Question : 51. When using residual income (RI) as a project-screening tool, management : 1208321

51. When using residual income (RI) as a project-screening tool, management should accept a project if: 
A. RI is negative.
B. RI is positive.
C. RI equals ROI.
D. None of the other answers are correct.

52. Brookings Company evaluates its managers on the basis of return on investment. Division Three has a return on investment (ROI) of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return? 
A. ROI
B. Residual income (RI)
C. Both ROI and RI will motivate the manager to accept the project.
D. Neither ROI nor RI will motivate the manager to accept the project.

53. Which of the following should not be included in the investment base used to compute residual income? 
A. Accounts receivable
B. An idle warehouse
C. Cash
D. Inventory

54. Which of the following may be used to establish transfer prices? 
A. Standard cost of a product
B. A negotiated price
C. Market price
D. All of the other answers are correct.

55. Which of the following is an advantage of using cost-based transfer prices? 
A. Such prices provide a sense of fairness.
B. Such prices motivate the buying division to control cost.
C. Such prices are an objective measure and easy to compute.
D. Such prices will usually exceed the market based or negotiated transfer prices.

56. The preferred method for setting transfer prices generally is some form of: 
A. Price based on negotiation.
B. Price based on market forces.
C. Price based on historical costs.
D. Price based on industry cost averages.

57. If a company is unable to use market-based transfer prices, the next best alternative is to use a price: 
A. Based on variable cost.
B. Based on negotiation.
C. Based on standard cost.
D. Set by senior management.

58. Horton Corporation has two operating divisions, A and B. The following information is provided for Division A:
  
Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $45 to purchase the product from an outside source. If Division A sells internally it can save $1 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made? 
A. $40
B. $45
C. $49
D. $50

59. Edwards Company has two operating divisions, A and B. The following information is provided for Division A:
  
Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $145 to purchase the product from an outside source. If Division A sells internally it can save $10 per unit in variable costs. Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B, which of the following is the lowest price Division A should consider for the transfer? 
A. $90
B. $100
C. $140
D. $145

60. The Electronic Division’s return on investment is: 
A. 8%.
B. 11%.
C. 10%.
D. 12%.