Question 1

A manufacturing division of a company would most likely be evaluated as a(n)

Accepted Answer

A) cost center. 
B) investment center. 
C) revenue center. 
D) asset center. 
A) cost center. 
B) investment center. 
C) revenue center. 
D) asset center.

Question 2

Which of the following is a disadvantage of both residual income and ROI?

Accepted Answer

A) They are both absolute measures of return. 
B) They are both difficult to calculate. 
C) They both do not discourage myopic behavior. 
D) All of these are disadvantages of both ROI and residual income. 
A) They are both absolute measures of return. 
B) They are both difficult to calculate. 
C) They both do not discourage myopic behavior. 
D) All of these are disadvantages of both ROI and residual income.

Question 3

In an investment responsibility center, the manager is only responsible for costs.

Accepted Answer

A) True 
 B)False

Question 4

Return on investment (ROI) refers to earnings before interest and income taxes.

Accepted Answer

A) True 
 B)False

Question 5

A transfer price is the price charged by one division of a company to another company.

Accepted Answer

A) True 
 B)False

Question 6

Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.

Accepted Answer

A) True 
 B)False

Question 7

The Engine Division provides engines for the Truck Division of a company. The standard unit costs for the Engine Division are as follows: $\begin{array} { l  }
 \text {Direct materials }&\$600\
 \text { Direct labor}&1,200\
 \text {Variable overhead }&300\
 \text {Fixed overhead }&150\
 \text { Market price per unit}&2,730\
\end{array}$
 What is the transfer price based on full cost plus a markup of 30 percent?

Accepted Answer

A) $585 
B) $2,925 
C) $2,760 
D) $2,730 
A) $585 
B) $2,925 
C) $2,760 
D) $2,730

Question 8

The following information pertains to the three divisions of Merrymount Company: $\begin{array}{lrrr}&\text { Division } X& \text { Division } Y& \text { Division } Z\
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 7,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Retum on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What are the average operating assets for Division Y?

Accepted Answer

A) $25,000 
B) $208,333 
C) $5,000 
D) $125,000 
A) $25,000 
B) $208,333 
C) $5,000 
D) $125,000

Question 9

The following information pertains to the three divisions of Merrymount Company: $\begin{array}{lrrr}&\text { Division } X& \text { Division } Y& \text { Division } Z\
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 7,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Retum on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What are the sales for Division Y?

Accepted Answer

A) $500,000 
B) $125,000 
C) $208,333 
D) $25,000 
A) $500,000 
B) $125,000 
C) $208,333 
D) $25,000

Question 10

Economic value added is calculated by which of the following formulas?

Accepted Answer

A) EVA = After-tax operating income + (Weighted average cost of capital × Total capital employed) 
B) EVA = After-tax operating income × Weighted average cost of capital 
C) EVA = After-tax operating income - (Weighted average cost of capital × Total capital employed) 
D) EVA = Total capital employed - (Weighted average cost of capital × After-tax operating income) 
A) EVA = After-tax operating income + (Weighted average cost of capital × Total capital employed) 
B) EVA = After-tax operating income × Weighted average cost of capital 
C) EVA = After-tax operating income - (Weighted average cost of capital × Total capital employed) 
D) EVA = Total capital employed - (Weighted average cost of capital × After-tax operating income)

Question 11

The records for the Venusian Division show the following data: $$\begin{array} { l l } 
\text { Asset base } & \$ 500,000 \
\text { Sales Revenues } & \$ 725,000 \
\text { Expenses } & \$ 662,500
\end{array}$$ 
Required: 
a.What is the margin, turnover, and ROI for Venusian Division?
b.Venusian has an option to make an additional investment that would add $100,000 to the asset base. It would generate an additional $50,000 in sales revenue and no additional expenses. What would be the effect on margin, turnover, and ROI?
c.Another alternative (independent of alternative 'b') for Venusian is to run an advertising campaign that would require additional advertising expenses of $37,500, but the best estimate is the campaign would generate an additional $75,000 of revenue. What would be the effect on margin, turnover, and ROI?

