
$1 in variable costs can be avoided.

190.

(Appendix 11A) Suppose Division A is currently operating at capacity and can sell all of the units it
produces on the outside market for its usual selling price. From the point of view of Division A, any
sales to Division B should be priced no lower than which of the following?
 $20
 $27
 $28
 $31
($20 -$1) + ($32 – $20) = $31.

191.
(Appendix 11A) Suppose that Division A has ample idle capacity to handle all of Division B's needs
without any increase in fixed costs and without cutting into its sales to outside customers. From the
point of view of Division A, any sales to Division B should be priced no lower than which of the
following?
 $17
 $18
 $29
 $19
$20 - $1 = $19.
The Vega Division of Ace Company makes wheels that can either be sold to outside customers or
transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000
of its wheels from the Vega Division for $42 each. The following data are available from last month's
operations for the Vega Division:

Capacity 12,000 wheels
Selling Price per Wheel to Outside Customers $45
Variable Costs per Wheel Sold to Outside $30
Customers
If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales
commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.

192.

(Appendix 11A) Suppose that the Vega Division has ample idle capacity so that transfers to the
Walsh Division would not cut into its sales to outside customers. What should be the lowest
acceptable transfer price from the perspective of the Vega Division?
 $28
 $30
 $42
 $45
30 - 2 = $28.

193.

(Appendix 11A) What is the maximum price per wheel that Walsh should be willing to pay Vega?
 $28
 $41
 $42
 $45
Outside suppliers price of $41.

194.

(Appendix 11A) Suppose that Vega can sell 9,000 wheels each month to outside consumers, so
transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable
transfer price from the perspective of the Vega Division?
 $28.00
 $31.75
 $41.00
 $42.00
{(30 - 2) + [4,000 - (12,000 - 9,000)] * (45 - 30)}/4,000 = $31.75.

The Post Division of the M.T. Woodhead Company produces basic posts that can be sold to outside
customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, the Lamp Division
bought all of its 25,000 posts from the Post Division at $2.00 each. The following data are available
for last year's activities of the Post Division:

Capacity in Units 300,000 posts
Selling Price per Post to Outside Customers $2.25
Variable Costs per Post $0.90
Fixed Costs, Total $120,000
The total fixed costs would be the same for all the alternatives considered below.

195.
(Appendix 11A) Suppose there is ample capacity so that transfers of the posts to the Lamp Division
do not cut into sales to outside customers. What is the lowest transfer price that would not reduce
the operating income of the Post Division?
 $0.90
 $1.35
 $1.41
 $1.75
$0.90 + $0 = $0.90.

196.

(Appendix 11A) Suppose the transfer of posts to the Lamp Division will cut into sales to outside
customers by 15,000 units. What is the lowest transfer price that would not reduce the operating
income of the Post Division?
 $0.90
 $1.35
 $1.71
 $1.75
$0.90 + (15,000 * ($2.25 - $0.90) / 25,000 = $1.71.

197.
(Appendix 11A) Suppose the transfer of posts to the Lamp Division will cut into sales to outside
customers by 15,000 units. Further suppose that an outside supplier is willing to provide the Lamp
Division with basic posts at $1.80 each. If the Lamp Division chooses to buy all of its posts from the
outside supplier instead of the Post Division, what will be the change in operating income for the
company as a whole?
 $1,000 decrease.
 $2,250 decrease.
 $10,250 increase.
 $13,750 decrease.
($1.71 - $1.80) * 25,000 = $(2,250).
The James Company has four departments with data as follows:

Cafeteria Maintenance Milling Finishing
Budgeted Costs $12,000 $10,000 $42,000 $38,000
Number of 12 10 84 66
Employees
Labour Hours 1,500 1,250 5,250 4,750

198.
(Appendix 11A) Suppose Maintenance Department costs are allocated on the basis of labour hours.
What would be the amount of cost allocated to Milling from Maintenance under the direct method?
 $5,250
 $5,600
 $5,700
 $6,720
$10,000 * 5,250/(5,250 + 4,750) = $5,250.

199.

(Appendix 11A) Suppose Cafeteria Department costs are allocated on the basis of number of
employees and that the step-down method is used with costs of the Cafeteria Department
allocated first. What would be the amount of cost allocated from the Cafeteria Department to
Maintenance Department?
 $0
 $625
 $698
 $750
$12,000 * 10/(10 + 84 + 66) = $750.
Anderson Company has two Service Departments and two Producing Departments. The costs of the
Personnel Department are allocated to other departments on the basis of the number of employees
in the departments. Departments and number of employees are as follows:

Employees
Personnel Department 30
Engineering Department 100
Producing Department No. 1 590
Producing Department No. 2 300
Total Employees 1,020

200.
(Appendix 11A) Total costs in the Personnel Department are $900,000 per year. Under the step-
down method, the costs of the Personnel Department are allocated before the costs of the
Engineering Department are allocated. What would be the amount of this cost allocated to the
Engineering Department under the step-down method, rounded to the nearest dollar?
 $0
 $81,000
 $90,909
 $92,046
$900,000 * 100 / (100 + 590 + 300) = $90,909.

201.

