Test bank cost and management accounting 4e by barfield ch18

CHAPTER 18
RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING
IN DECENTRALIZED ORGANIZATIONS
MULTIPLE CHOICE
1.

Which of the following is more characteristic of a decentralized than a centralized
business structure?
a.
b.
c.
d.

The firm’s environment is stable.
There is little confidence in lower-level management to make decisions.
The firm grows very quickly.
The firm is relatively small.

ANSWER:
2.

more elaborate accounting control systems.
potential costs of poor decisions.
additional training costs.
slow response time to changes in local conditions.

ANSWER:

d

EASY

Transfer pricing is primarily incurred in
a.
b.
c.
d.

foreign corporations exporting their products.
decentralized organizations.
multinational corporations domiciled in the U.S.
closely held corporations.

ANSWER:
4.

EASY

Costs of decentralization include all of the following except
a.
b.
c.
d.

3.

c

b

EASY

In a decentralized company in which divisions may buy goods from one another, the
transfer pricing system should be designed primarily to
a.
b.
c.
d.

increase the consolidated value of inventory.
allow division managers to buy from outsiders.
minimize the degree of autonomy of division managers.
aid in the appraisal and motivation of managerial performance.

ANSWER:

d

EASY

18–1


18–2

5.

Chapter 18

When the majority of authority is maintained by top management personnel, the
organization is said to be

a.
b.
c.
d.

centralized.
decentralized.
composed of cost centers.
engaged in transfer pricing activities.

ANSWER:
6.

EASY

responsibility accounting
operations-research accounting
control accounting
budgetary accounting

ANSWER:

a

EASY

In a responsibility accounting system, costs are classified into categories on the basis of
a.
b.
c.

d.

fixed and variable costs.
prime and overhead costs.
administrative and nonadministrative costs.
controllable and noncontrollable costs.

ANSWER:
8.

a

What term identifies an accounting system in which the operations of the business are
broken down into reportable segments, and the control function of a foreperson, sales
manager, or supervisor is emphasized?
a.
b.
c.
d.

7.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

d

EASY

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

a.
b.
c.
d.

be related to the organization chart.
include allocated fixed overhead.
include variances between actual and budgeted controllable costs.
distinguish between controllable and noncontrollable costs.

ANSWER:

b

EASY


Chapter 18

9.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

A ___________ is a document that reflects the revenues and/or costs that are under the
control of a particular manager.
a.
b.
c.
d.

quality audit report
responsibility report
performance evaluation report
project report

ANSWER:
10.

EASY

cost
revenue
responsibility
investment

ANSWER:

c

EASY

In evaluating the performance of a profit center manager, he/she should be evaluated on
a.
b.
c.
d.

all revenues and costs that can be traced directly to the unit.
all revenues and costs under his/her control.
the variable costs and the revenues of the unit.

the same costs and revenues on which the unit is evaluated.

ANSWER:
12.

b

The cost object under the control of a manager is called a(n) __________________
center.
a.
b.
c.
d.

11.

18–3

b

EASY

If a division is set up as an autonomous profit center, then goods should not be
transferred
a.
b.
c.
d.

in at a cost-based transfer price.

out at a cost-based transfer price.
in or out at cost-based transfer price.
to other divisions in the same company.

ANSWER:

b

MEDIUM


18–4

13.

Chapter 18

Performance evaluation measures in an organization
a.
b.
c.
d.

affect the motivation of subunit managers to transact with one another.
always promote goal congruence.
are less motivating to managers than overall organizational goals.
must be the same for all managers to eliminate suboptimization.

ANSWER:
14.

MEDIUM

goal congruence.
centralization.
suboptimization.
maximization.

ANSWER:

c

EASY

A major benefit of cost-based transfers is that
a.
b.
c.
d.

it is easy to agree on a definition of cost.
costs can be measured accurately.
opportunity costs can be included.
they provide incentives to control costs.

ANSWER:
16.

a

A management decision may be beneficial for a given profit center, but not for the entire
company. From the overall company viewpoint, this decision would lead to
a.
b.
c.
d.

15.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

c

MEDIUM

An internal reconciliation account is not required for internal transfers based on
a.
b.
c.
d.

market value.
dual prices.
negotiated prices.
cost.

ANSWER:

d

MEDIUM


Chapter 18

17.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

The most valid reason for using something other than a full-cost-based transfer price
between units of a company is because a full-cost price
a.
b.
c.
d.

is typically more costly to implement.
does not ensure the control of costs of a supplying unit.
is not available unless market-based prices are available.
does not reflect the excess capacity of the supplying unit.

ANSWER:
18.

MEDIUM

variable cost.
market price.
full cost.
production cost.

ANSWER:

b

MEDIUM

A transfer pricing system is also known as
a.
b.
c.
d.

investment center accounting.
a revenue allocation system.
responsibility accounting.
a charge-back system.

ANSWER:
20.

b

To avoid waste and maximize efficiency when transferring products among divisions in
a competitive economy, a large diversified corporation should base transfer prices on
a.
b.
c.
d.

19.

18–5

d

EASY

The maximum of the transfer price negotiation range is
a.
b.
c.
d.

determined by the buying division.
set by the selling division.
influenced only by internal cost factors.
negotiated by the buying and selling division.

ANSWER:

a

EASY


18–6

21.

Chapter 18

The presence of idle capacity in the selling division may increase
a.
b.
c.
d.

the incremental costs of production in the selling division.
the market price for the good.
the price that a buying division is willing to pay on an internal transfer.
a negotiated transfer price.

ANSWER:
22.

MEDIUM

system is very complex to be the most fair to the buying and selling units
effect on subunit performance measures is not easily determined
system should reflect organizational goals
transfer price remains constant for a period of at least two years

ANSWER:

c

MEDIUM

With two autonomous division managers, the price of goods transferred between the

divisions needs to be approved by
a.
b.
c.
d.

corporate management.
both divisional managers.
both divisional managers and corporate management.
corporate management and the manager of the buying division.

ANSWER:
24.

a

Which of the following is a consistently desirable characteristic in a transfer pricing
system?
a.
b.
c.
d.

23.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

b

EASY

The minimum potential transfer price is determined by
a.
b.
c.
d.

incremental costs in the selling division.
the lowest outside price for the good.
the extent of idle capacity in the buying division.
negotiations between the buying and selling division.

ANSWER:

a

EASY


Chapter 18

25.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

As the internal transfer price is increased,
a.
b.
c.
d.

overall corporate profits increase.
profits in the buying division increase.
profits in the selling division increase.
profits in the selling division and the overall corporation increase.

ANSWER:
26.

accounts receivable and CGS.
CGS and finished goods.
finished goods and accounts receivable.
finished goods and intracompany sales.

ANSWER:

d

EASY

In an internal transfer, the buying division records the transaction by
a.
b.
c.
d.

debiting accounts receivable.
crediting accounts payable.
debiting intracompany CGS.
crediting inventory.

ANSWER:
28.

EASY

In an internal transfer, the selling division records the event by crediting
a.
b.
c.
d.

27.

c

b

EASY

Top management can preserve the autonomy of division managers and encourage an
optimal level of internal transactions by
a.
b.
c.
d.

selecting performance evaluation measures that are consistent with the
achievement of overall corporate goals.
selecting division managers who are most concerned about their individual

performance.
prescribing transfer prices between segments.
setting up all organizational units as revenue centers.

ANSWER:

a

MEDIUM

18–7


18–8

29.

Chapter 18

To evaluate the performance of individual departments, interdepartmental transfers of a
product should preferably be made at prices
a.
b.
c.
d.

equal to the market price of the product.
set by the receiving department.
equal to fully-allocated costs of the producing department.
equal to variable costs to the producing department.

ANSWER:
30.

EASY

responsibility accounting.
the use of profit centers.
the use of cost centers.
a transfer pricing system.

ANSWER:

d

MEDIUM

External factors considered in setting transfer prices in multinational firms typically do
not include
a.
b.
c.
d.

the corporate income tax rates in host countries of foreign subsidiaries.
foreign monetary exchange risks.
environmental policies of the host countries of foreign subsidiaries.
actions of competitors of foreign subsidiaries.

ANSWER:

32.

a

Allocating service department costs to revenue-producing departments is an alternative
to
a.
b.
c.
d.

31.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

c

MEDIUM

Corporate taxes and tariffs are particular transfer-pricing concerns of
a.
b.
c.
d.

investment centers.
multinational corporations.
division managers.
domestic corporations involved in importing foreign goods.

ANSWER:

b

EASY


Chapter 18

33.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

When managers attempt to cause actual results to conform to planned results, this is
known as
a.
b.
c.
d.

efficiency.
effectiveness.
conformity.
goal congruence.

ANSWER:
34.

b

EASY

Which of the following would not be considered a critical success factor?
a.
b.
c.
d.

quality
cost control
customer service
all of the above are critical success factors

ANSWER:
35.

18–9

d

EASY

The costs of service departments can be assigned to other divisions through the use of
a.
b.
c.
d.

cost centers.
transfer prices.

goal congruence.
operational auditing techniques.

ANSWER:

d

MEDIUM


18–10

Chapter 18

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Use the following information for questions 36–40.
Office Products Inc. manufactures and sells various high-tech office automation products. Two
divisions of Office Products Inc. are the Computer Chip Division and the Computer Division.
The Computer Chip Division manufactures one product, a “super chip,” that can be used by
both the Computer Division and other external customers. The following information is
available on this month’s operations in the Computer Chip Division:
Selling price per chip
Variable costs per chip
Fixed production costs
Fixed SG&A costs
Monthly capacity
External sales
Internal sales

$50
$20
$60,000
$90,000
10,000 chips
6,000 chips
0 chips

Presently the Computer Division purchases no chips from the Computer Chips Division, but
instead pays $45 to an external supplier for the 4,000 chips it needs each month.
36.

Assume that next month’s costs and levels of operations in the Computer and Computer
Chip Divisions are similar to this month. What is the minimum of the transfer price
range for a possible transfer of the super chip from one division to the other?
a.
b.
c.
d.

$50
$45
$20
$35

ANSWER:
37.

c

MEDIUM

Assume that next month’s costs and levels of operations in the Computer and Computer
Chip Divisions are similar to this month. What is the maximum of the transfer price
range for a possible transfer of the chip from one division to the other?
a.
b.
c.
d.

$50
$45
$35
$30

ANSWER:

b

MEDIUM


Chapter 18

38.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Two possible transfer prices (for 4,000 units) are under consideration by the two
divisions: $35 and $40. Corporate profits would be ___________ if $35 is selected as

the transfer price rather than $40.
a.
b.
c.
d.

$20,000 larger
$40,000 larger
$20,000 smaller
the same

ANSWER:
39.

d

MEDIUM

If a transfer between the two divisions is arranged next period at a price (on 4,000 units
of super chips) of $40, total profits in the Computer Chip division will
a.
b.
c.
d.

rise by $20,000 compared to the prior period.
drop by $40,000 compared to the prior period.
drop by $20,000 compared to the prior period.
rise by $80,000 compared to the prior period.

ANSWER:
40.

18–11

d

MEDIUM

Assume, for this question only, that the Computer Chip Division is selling all that it can
produce to external buyers for $50 per unit. How would overall corporate profits be
affected if it sells 4,000 units to the Computer Division at $45? (Assume that the
Computer Division can purchase the super chip from an outside supplier for $45.)
a.
b.
c.
d.

no effect
$20,000 increase
$20,000 decrease
$90,000 increase

ANSWER:

c

MEDIUM

18–12

Chapter 18

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Use the following information for questions 41–43.
The Motor Division of Super Truck Co. uses 5,000 carburetors per month in its production of
automotive engines. It presently buys all of the carburetors it needs from two outside suppliers
at an average cost of $100. The Carburetor Division of Super Truck Co. manufactures the
exact type of carburetor that the Motor Division requires. The Carburetor Division is presently
operating at its capacity of 15,000 units per month and sells all of its output to a foreign car
manufacturer at $106 per unit. Its cost structure (on 15,000 units) is:
Variable production costs
Variable selling costs
All fixed costs

$70
10
10

Assume that the Carburetor Division would not incur any variable selling costs on units that
are transferred internally.
41.

What is the maximum of the transfer price range for a transfer between the two
divisions?
a.
b.
c.

d.

$106
$100
$90
$70

ANSWER:
42.

MEDIUM

What is the minimum of the transfer price range for a transfer between the two
divisions?
a.
b.
c.
d.

$96
$90
$70
$106

ANSWER:
43.

b

a

MEDIUM

If the two divisions agree to transact with one another, corporate profits will
a.
b.
c.
d.

drop by $30,000 per month.
rise by $20,000 per month.
rise by $50,000 per month.
rise or fall by an amount that depends on the level of the transfer price.

ANSWER:

c

MEDIUM


Chapter 18

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

18–13

Use the following information for questions 44–47.
Bigole Corp. 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:
Total sales (all external)
Expenses (all on a unit base):
Variable manufacturing
Fixed manufacturing
Variable selling
Fixed selling
Variable G&A
Fixed G&A
Total

$250,000
$0.50
.25
.30
.40
.15
.50
$2.10

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.
44.

