FINANCE

QUESTION 27

1. Use this information for ABC Corporation to answer the questions that follow.

ABC Corporation has three service departments with the following costs and activity base:

Service Department

Cost

Activity Base for Allocation
Graphics Production $200,000 number of copies made
Accounting 500,000 number of invoices processed
Personnel 400,000 number of employees

ABC has three operating divisions, Micro, Macro and Super.  Their revenue, cost and activity information is as follows:

  Micro Macro Super
Direct revenues $700,000 $850,000 $650,000
Direct operating expenses $50,000 $70,000 $100,000
Number of copies made 20,000 30,000 50,000
Number of invoices processed 700 800 500
Number of employees 130 145 125

What will the income of the Macro Division be after all service department allocations?

a. $575,000
b. $375,000
c. $435,000
d. $780,000

2 points   

QUESTION 28

1. Use this information for ABC Corporation to answer the questions that follow.

ABC Corporation has three service departments with the following costs and activity base:

Service Department

Cost

Activity Base for Allocation
Graphics Production $200,000 number of copies made
Accounting 500,000 number of invoices processed
Personnel 400,000 number of employees

ABC has three operating divisions, Micro, Macro and Super.  Their revenue, cost and activity information is as follows:

  Micro Macro Super
Direct revenues $700,000 $850,000 $650,000
Direct operating expenses $50,000 $70,000 $100,000
Number of copies made 20,000 30,000 50,000
Number of invoices processed 700 800 500
Number of employees 130 145 125

How much service department cost will be allocated to the Micro Division?

a. $60,000
b. $145,000
c. $345,000
d. $200,000

2 points   

QUESTION 29

1. The transfer price approach that uses a variety of cost concepts is the

a. negotiated price approach
b. standard cost approach
c. cost price approach
d. market price approach

2 points   

QUESTION 30

1. The investment turnover is the ratio of

a. assets to liabilities
b. income from operations to sales
c. income from operations to invested assets
d. sales to invested assets

QUESTION 31

1. Use this information for Jefferson Company to answer the questions that follow.

Materials used by Jefferson Company in producing Division C’s product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available with Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A’s current sales.

How much will Division A’s income from operations increase?

a. $0
b. $50,000
c. $75,000
d. $25,000

2 points   

QUESTION 32

1. Use this information for ABC Corporation to answer the questions that follow.

ABC Corporation has three service departments with the following costs and activity base:

Service Department

Cost

Activity Base for Allocation
Graphics Production $200,000 number of copies made
Accounting 500,000 number of invoices processed
Personnel 400,000 number of employees

ABC has three operating divisions, Micro, Macro and Super.  Their revenue, cost and activity information is as follows:

  Micro Macro Super
Direct revenues $700,000 $850,000 $650,000
Direct operating expenses $50,000 $70,000 $100,000
Number of copies made 20,000 30,000 50,000
Number of invoices processed 700 800 500
Number of employees 130 145 125

What is the service department charge rate for Graphics Production?

a. $0.50
b. $10
c. $6.66
d. $2

2 points   

QUESTION 33

1. The Southern Division of Knucklehead Company has a return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

a. 1.5%
b. 6.67%
c. 12.5%
d. 0.67%

2 points   

QUESTION 34

1. The best measure of managerial efficiency in the use of investments in assets is

a. inventory turnover
b. investment turnover
c. income from operations
d. return on stockholders’ equity

2 points   

QUESTION 35

1. Which of the following expenses incurred by a department store is an indirect expense?

a. depreciation on store equipment
b. insurance on merchandise inventory
c. salary of vice president of finance
d. sales salaries

2 points   

QUESTION 36

1. Nelson Company’s Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company’s Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units.  The $4.00 is made up of $3.25 in variable costs and $0.75 in allocated fixed costs. What should be the range of a possible transfer price ?

a. $3.26 to $3.99
b. $3.25 to $3.50
c. $3.51 to $3.99
d. $3.26 to $3.49

2 points   

QUESTION 37

1. Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

a. income from operations before service department charges was $1,650,000
b. net income was $300,000
c. consolidated net income was $300,000
d. the gross profit margin was $300,000

2 points   

QUESTION 38

1. Use this information for Chicks Corporation to answer the questions that follow.

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum return of 15%.

The residual income for Chicks is

a. $191,500
b. $302,500
c. $137,500
d. $165,000

2 points   

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