I-Rev9 - LESSON 9 Review material Review questions Question...

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LESSON 9 Review material Review questions Question 1 — Multiple choice a. What is an advantage of full-cost transfer prices? 1) They always allow a more accurate computation of unit costs. 2) They reduce influence costs. 3) They encourage purchasing divisions to order sufficient quantities of intermediate goods from selling divisions. 4) They measure correctly the opportunity cost of transferring one additional unit internally. b. Which of the following occurs when cost centre managers are evaluated on the basis of minimizing average cost? 1) The firm will always maximize profits because average unit costs approximate marginal costs. 2) The firm will not maximize profits because average unit costs always underestimate marginal costs. 3) The firm will maximize profits if cost centres have zero variable costs 4) The firm will maximize profits if it is also true that variable costs equal variable revenues. c. Which of the following statements regarding the controllability principle is true? 1) It holds managers responsible for those decisions for which they have authority. 2) It always encourages managers to reduce costs associated with uncertain events. 3) It implies that managers should be evaluated on after-tax profits. 4) It implies that managers should be held accountable for more variables than is implied by the principle of conditional controllability. d. The following information is available for an investment centre of Decentralized Company (all numbers are in thousands of euros): Sales revenue € 75,000 Expenses 72,000 Total investment 25,000 Which is the return on sales, sales turnover, and ROI (respectively)? 1) 4%, 3, 12% 2) 12%, 1 / 3 , 4% 3) 12%, 3, 36% 4) 36%, 1 / 3 , 12% e. The following results were achieved by Chandler Division for the year 20X6: ROI 16% Total expenses € 9,200,000 Management Accounting Fundamentals Review material 9 1
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Fixed expenses 7,200,000 Sales 10,000,000 In order to increase its ROI to 18% in 20X7, Chandler Division must increase sales volume to what level in euros? (Assume that cost behaviour remains the same as in 20X6 and that total investment will be unaffected by the change in volume.) 1) €10,125,000 2) €10,620,000 3) €13,570,000 4) €14,750,000 f. Division A produces and sells internally a powder that Division B filters and packages and sells for €10.00 a kilogram. Division A incurs costs of €4.00 per kilogram of powder, while division B incurs additional costs of €3.00 per kilogram. What is Division A’s operating income per kilogram of powder assuming the transfer price is set at the full cost plus 25% markup? 1) €3.00 2) €2.00 3) €1.00 4) €4.00 g. Assume the same information as in part (6), What is Division B’s operating income per kilogram of powder assuming the transfer price is set at the full cost plus 25% markup? 1) €3.00
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I-Rev9 - LESSON 9 Review material Review questions Question...

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