Responsibility and Transfer Pricing Solving

ABC’s Companys income statement for profit center A for August includes

Contribution margin P 84,000

Manager’s salary 24,000

Depreciation of admin building 9,600

Allocated corporate expenses 6,000

The profit center’s managers most likely able to control which of the following?

• P 50,400

• P 60,000

• P 74,400

• P 84,000

Segment X generated sales revenue of P 250,000 and variable operating expenses of P 112,500. Its controllable fixed expenses were P 25,000. It was assigned 40% of P 125,000 of fixed cost controlled by others. The common fixed costs were P 16,000. What was Segment X’s controllable segment profit margin?

• P 46,500

• P 63,500

• P 112, 500

• P 137, 500

1. ABC Company, a merchandising company, is considering a P 1,000,000 upgrade to its retail and warehousing facilities that will allow the company to handle more products and attract ore customers. ABC anticipates that sales will increase by P 500,000 and operating income will increase by P 200,000 per year. If ABC Company has a minimum required return on investment of 15%, what would be the residual income resulting from upgrade?

• P 50,000

• P 500,000

• P 200,000

• P 800,000

TAZ Company had the following information pertaining to 2017:

Sales 2,000,000

Profit 240,000

Asset turnover 2.5 times

The desired minimum rate of return is 20%. For the current year, XYZ Inc. reported sales of P 1,320,000 and an asset turnover of 4. The rate of return on average assets was 25%. The company’s operating income for the year was

• P 80,000

• P 82,500

• P 85,000

• P 90,000

The Davao Division of CEL Company is treated as an investment center for performance measurement purposes. Selected financial information of such division for the last year is given below:

Net Sales P 460,000

Cost of Goods Sold 305,000

Selling and administrative expenses 105,000

Average working capital 70,000

Average non-current assets 130,000

The desired rate of return from investments of this division was set at 12%. What was the division’s return on investment last year

• 15%

• 20%

• 25%

• 29%

The information pertains to BALA Co. for the year ended December 31, 2019:

Sales P 600,000

Net income 100,000

Capital Investment 400,000

Which of the following equations should be used to compute Bala’s return on investment?

• (4/6) X (6/1) = ROI

• (4/6) X (1/6) = ROI

• (6/4) X (1/6) = ROI

• (6/4) X (6/1) = ROI

The following data are presented to you for the performance evaluation of one of the investment centers:

Investment center's total assets P 640,000

Investment center's total liabilities 60,000

Investment center's after-tax operating profit 90,000

Weighted average cost of capital 12%

Minimum required ROI 14%

What is the economic value added?

• P 20,400

• P 60,000

• P 69,600

• P 90,000

Division A sells goods internally to Division B of the same company. The prevailing external price of Division A's product is P 100 per unit plus transportation costs of P 20 per unit to transport the goods to Division B. Division A produces each unit for P 60 per unit. If the market-based transfer pricing is to be used, the transfer price must be set at

• P 60

• P 80

• P 100

• P 120

You were asked to determine the proper transfer price between two divisions. The following data were presented to you:

Supplying Division

Market price of unit to be transferred P 70

Variable Manufacturing cost of unit to be transferred 30

Receiving Division

Number of units needed 1,000 units

Assume that the supplying division has excess capacity, what is the proper transfer price following the general rule of setting transfer prices?

• P 30

• P 38

• P 70

• P 100

Division A of a company produces a component that it currently sells to outside customers for P 20 per unit. At its current level of production, which is 50% of capacity, the Division A's fixed cost of producing this component is P 5 per unit and its variable cost is P 12 per unit. Division B of the same company would like to purchase this component from Division A for P 10. Division A has enough excess capacity to fill Division B's requirements. The managers of both divisions are compensated based upon reported profits. Which of the following transfer prices will maximize total company profits and be most equitable to the managers of Division A and Division B?

• P 12 per unit

• P 18 per unit

• P 20 per unit

• P 22 per unit