(Appendix 11A) Total costs in the Personnel Department are $900,000 per year. Under the step-
down method, the costs of the Personnel Department are allocated before the costs of the
Engineering Department are allocated. What would be the amount of Personnel Department cost
that would be allocated to Producing Department 2 under the step method, rounded to the nearest
dollar?
 $0
 $261,000
 $272,727
 $296,591
$900,000 * 300 / (100 + 590 + 300) = $272,727.
The following information is available on Company B:

Sales $1,000,000

202.
What is Company B's residual income?
 $9,000
 $56,000
 $24,000
 $45,000
$100,000 - $220,000 * 0.2 = $56,000.

203.
What is Company B's return on investment (ROI)? (Round your final answer to nearest whole
percent).
 4%
 15%
 45%
 36%
100,000/220,000 = 45.45% = 45% (rounded).

204.

What is the turnover for Company B? (Round your final answer to the nearest whole number).
 25
 5
 9
 2
1,000,000/220,000 = 4.5 = 5 (rounded).
Financial Services Company has two Service Departments and two Operating Departments.
Budgeted costs and other data relating to these departments are presented below:

Grounds
Departmental $66,000 $200,000 $670,000 $800,000
costs
Square Metres 1,800 3,000 13,000 18,000
Occupied
Employees
Professional Hours 75,000 90,000
The costs of Building & Grounds are allocated first on the basis of square metres of space occupied.
Personnel costs are allocated on the basis of number of employees. The departmental costs for the
Operating Departments are overhead costs. Predetermined overhead rates in the Operating
Departments are calculated on the basis of professional hours.

205.

(Appendix 11A) Assume that the company uses the direct method of allocating Service Department
costs to Operating Departments. How much Building & Grounds cost would be allocated to
Operating Department A? (Round your final answer to the nearest whole dollar).
 $27,677
 $21,600
 $25,600
 $29,700
$66,000 * 13,000 / 31,000 = $27,677.

206.

Department costs to Operating Departments, and Building and Grounds costs are allocated first.
How much Personnel Department cost would be allocated to Operating Department A? (Do not
round intermediate calculations and round your final answer to nearest whole dollar).
 $0
 $90,000
 $98,280
 $205,400
($200,000 + $66,000 * 3,000/ 31,000) * 50/105 = $98,280.

207.

Department costs to Operating Departments, and Building and Grounds costs are allocated first.
How much Personnel Department cost would be allocated to Operating Department B? (Do not
round intermediate calculations and round your final answer to nearest whole dollar).
 $0
 $108,108
 $107,590
 $113,520
($200,000 + $66,000 * 3,000 / 31,000) * 55/105 = $108,108.

208.

(Appendix 11A) Assume again that the company uses the step-down method. What would be the
total amount of cost allocated from the two Service Departments to the Operating Departments for
the year?
 $266,000
 $850,000
 $1,450,000
 $1,704,000
$66,000 + $200,000 = $266,000.

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12/16/21, 1:36 PM Assignment Print View

0.10 × $400,000 = $40,000.

$52,000 + $170,000 * 0.3 - $42,000 - $25,500 = $35,500.

ROI: ($200,000 − $110,000) / $450,000 = 20%.

 Lost sales arising from a reputation for poor quality.

 Final product testing and inspection.

 Net cost of spoilage.

 Quality data gathering, analysis, and reporting.

Contribution margin is a long-term planning tool

 The division's contribution margin ratio will decrease.

 The division's segment margin ratio will remain the same.

 The division's segment margin will decrease.

 The overall company operating income will remain the same.

 It is impossible to determine from the data given.

(150,000 * .12)/3 = $6,000.

Transfer price > Variable cost + Opportunity cost

Transfer price > ($27 + $3) + $16 = $46

Transfer price < $37

ROI: ($200,000 − $50,000) / $250,000 = 60%.

Consider the following three statements:

I. A profit centre has control over both cost and revenue.

Which statement(s) is/are correct?

 I and III only.

 Yes, as this would result in an overall savings of $2 per unit.

 Yes, as this would result in an overall savings of $4 per unit.

 No, as this would result in an overall loss of $2 per unit.

 No, as this would result in an overall loss of $4 per unit.

$29,000 * 0.40/0.80 = $14,500.

20,000 - 150,000 * .12 = $2,000.

How is a company's return on investment calculated?

 Dividing the margin by the turnover.

 Multiplying the margin by the turnover.

 Dividing the turnover by the average operating assets.

 Multiplying the turnover by the average operating assets.

Total SM = 20,000 + 50,000 = 70,000. L's SM = 70,000 - 60,000 = $10,000.

Warranty costs are considered to be external failure costs.

 Internal failure costs.

 External failure costs.

 It is a less accurate method of allocation than the direct method.

 It is a simpler allocation than the direct method.

 It ignores some interdepartmental services.

Factory Producing Department

 internal business processes

 learning and growth

CM for B = $170,000 * 0.36 - $80,000 * 0.25 = $41,200;

Testing and inspection costs are considered to be appraisal failure costs.

Total VC = $60,000/0.25 * 0.75 = $180,000;

 Downtime caused by quality problems.

 Supplies used in testing and inspection.

Plant utilities incurred on a company's test facility would be classified as:

 Internal failure costs.

 External failure costs.

$4,200/ 0.25 = $16,800.

Allocations of corporate headquarters expenses to divisions used in return on investment

Common fixed costs should be allocated equally amongst segments.

 number of repeat customers.

 number of process improvements.

 employees' satisfaction rating.

ROI: ($200,000 − $50,000) / $450,000 = 33.33%.

0.10 × $200,000 = $20,000.

In computing the margin in a ROI analysis, which of the following is used?

 Sales in the denominator.

 Operating income in the denominator.