Exam 12: Decentralization and Performance Evaluation
Exam 1: Managerial Accounting in the Information Age139 Questions
Exam 2: Job-Order Costing for Manufacturing and Service Companies150 Questions
Exam 3: Process Costing131 Questions
Exam 4: Cost-Volume-Profit Analysis166 Questions
Exam 5: Variable Costing109 Questions
Exam 6: Cost Allocation and Activity-Based Costing148 Questions
Exam 7: The Use of Cost Information in Management Decision Making126 Questions
Exam 8: Pricing Decisions128 Questions
Exam 9: Capital Budgeting Decisions151 Questions
Exam 10: Budgetary Planning and Control148 Questions
Exam 11: Standard Costs and Variance Analysis160 Questions
Exam 12: Decentralization and Performance Evaluation161 Questions
Exam 13: Statement of Cash Flows113 Questions
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Managers of cost centers are evaluated in order to decide if a division should be expanded, contracted, or changed.
(True/False)
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Which of the following determines the level of decentralization in a company?
(Multiple Choice)
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The following data pertains to the Retail Division of Motor Express: Sales \ 700,000 Invested capital 200,000 Net operating profit after taxes 49,000 Noninterest-bearing current liabilities 20,000 The minimum rate of return specified by Motor Express is 12 percent and the cost of capital is 8 percent. How much is residual income?
(Multiple Choice)
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The following income statements for the year ending December 31 and other information are available for the Langston Division of Act Company:
2014 2013 Sales \ 250,000,000 \ 220,000,000 Cost of goods sold Gross margin 145,000,000 124,000,0000 Selling and administrative costs 25,000,000 22,500,000 Research and development 15,600,000 12,400,000 Income from operations 104,400,000 89,100,000 Less taxes on income \ 31,320,000 26,730,000 Net income \ 73,080,000 \ 62,370,000 Total assets \ 650,000,000 \ 605,000,000 Noninterest-bearing current liabilities \ 15,000,000 \ 12,300,000 Required rate of return 12\% 12\% Cost of capital 10\% 10\% Interest expense is $0 and the tax rate is 30 percent. Langston Division amortizes intangible costs over 4 years. By how much is NOPAT adjusted as it relates to computing EVA for 2014?
(Multiple Choice)
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A transfer price is the price that is used to value transfers of goods and services
(Multiple Choice)
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Hardin Division of WestCo. has sales of $300,000 and NOPAT of $15,000. The company's invested capital is $240,000 and its noninterest-bearing current liabilities are $20,000. What is Hardin Division's investment turnover as it relates to investment center performance evaluation?
(Multiple Choice)
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One disadvantage of evaluating performance using return on investment is that assets are measured at their market value.
(True/False)
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Most service departments, such as machine maintenance and janitorial services, are examples of
(Multiple Choice)
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One of the primary tools for evaluating the performance of investment centers is residual income.
(True/False)
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The manager of the West Division of Beach Clothing Company is evaluating the acquisition of a new embroidery machine. The budgeted operating income of the West Division was $4,000,000 with total assets of $22,000,000 and noninterest-bearing current liabilities of $1,000,000. The proposed investment would add $750,000 to operating income and would require an additional investment of $3,500,000. The targeted rate of return for the West Division is 14 percent and the cost of capital is 9 percent. Ignoring taxes, how much is the residual income of the West division if the embroidery machine is not purchased?
(Multiple Choice)
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Responsibility accounting holds managers responsible for all direct and allocated costs charged to their operational unit.
(True/False)
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Thomas Company compiled the following information from its financial records for the year ending December 31, 2014:
Research and development costs incurred during 2014 \1 ,200,000 Total assets 5,200,000 Current liabilities, interest bearing 300,000 Current liabilities, noninterest-bearing 800,000 Net income 950,000 Sales 11,300,000 Interest expense 670,000 Cost of capital 10\% income tax rate 30\%
Thomas' amortization policy is 4 years. How much is the accounting distortion adjustment to invested capital when calculating EVA?
(Multiple Choice)
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When residual income is calculated, an amount is subtracted to cover the profit that the company believes should be earned by the assets invested in the subunit.
(True/False)
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Which one of the following is not an acceptable base for determining the transfer price?
(Multiple Choice)
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Thomas Company compiled the following information from its financial records for the year ending December 31, 2014:
Research and development costs incurred during 2014 \1 ,200,000 Total assets 5,200,000 Current liabilities, interest bearing 300,000 Current liabilities, noninterest-bearing 800,000 Net income 950,000 Sales 11,300,000 Interest expense 670,000 Cost of capital 10\% income tax rate 30\%
Thomas' amortization policy is 4 years. How much is the accounting distortion adjustment to NOPAT when calculating EVA?
(Multiple Choice)
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The following information is reported for the current year for North Atlantic Division of XT Enterprises: Sales \ 3,800,000 Interest expense \ 250,000 Net income \ 500,000 Total assets \ 5,000,000 Noninterest-bearing current liabilities \ 400,000 Cost of capital 8\% Required rate of return 14\% Tax rate 30\% As it relates to investment center evaluation, how much is the division's investment turnover?
(Multiple Choice)
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Consider the following information for Haley and Morris, Inc. December 31 2013 2014 Total assets \ 40,000,000 \ 50,000,000 Noninterest-bearing current liabilities 800,000 1,400,000 Net income 2,600,000 3,400,000 Interest expense 300,000 400,000 Tax rate 30\% 30\% How much is the return on investment for 2014?
(Multiple Choice)
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The Media Division of Winslow Company has invested capital of $1,250,000, sales of $590,000, net income of $44,250, and interest expense of $7,000. Winslow's income tax rate is 40 percent. What is the Media Division's return on investment?
(Multiple Choice)
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