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Exam 13: Responsibility Accounting,support Department Allocations,and Transfer Pricing

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Question 31

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Tri-Cities Savings and Loan Tri-Cities Savings and Loan has three departments that generate revenue: loans,checking accounts,and savings accounts.Tri-Cities Savings and Loan has two service departments: Administration/Personnel and Maintenance.The service departments provide service in the order of their listing.The following information is available for direct costs.Administration/ Personnel costs are best allocated based on number of employees while Maintenance costs are best allocated based on square footage occupied. $\begin{array}{llcc}\underline{\text { Depaitment }} &\underline{ \text { Direct costs }} &\underline{\text { Enployees } }&\underline{\text { Footage } } \\\text { Admin } / \text { Pers. } & \$ 530,000 & 10 & 30,000 \\\text { Maintenance } & 450,000 & 8 & 16,500 \\\text { Loans } & 900,000 & 15 & 45,000 \\\text { Checking } & 600,000 & 6 & 10,000\\\text { Saving } & 240,500 & 5 & 42,000\end{array}$ Refer to Tri-Cities Savings and Loan.Using the direct method,compute the amount allocated to each department from Administration/Personnel.

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Refer to Tri-Cities Savings an...

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Question 32

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Describe the lowest internal transfer price that an autonomous division manager of an investment center would consider accepting for a product that his/her division produces.

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Question 33

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Terrell Corporation Terrell Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows: $\begin{array}{lc}\text { Total sales(all external) } & \$ 250,00 \\\text { Expenses(all on a urit base) : } & \\\text { Variable manufacturing } & \$ 0.50 \\\text { Fixed manufacturing } & .25 \\\text { Variable selling } & .30 \\\text { Fixed selling } & .40 \\\text { Variable G\&A } &.15\\\text { Fixed G\&A } & \underline{.50}\\\text { Total} &\underline{ \$ 2.10}\end{array}$ Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division. Refer to Terrell Corporation.A transfer price based on full production cost would be set at ____ per unit.

A manager of a cost center is evaluated solely on the basis of how well costs are controlled.

Seminole Wire Corporation The Wire Products Division of Seminole Wire Corporation produces "bales" of steel wire that are used in various commercial applications.The bales sell for an average of $20 each and The Wire Products Division has the capacity to produce 10,000 bales per month.The Consumer Products Division of Seminole Wire Corporation uses approximately 2,000 bales of steel wire each month in its production of various appliances.The operating information for the Wire Products Division at its present level of operations (8,000 bales per month)follows: Sales (all external)                                          $\$ 160,000$ Variable costs per bale: Production                                                       $\$ 5$ Selling                                                             2 G\&A                                                               3 Fixed costs per bale (based on a 10,000 urit capacity): Production                                                     $\$ 2$ Selling                                                            3 $\mathrm{Ct} \& \mathrm{~A}$                                                           4 The Consumer Products Division currently pays $15 per bale for wire obtained from its external supplier. Refer to Seminole Wire Corporation.If Wire Products Division transferred 2,000 wire bales to the Consumer Products Division at 200 percent of full absorption cost,what would be the transfer price?

All of the following objectives are reasons that service department allocations can motivate managers except to

Smith Corporation Smith Corporation has two service departments: Data Processing and Personnel.Data Processing provides more service than does Personnel.Smith Corporation also has two production departments: A and B.Data Processing costs are allocated on the basis of assets used while Personnel costs are allocated based on the number of employees. $\begin{array}{lccc}\underline{\text { Department }}& \underline{\text { Direct costs }}&\underline{\text { Employeess }}&\underline{ \text { Assetsussec}}\\{\text { Data Processing }}& \$ 1,000,000 & 15 & {\$ 700,000} \\\text { Personnel } &300,000 & 8& 230,000 \\\text { A } &500,000 & 12 & 125,000 \\\text { B } &3300,000 & 20& 220,000\end{array}$ Refer to Smith Corporation.Using the direct method,what amount of Data Processing costs is allocated to A (round to the nearest dollar) ?

A major benefit of cost-based transfers is that

Cost based transfer prices are most appropriate for low cost and low volume services.

Crosby Corporation Crosby Corporation has two service departments: Data Processing and Administration/Personnel.The company also has three divisions: X,Y,and Z.Data Processing costs are allocated based on hours of use and Administration/Personnel costs are allocated based on number of employees. $\begin{array}{llcc}\underline{\text { Department }} &\underline{ \text { Direct costs }} & \underline{\text { Employees }} &\underline{ \text { Hours of use }} \\\text { Administration /Personnel } & \$ 400,000 & 10 & 3,300 \\\text { Data Processing } & 850,000 & 5 & 1,100 \\\text { X } & 450,000 & 30 & 1,800 \\Y & 300,000 & 15 & 2,200 \\Z & 550.000 & 25 & 4,500\end{array}$ Assume that Data Processing provides more service than Administration/Personnel. Refer to Crosby Corporation.Using the direct method,what amount of Data Processing costs is allocated to X (round to the nearest dollar) ?

The presence of idle capacity in the selling division may increase

The most theoretically correct method of allocating service department costs is the algebraic method.

Lincoln Corporation Lincoln Corporation distributes its service department overhead costs directly to producing departments without allocation to the other service departments.Information for January is presented here.                                                      $\text {\underline{ Mantenance} }$   $\text {\underline{ Utilities} }$ $\begin{array}{lll}\text { Overhead costsincurred } & \$ 18,700 & \$ 9,000 \\\text { Service provided to: } & \\\text { Maintenance Dept. } && 10 \% \\\text { Utilities Dept. } & 20 \% &\\\text { Producing Dept. A } & 40 \% &30 \%\\\text { Producing Dept. B } & 40 \% & 60 \%\end{array}$ Refer to Lincoln Corporation.Assume that Lincoln Corporation distributes service department overhead costs based on the algebraic method.What would be the formula to determine the total maintenance costs?

An organizational unit that is responsible for the generation of revenues and has no control over selling prices or costs is referred to as a ______________________________.

The criteria that are most often used to decide on allocation bases are? $\text {\underline{Benefits received. } }$                 $\text {\underline{Fairness } }$                        $\text {\underline{ Causal relationships.} }$

When used for performance evaluation,periodic internal reports based on a responsibility accounting system should not

Suboptimization occurs when a manager of a cost center focuses on the goals of the cost center rather than on the goals of the organization as a whole.

What are the four types of responsibility centers? What is the focus of each of these responsibility centers?

Performance evaluation measures in an organization

The allocation of general overhead control costs to operating departments can be least justified in determining