A transfer price based on variable cost will be set at ___________ per unit.
a.
b.
c.
d.

$0.50
$0.80
$0.95
$0.75

ANSWER:
45.

MEDIUM

A transfer price based on full production cost would be set at ___________ per unit.
a.
b.
c.
d.

$0.75
$2.10
$1.45
$1.60

ANSWER:
46.

c

a

MEDIUM

A transfer price based on market price would be set at ___________ per unit.
a.
b.
c.
d.

$2.10
$2.50
$1.60
$2.25

ANSWER:

b

MEDIUM


18–14

47.

Chapter 18

If the Plumbing Division is operated as an autonomous investment center and its
capacity is 100,000 fittings per month, the per-unit transfer price is not likely to be
below
a.
b.
c.

d.

$0.75.
$1.60.
$2.10.
$2.50.

ANSWER:
48.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

d

MEDIUM

A company has two divisions, A and B, each operated as a profit center. A charges B
$35 per unit for each unit transferred to B. Other data follow:
A’s variable cost per unit
A’s fixed costs
A’s annual sales to B
A’s annual sales to outsiders

$30
$10,000
5,000 units
50,000 units

A is planning to raise its transfer price to $50 per unit. Division B can purchase units at
$40 each from outsiders, but doing so would idle A’s facilities now committed to

producing units for B. Division A cannot increase its sales to outsiders. From the
perspective of the company as a whole, from whom should Division B acquire the units,
assuming B’s market is unaffected?
a.
b.
c.
d.

outside vendors
Division A, but only at the variable cost per unit
Division A, but only until fixed costs are covered, then should purchase from
outside vendors
Division A, in spite of the increased transfer price

ANSWER:
49.

d

MEDIUM

A service department includes which of the following?
a.
b.
c.
d.

Payroll
yes
yes

no
no

ANSWER:

Production
no
yes
yes
no
a

EASY


Chapter 18

50.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Indirect costs should be allocated for all of the following reasons except to
a.
b.
c.
d.

motivate managers.
determine the full cost of a product.
motivate general administration.

compare alternatives for decision making.

ANSWER:
51.

MEDIUM

purchasing
warehousing
distributing
manufacturing

ANSWER:

d

EASY

All of the following objectives are reasons to allocate service department costs to
compute full cost except to
a.
b.
c.
d.

provide information on cost recovery.
abide by regulations that may require full costing in some instances.
provide information on controllable costs.
reflect production’s “fair share” of costs.

ANSWER:
53.

c

A service department provides specific functional tasks for other internal units. Which
of the following activities would not be engaged in by a service department?
a.
b.
c.
d.

52.

18–15

c

MEDIUM

All of the following objectives are reasons that service department allocations can
motivate managers except to
a.
b.
c.
d.

instill a consideration of support costs in production managers.
encourage production managers to help service departments control costs.
encourage the usage of certain services.

determine divisional profitability.

ANSWER:

d

MEDIUM


18–16

54.

Chapter 18

Which of the following is a reason for allocating service department costs and thereby
motivating management?
a.
b.
c.
d.

provides for cost recovery
provides relevant information in determining corporatewide profits generated by
alternative actions
meets regulations in some pricing instances
reflects usage of services on a fair and equitable basis

ANSWER:
55.

Internal units
no
yes
no
yes

ANSWER:

MEDIUM

b

External units
no
no
yes
yes
EASY

After service department costs have been allocated, what is the final step in determining
full product cost?
a.
b.
c.
d.

determine direct material cost
determine overhead application rates for revenue-producing areas
determine direct labor cost

determine total service department costs

ANSWER:
57.

d

Service departments provide functional tasks for which of the following?
a.
b.
c.
d.

56.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

b

EASY

Which of the following is not an objective for computing full cost?
a.
b.
c.
d.

to reflect production’s “fair share” of costs
to instill a consideration of support costs
to reflect usage of services on a fair and equitable basis

to provide for cost recovery

ANSWER:

c

MEDIUM


Chapter 18

58.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

A rational and systematic allocation base for service department costs should reflect the
cost accountant’s consideration of all of the following except
a.
b.
c.
d.

the ability of revenue-producing departments to bear the allocated costs.
the benefits received by the revenue-producing department from the service
department.
a causal relationship between factors in the revenue-producing department and
costs incurred in the service department.
all of the above are considerations.

ANSWER:

59.