Accepted Answer

The answer of The records for the Venusian Division show...

Question 12

How do the differences between centralization and decentralization affect decision making? Why would a Company decentralize its operations?

Accepted Answer

Decentralization is the delegation of de

Question 13

Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.

Accepted Answer

A) True 
 B)False

Question 14

When top management controls the major functions of an organization it is called:

Accepted Answer

A) Centralization 
B) Decentralization 
C) Optimization 
D) An unfavorable overhead variance 
A) Centralization 
B) Decentralization 
C) Optimization 
D) An unfavorable overhead variance

Question 15

__________ is after-tax operating profit minus the total annual cost of capital.

Accepted Answer

Economic v

Question 16

Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is

Accepted Answer

A) revenue to Division 'A' and a cost to Division 'B' 
B) revenue to Division 'B' and a cost to Division 'A' 
C) revenue to Division 'A' and no effect on Division 'B' 
D) a cost to Division 'B' and no effect on Division 'A' 
A) revenue to Division 'A' and a cost to Division 'B' 
B) revenue to Division 'B' and a cost to Division 'A' 
C) revenue to Division 'A' and no effect on Division 'B' 
D) a cost to Division 'B' and no effect on Division 'A'

Question 17

The return on investment is computed as

Accepted Answer

A) operating income divided by sales. 
B) operating income divided by average operating assets. 
C) sales divided by average operating assets. 
D) operating asset turnover divided by the operating income margin. 
A) operating income divided by sales. 
B) operating income divided by average operating assets. 
C) sales divided by average operating assets. 
D) operating asset turnover divided by the operating income margin.

Question 18

The Women's Wear of Bigelow Department Store had a net income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12 percent. Sales for the period totaled $3,000,000. The residual income for the period is

Accepted Answer

A) $480,000. 
B) $80,000. 
C) $120,000. 
D) $360,000. 
A) $480,000. 
B) $80,000. 
C) $120,000. 
D) $360,000.

Question 19

One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.

Accepted Answer

A) True 
 B)False

Question 20

Cornwall Company has two divisions, A and B. Information for each division is as follows: $\begin{array}{lrr}&A&B\
\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \
\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \
\text { Target rate of return } & 15 \% & 18 \% \
\text { Margin } & 10 \% & 20 \% \
\text { Weighted average cost of capital } & 12 \% & 12 \%
\end{array}$ What is the return on investment for A?

Accepted Answer

A) 18% 
B) 40% 
C) 20% 
D) 15% 
A) 18% 
B) 40% 
C) 20% 
D) 15%

A manufacturing division of a company would most likely be evaluated as a(n)

Which of the following is a disadvantage of both residual income and ROI?

In an investment responsibility center, the manager is only responsible for costs.

Return on investment (ROI) refers to earnings before interest and income taxes.

A transfer price is the price charged by one division of a company to another company.

Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.

Economic value added is calculated by which of the following formulas?

How do the differences between centralization and decentralization affect decision making? Why would a Company decentralize its operations?

Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.

When top management controls the major functions of an organization it is called:

__________ is after-tax operating profit minus the total annual cost of capital.

Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is

The return on investment is computed as

The Women's Wear of Bigelow Department Store had a net income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12 percent. Sales for the period totaled $3,000,000. The residual income for the period is

One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 10: Decentralization: Responsibility Accounting, Performance

A manufacturing division of a company would most likely be evaluated as a(n)

Which of the following is a disadvantage of both residual income and ROI?

In an investment responsibility center, the manager is only responsible for costs.

Return on investment (ROI) refers to earnings before interest and income taxes.

A transfer price is the price charged by one division of a company to another company.

Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.

Economic value added is calculated by which of the following formulas?

How do the differences between centralization and decentralization affect decision making? Why would a Company decentralize its operations?

Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.

When top management controls the major functions of an organization it is called:

__________ is after-tax operating profit minus the total annual cost of capital.

Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is

The return on investment is computed as

The Women's Wear of Bigelow Department Store had a net income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12 percent. Sales for the period totaled $3,000,000. The residual income for the period is

One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters