Reference no: EM133062799

Questions - Solve for the requirements and choose the letter that best answers the question. Show your solutions.

Question 1 - The Ladies' Belt Division of Leather Goods Corp. is classified as an investment center. For the month of November, it had the following operating statistics:

Sales	P675,000
Cost of Goods Sold	400,000
Operating Expenses	237,500
Total Assets	750,000
Weighted-average cost of capital	4%

Leather Goods Corp's average stockholders' equity is P300,000. It is subject to an income tax rate of 40%.

1. What is the Ladies' Belt Division's return on investment?

a. 4%

b. 5%

c. 7.5%

d. 3%

2. The Ladies' Belt Division's residual income amounts to?

a. P30,000

b. P7,500

c. P25,000

d. (P7,500)

Question 2 - The Quezon City Division of Luzonian Company is treated as an investment center for performance measurement purposes. Selected financial information for such division for last year is given below:

Net Sales	P200,000
Cost of Goods Sold	176,250
General and Administrative Expenses	3,750
Average Working Capital	31,250
Average Plant and Equipment	68,750
Desired Rate of Return	15%

1. What was the Quezon City Division's return on investment for last year?

a. 29.09%

b. 15.00%

c. 53.33%

d. 20.00%

2. What was the Quezon City Division's residual income for last year?

a. P5,000.00

b. P9,687.50

c. P8,750,00

d. P14,375.00

Question 3 - The Northern Division sells goods internally to the Southern Division of the same company. The prevailing external price of Northern Division's product is P500 per unit plus transportation. It costs P100 per unit to transport the goods to Southern.

Northern incurs the following costs per unit in producing the goods:

Materials	P250
Direct Labor	75
Storage and Handling	60
Total	P385

1. If the market-based transfer pricing method is to be used, the transfer price must be set at

a. P500

b. P600

c. P385

d. P325

Question 4 - Division Hana of Lorivi Company is currently operating at 70% of capacity. It produces a single product and sells all its production to outside customers for P70 per unit. Variable costs is P30 per unit and fixed costs is P20 per unit at the current production level.

Division Deul, which currently buys the same product from an outside supplier for P65 per unit, would like to buy the product from Division Hana.

Division Hana will use one-half of its idle capacity if it decides to provide the requirements of Division Deul.

1. What is the minimum price that Division Hana should charge Division Deul for this product?

a. P70

b. P30

c. P50

d. P65

2. What is the maximum price that Division Deul will be willing to pay for the product if it will be purchased internally?

a. P70

b. P30

c. P50

d. P65

3. The transfer price usually set by an absorption costing calculation is called the

a. selling price

b. market price

c. full cost price

d. retail price

Question 5 - Davao del Sur Corporation is considering the introduction of a new product with following relevant costs:

Number of units to be produced and sold	30,000
Estimated required investment	P6,000,000
Desired return on investment	15%
Costs and expenses:
Direct materials	P20
Direct labor	15
Variable factory overhead	5
Fixed factory overhead	4
Variable expenses	3
Fixed expenses	2

1. Compute the mark-up ratio assuming the following cost bases.

1. Absorption costs

2. Variable costs and expenses

3. Variable production costs

4. Materials cost