MEDIUM

step method
indirect method
direct method
algebraic method

ANSWER:

b

EASY

Which service department cost allocation method assigns costs directly to revenueproducing areas with no other intermediate cost pools or allocations?
a.
b.
c.
d.

step method
indirect method
algebraic method
direct method

ANSWER:
61.

d

Which of the following is not a method for allocating service department costs?
a.
b.
c.
d.

60.

18–17

d

EASY

The overhead allocation method that allocates service department costs without
consideration of services rendered to other service departments is the
a.
b.
c.
d.

step method.
direct method.
reciprocal method.
none of the above.

ANSWER:

b

EASY


18–18

62.

Chapter 18

Which service department cost allocation method assigns indirect costs to cost objects
after considering some of the interrelationships of the cost objects?
a.
b.
c.
d.

step method
indirect method
algebraic method
direct method

ANSWER:
63.

EASY

algebraic method
indirect method
step method

direct method

ANSWER:

c

EASY

Which service department cost allocation method assigns indirect costs to cost objects
after considering interrelationships of the cost objects?
a.
b.
c.
d.

Algebraic method
no
no
yes
yes

ANSWER:
65.

a

Which service department cost allocation method utilizes a “benefits-provided”
ranking?
a.
b.

c.
d.

64.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

c

Step method
no
yes
yes
no

EASY

Which of the following methods of assigning indirect service department costs
recognizes on a partial basis the reciprocal relationships among the departments?
a.
b.
c.
d.

step method
direct method
indirect method
algebraic method

ANSWER:

a

EASY


Chapter 18

66.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

The most accurate method for allocating service department costs is the
a.
b.
c.
d.

step method.
direct method.
algebraic method.
none of the above.

ANSWER:
67.

EASY

Benefits received
yes

yes
no
no

ANSWER:

b

Fairness
yes
yes
yes
no

Causal relationships
no
yes
yes
no

MEDIUM

To identify costs that relate to a specific product, an allocation base should be chosen
that
a.
b.
c.
d.

does not have a cause-and-effect relationship.

has a cause-and-effect relationship.
considers variable costs but not fixed costs.
considers direct material and direct labor but not manufacturing overhead.

ANSWER:
69.

c

The criteria that are most often used to decide on allocation bases are?
a.
b.
c.
d.

68.

18–19

b

EASY

The fixed costs of service departments should be allocated to production departments
based on
a.
b.
c.
d.

actual short-run utilization based on predetermined rates.
actual short-run units based on actual rates.
the service department’s expected costs based on expected long-run use of
capacity.
the service department’s actual costs based on actual utilization of services.

ANSWER:

d

MEDIUM


18–20

70.

Chapter 18

Which service department cost allocation method provides for reciprocal allocation of
service costs among the service department as well as to the revenue producing
departments?
a.
b.
c.
d.

algebraic method
indirect method
step method

direct method

ANSWER:
71.

b.
c.
d.

EASY

considers all interrelationships of the departments and reflects these relationships
in equations.
does not consider interrelationships of the departments nor reflect these
relationships in equations.
is also referred to as the “benefits-provided” ranking method.
is not a service department cost allocation method.

ANSWER:

a

EASY

Which service department cost allocation method considers all interrelationships of the
departments and reflects these relationships in equations?
a.
b.
c.
d.

step method
indirect method
algebraic method
direct method

ANSWER:
73.

a

The algebraic method
a.

72.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

c

EASY

An automotive company has three divisions. One division manufactures new
replacements parts for automobiles, another rebuilds engines, and the third does repair
and overhaul work on a line of trucks. All three divisions use the services of a central
payroll department. The best method of allocating the cost of the payroll department to
the various operating divisions is
a.
b.
c.

d.

total labor hours incurred in the divisions.
value of production in the divisions.
direct labor costs incurred in the divisions.
machine hours used in the divisions.

ANSWER:

a

MEDIUM


Chapter 18

74.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

18–21

The allocation of general overhead control costs to operating departments can be least
justified in determining
a.
b.
c.
d.

income of a product or functional unit.

costs for making management’s decisions.
costs of products sold.
costs for government’s “cost-plus” contracts.

ANSWER:

b

MEDIUM

Use the following information for questions 75–84.
Gates Co. has three production departments A, B, and C. Gates also has two service
departments, Administration and Personnel. Administration costs are allocated based on value
of assets employed, and Personnel costs are allocated based on number of employees. Assume
that Administration provides more service to the other departments than does the Personnel
Department.
Dept.
Admin.
Personnel
A
B
C
75.

