Question

1)When favorable variances are added to unfavorable? variances, the result is always a total favorable variance.

True

False

2) Atom, Inc. has a division that manufactures a component that sells for? $150 and has a variable cost of? $30. Another division of the company wants to purchase the component. Fixed cost per unit of the component is? $20. What is the minimum transfer price if the division is operating at? capacity?

A.

?$20

B.

?$30

C.

?$50

D.

?$150

3) To adequately evaluate an investment? center's financial? performance, summary performance measures should include both the? division's operating income and its assets.

True

False

Answer 1

1)False

SAY For Example You Have Material Price Variance=$100(Unfavourable)

And Material Quantity Variance=$59(Favourable)

To Calculate Material Cost Variance=Material price Variance+Material Quantity Variance=$100(U)+59(F)=41(U)

See if Unfavourable Variances are greater than favourable variances and we add them up then we will get a total of unfavourable variance

2)Atom Inc. is working at capacity , to transfer it will consider the following price

Profit to be lost due to transfer=$150-$30	$120
Variable Cost To Be Incurred	$30
Minimum Transfer price	$150

3)True

Explanation:

investment centers are large divisions of the company

investment center managers are responsible for not only generating profit but also making the best use of the investment centers assets

The manager has decisions making responsibilities over all of the centers assets
the financial evaluation of investment centers must measure two factors:
how much operating income the segment is generating
how efficiently the segment is using its assets

in order to adequately evaluate an investment center's financial performance, companies need summary performance measures- or KPIs- that include both the divisions operating income and its assets

Two performance measures: Return on investment (ROI) and residual income (RI)

all equations use investment center data when evaluating an investment centers performance.