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Exam 24: Responsibility Accounting and Performance Evaluation

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Question 101

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Define market-based transfer price. When should market-based transfer pricing be used? Explain your answer.

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Market-based transfer price is a transfe...

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Question 102

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List the two factors that the financial evaluation of investment centers must measure.

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1. How much operating income t...

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Question 103

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Which of the following is an advantage of decentralization?

Ryota Products has an industrial mower division that operates as a profit center. Below is a partially completed responsibility report for the first quarter. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Responsibility Revort }$ $\begin{array} { |c | c | c | c | c | c | c| } \hline & \text { Actual } & \begin{array} { c } \text { Flexible } \\\text { Budget }\end{array} & \begin{array} { c } \text { Flexible } \\\text { Budget } \\\text { Variance }\end{array} & \text { U/F } & \begin{array} { c } \text { Percentage } \\\text { Variance }\end{array} & \text { U/F } \\\hline \begin{array} { c } \text { Sales } \\\text { Revenue }\end{array} & \$ 688,000 & \$ 703,000 & & & & \\\hline \begin{array} { c } \text { Variable } \\\text { Expenses }\end{array} & \underline { 309,000 } & \underline { 320,000 } & & & & \\\hline \begin{array} { c } \text { Contribution } \\\text { Margin }\end{array} & 379,000 & 383,000 & & & & \\\hline \begin{array} { c } \text { Traceable } \\\text { Fixed } \\\text { Expenses }\end{array} & \underline { 371,000 } & \underline { 368,000 } & & & & \\\hline \begin{array} { c } \text { Division } \\\text { Margin }\end{array} & \$ 8000 & \underline { \$ 15,000 } & & & & \\\hline\end{array}$ Compute the percentage variance for the flexible budget variance for traceable fixed expenses. (Round your answer to two decimal places.)

Trendables, a manufacturer of electronic jewelry, had the following results from its Subunit W: $\begin{array} { | l | r | r | r | l | } \hline \text { Subunit W } & \begin{array} { c } \text { Actual } \\\text { Results }\end{array} & \begin{array} { c } \text { Flexible } \\\text { Budget }\end{array} & \begin{array} { c } \text { Flexible } \\\text { Budget } \\\text { Variance } \\\text { (F or U) }\end{array} & \begin{array} { c } \text { \% of Variance } \\\text { (F or U) }\end{array} \\\hline \text { Net Sales Revenue } & \$ 365,000 & \$ 340,000 & & \\\hline \text { Variable Expenses } & \underline { 151,000 } & \underline { 137,000 } & & \\\hline \text { Contribution Margin } & 214,000 & 203,000 & & \\\hline \text { Traceable Fixed Expenses } & \underline { 50,000 } & \underline { 37,000 } & & \\\hline \text { Divisional Segment Margin } & \$ 164,000 & \$ 166,000 & & \\\hline\end{array}$ Requirements: 1. Complete the performance evaluation report for this subunit (round to two decimal places). 2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit? 3. Which items should be investigated if management's decision criteria is to investigate all variances equal to or exceeding $10,000 and 10% (both criteria must be met)? 4. Is it possible that the variances are due to a higher-than-expected sales volume? 5. Which balanced scorecard perspective is being addressed by this performance report? Is it a lead or lag indicator?

Which of the following is a disadvantage of decentralization?

Step Up Ladders Company provides the following financial information: $\begin{array} { | l | r | } \hline \text { Income from operations } & \$ 400,000 \\\hline \text { Interest expense } & 47,000 \\\hline \text { Gains/(losses) on sale of equipment } & 3000 \\\hline \text { Net income } & 350,000 \\\hline \text { Total assets at Jan. 1 } & 2,600,000 \\\hline \text { Total assets at Dec .31 } & 3,400,000 \\\hline\end{array}$ Calculate return on investment based on the information given above. (Round your answer to two decimal places.)

The limitations of financial performance measures reinforce the importance of the balanced scorecard.