MULTIPLE CHOICES 23.

When calculating a segment's return on

investment (ROI), which of the following assets of
16. The impact on net operating income of that segment would be considered a part of
short-run changes in sales for a segment can be average operating assets?
most clearly predicted by analyzing: A) cash
A) the contribution margin ratio. B) accounts receivable
B) the segment margin. C) plant and equipment
C) the ratio of the segment margin to sales. D) all of the above
D) net sales less segment fixed costs.
24. Which of the following measures of
17. In a segmented contribution format income performance encourages continued expansion by
statement, what is the best measure of the an investment center so long as it is able to earn a
long-run profitability of a segment? return in excess of the minimum required return on
A) its gross margin average operating assets?
B) its contribution margin A) return on investment
C) its segment margin B) transfer pricing
D) its segment margin minus an allocated portion of C) the contribution approach
common fixed expenses D) residual income

25. Residual income is:

18. In order to properly report segment margin as a A) Net operating income plus the minimum required
guide to long-run segment profitability and return on average operating assets.
performance, fixed costs must be separated into B) Net operating income less the minimum
two broad categories. One category is common required return on average operating assets.
fixed costs. What is the other category? C) Contribution margin plus the minimum required
A) discretionary fixed costs return on average operating assets.
B) committed fixed costs D) Contribution margin less the minimum required
C) traceable fixed costs return on average operating assets.
D) specialized fixed costs
26. Which of the following is NOT a common
19. Which of the following segment performance approach used to set transfer prices?
measures will decrease if there is an increase in A) market price
the interest expense for that segment? B) variable cost
Return on Investment Residual Income C) negotiation
A) Yes Yes D) suboptimization
B) No Yes
C) Yes No 27. For performance evaluation purposes, the
D) No No variable costs of a service department should be
charged to operating departments using:
20. Which of the following segment performance A) the actual variable rate and the budgeted level of
measures will increase if there is a decrease in the activity for the period.
selling expenses for that segment? B) the budgeted variable rate and the actual
Return on Investment Residual Income level of activity for the period.
A) Yes Yes C) the budgeted variable rate and the budgeted
B) No Yes level of activity for the period.
C) Yes No D) the actual variable rate and the peak-period or
D) No No long-run average servicing capacity.
21. Some investment opportunities that should be
28. Which of the following companies is following a
accepted from the viewpoint of the entire company
policy with respect to the costs of service
may be rejected by a manager who is evaluated on
departments that is not recommended?
the basis of:
A) To charge operating departments with the
A) return on investment.
depreciation of forklifts used at its central
B) residual income.
warehouse, Shalimar Electronics charges
C) contribution margin.
predetermined lump-sum amounts calculated on
D) segment margin.
the basis of the long-term average use of the
services provided by the warehouse to the various
22. Consider the following three conditions:
segments.
I. An increase in sales
B) Manhattan Electronics uses the sales
II. An increase in operating assets
revenue of its various divisions to allocate
III. A reduction in expenses
costs connected with the upkeep of its
Which of the above conditions provide a way in
headquarters building.
which a manager can improve return on
C) Rainier Industrial does not allow its service
investment?
departments to pass on the costs of their
A) Only I
inefficiencies to the operating departments.
B) Only I and II
D) Golkonda Refinery separately allocates fixed
C) Only I and III
and variable costs incurred by its service
D) Only II and III
departments to its operating departments.
 34. Dukelow Corporation has two divisions: the
29. A segment of a business responsible for both Governmental Products Division and the Export
revenues and expenses would be called: Products Division. The Governmental Products
A) a cost center. Division's divisional segment margin is $255,000
B) an investment center. and the Export Products Division's divisional
C) a profit center. segment margin is $59,800. The total amount of
D) residual income. common fixed expenses not traceable to the
individual divisions is $163,700. What is the
30. Devlin Company has two divisions, C and D. company's net operating income?
The overall company contribution margin ratio is A) $314,800
30%, with sales in the two divisions totaling B) ($314,800)
$500,000. If variable expenses are $300,000 in C) $151,100
Division C, and if Division C's contribution margin D) $478,500
ratio is 25%, then sales in Division D must be:
A) $50,000 35. Miscavage Corporation has two divisions: the
B) $100,000 Beta Division and the Alpha Division. The Beta
C) $150,000 Division has sales of $580,000, variable expenses
D) $200,000 of $301,600, and traceable fixed expenses of
$186,500. The Alpha Division has sales of
31. Toxemia Salsa Company manufactures five $510,000, variable expenses of $178,500, and
flavors of salsa. Last year, Toxemia generated net traceable fixed expenses of $222,100. The total
operating income of $40,000. The following amount of common fixed expenses not traceable to
information was taken from last year's income the individual divisions is $235,500. What is the
statement segmented by flavor (brackets indicate a company's net operating income?
negative amount): A) $374,400
B) $201,300
Wimpy Mild Medium Hot Atomic C) $609,900
Contribution margin.. $(2,000) $45,000 $35,000 D) ($34,200)
$50,000 $162,000 Segment margin........ $(16,000)
$(5,000) $7,000 $10,000 $94,000 Segment margin 36. J Corporation has two divisions. Division A has
less a contribution margin of $79,300 and Division B has
allocated common a contribution margin of $126,200. If total traceable
fixed expenses....... $(26,000) $(15,000) $(3,000) fixed costs are $72,400 and total common fixed
$0 $84,000 costs are $34,900, what is J Corporation's net
operating income?
Toxemia expects similar operating results for the A) $168,000
upcoming year. If Toxemia wants to maximize its B) $170,600
profitability in the upcoming year, which flavor or C) $133,100
flavors should Toxemia discontinue? D) $98,200
A) no flavors should be discontinued
B) Wimpy 37. Kop Corporation has provided the following
C) Wimpy and Mild data:
D) Wimpy, Mild, and Medium Return on investment (ROI)................. 15%
Sales..................................................... $120,000
32. Uchimura Corporation has two divisions: the Average operating assets...................... $60,000
AFE Division and the GBI Division. The Minimum required rate of return......... 12%
corporation's net operating income is $42,000. The Margin on sales.................................... 7.5%
AFE Division's divisional segment margin is Kop Corporation's residual income is:
$15,700 and the GBI Division's divisional segment A) $1,800
margin is $175,400. What is the amount of the B) $5,400
common fixed expense not traceable to the C) $2,700
individual divisions? D) $3,600
A) $149,100
B) $57,700 38. Spar Company has calculated the following
C) $217,400 ratios for one of its investment centers:
D) $191,100 Margin.................... 25%
Turnover................. 0.5 times
33. Younie Corporation has two divisions: the South What is Spar's return on investment for this
Division and the West Division. The corporation's investment center?
net operating income is $26,900. The South A) 50.0%
Division's divisional segment margin is $42,800 and B) 12.5%
the West Division's divisional segment margin is C) 15.0%
$29,900. What is the amount of the common fixed D) 25.0%
expense not traceable to the individual divisions?
A) $56,800 39. Mike Corporation uses residual income to
B) $69,700 evaluate the performance of its divisions. The
C) $72,700 company's minimum required rate of return is 14%.
D) $45,800 In January, the Commercial Products Division had
average operating assets of $970,000 and net
operating income of $143,700. What was the Assembly Division could use Product A instead of
Commercial Products Division's residual income in this part purchased from an outside supplier. What
January? is the most the Assembly Division would be willing
A) $7,900 to pay the Parts Division for Product A?
B) -$20,118 A) $13.50
C) $20,118 B) $14.25
D) -$7,900 C) $14.15
D) $14.00
40. In November, the Universal Solutions Division
of Keaffaber Corporation had average operating 44. Macumber Corporation has two operating
assets of $480,000 and net operating income of divisions-an Atlantic Division and a Pacific Division.
$46,200. The company uses residual income, with The company's Logistics Department services both
a minimum required rate of return of 11%, to divisions. The variable costs of the Logistics
evaluate the performance of its divisions. What was Department are budgeted at $36 per shipment. The
the Universal Solutions Division's residual income Logistics Department's fixed costs are budgeted at
in November? $234,000 for the year. The fixed costs of the
A) -$6,600 Logistics Department are determined based on
B) $5,082 peak-period demand.
C) $6,600
D) -$5,082