Employees
25
10
15
5
10

Asset Value
$450,000
600,000
300,000
150,000
800,000

Using the direct method, what amount of Administration costs is allocated to A (round
to the nearest dollar)?
a.
b.
c.
d.

$216,000
$150,000
$288,000
$54,000

ANSWER:
76.

Direct Costs
$900,000
350,000
700,000
200,000
250,000

a

MEDIUM

Using the direct method, what amount of Personnel costs is allocated to B (round to the
nearest dollar)?
a.
b.
c.
d.

$50,000
$43,750
$26,923
$58,333

ANSWER:

d

MEDIUM


18–22

77.

Chapter 18

Using the direct method, what amount of Administration costs is allocated to C (round

to the nearest dollar)?
a.
b.
c.
d.

$576,000
$54,000
$108,000
$150,000

ANSWER:
78.

MEDIUM

$72,973
$291,892
$145,946
$389,189

ANSWER:

b

MEDIUM

Using the step method, what amount of Administration costs is allocated to A (round to
the nearest dollar)?
a.

b.
c.
d.

$72,973
$291,892
$145,946
$389,189

ANSWER:
80.

a

Using the step method, what amount of Administration costs is allocated to Personnel
(round to the nearest dollar)?
a.
b.
c.
d.

79.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

c

MEDIUM

Using the step method, what amount of Administration costs is allocated to B (round to

the nearest dollar)?
a.
b.
c.
d.

$72,973
$291,892
$145,946
$389,189

ANSWER:

a

MEDIUM


Chapter 18

81.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Using the step method, what amount of Administration costs is allocated to C (round to
the nearest dollar)?
a.
b.
c.
d.

$389,189
$145,946
$291,892
$72,973

ANSWER:
82.

MEDIUM

$213,964
$106,982
$430,000
$0

ANSWER:

c

MEDIUM

Assume that Administration costs have been allocated and the balance in Personnel is
$860,000. What amount is allocated to B (round to the nearest dollar)?
a.
b.
c.
d.

$213,964

$430,000
$106,982
$143,333

ANSWER:
84.

a

Assume that Administration costs have been allocated and the balance in Personnel is
$860,000. What amount is allocated to A (round to the nearest dollar)?
a.
b.
c.
d.

83.

18–23

d

MEDIUM

Assume that Administration costs have been allocated and the balance in Personnel is
$860,000. What amount is allocated to C (round to the nearest dollar)?
a.
b.
c.
d.

$213,964
$430,000
$286,667
$143,333

ANSWER:

c

MEDIUM


18–24

Chapter 18

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Use the following information for questions 85–90.
Brooks Co. 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.
Direct costs
$400,000
850,000
450,000
300,000
550,000

Admin/Per.
Data Pro.
X
Y
Z

Employees
10
5
30
15
25

Hours of use
3,300
1,100
1,800
2,200
4,500

Assume that Data Processing provides more service than Administration/Personnel.
85.

Using the direct method, what amount of Data Processing costs is allocated to X (round
to the nearest dollar)?
a.
b.
c.
d.

$180,000
$129,661
$0
$84,706

ANSWER:
86.

MEDIUM

Using the direct method, what amount of Data Processing costs is allocated to Y (round
to the nearest dollar)?
a.
b.
c.
d.

$158,475
$0
$220,000
$103,529

ANSWER:
87.

a

c

MEDIUM

Using the direct method, what amount of Data Processing costs is allocated to Z (round
to the nearest dollar)?
a.
b.
c.
d.

$211,765
$0
$152,542
$450,000

ANSWER:

d

MEDIUM


Chapter 18

88.

Responsibility Accounting and Transfer Pricing in Decentralized Organizations

Assume that Data Processing costs have been allocated and the balance in
Administration is $600,000. Using the step method, what amount is allocated to X?
a.
b.

c.
d.

$257,143
$112,500
$200,000
$187,500

ANSWER:
89.

a

MEDIUM

Assume that Data Processing costs have been allocated and the balance in
Administration is $600,000. Using the step method, what amount is allocated to Y?
a.
b.
c.
d.

$225,000
$128,571
$187,500
$200,000

ANSWER:
90.

18–25

b

MEDIUM

Assume that Data Processing costs have been allocated and the balance in
Administration is $600,000. Using the step method, what amount is allocated to Z?
a.
b.
c.
d.

$200,000
$112,500
$214,286
$225,000

ANSWER:

c

MEDIUM