41. If operating income is $60,000, average

operating assets are $240,000, and the minimum How much Logistics Department cost should be
required rate of return is 20%, what is the residual charged to the Altlantic Division at
income? the end of the year for performance evaluation
A) 40% purposes?
B) 25% A) $198,000
C) $12,000 B) $109,800
D) $48,000 C) $118,800
D) $96,800
42. Division A makes a part that it sells to
customers outside of the company. Data 45. Erholm Corporation has two operating
concerning this part appear below: divisions-an Atlantic Division and a Pacific Division.
Selling price to outside customers............. $40 The company's Logistics Department services both
Variable cost per unit................................. $30 divisions. The variable costs of the Logistics
Total fixed costs......................................... $10,000 Department are budgeted at $31 per shipment. The
Capacity in units........................................ 20,000 Logistics Department's fixed costs are budgeted at
Division B of the same company would like to use $411,800 for the year. The fixed costs of the
the part manufactured by Division A in one of its Logistics Department are determined based on
products. Division B currently purchases a similar peak-period demand.
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 is already selling all of the units it
can produce to outside customers. If Division A At the end of the year, actual Logistics Department
sells to Division B rather than to outside customers, variable costs totaled $290,700 and fixed costs
the variable cost per unit would be $1 lower. What totaled $431,950. The Atlantic Division had a total
is the lowest acceptable transfer price from the of 3,900 shipments and the Pacific Division had a
standpoint of the selling division? total of 5,100 shipments for the year. How much
A) $40 Logistics Department cost should be charged to the
B) $39 Pacific Division at the END of the year for
C) $38 performance evaluation purposes?
D) $37 A) $391,453
B) $425,770
43. Product A, which is produced by the Parts C) $445,498
Division of BYP Corporation, sells for $14.25 on the D) $409,502
outside market. The costs to make Product A as
recorded by the company's cost accounting system
are:

Direct materials.......................................... $7.25

Direct labor................................................ $2.25
Variable manufacturing overhead.............. $1.50
Fixed manufacturing overhead.................. $2.50

The Assembly Division of BYP Corporation requires

a part much like Product A to make one of its
products. The Assembly Division can buy this part
from an outside supplier for $14.15. However, the