Exam 23: Performance Evaluation for Decentralized Operations

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the year ended December 31, are as follows: a) Prepare condensed income statements for the past year for each division. b) Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division. Round the profit margin percentage to two decimal places and investment turnover to four decimal places.

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

What is Clydesdale Company's rate of return on investment?

It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

Office salaries expense for a department store is an indirect expense.

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the

Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.

The negotiated price approach allows the managers of decentralized units to agree on the transfer price.

The costs of services charged to a profit center on the basis of its use of those services are

Depreciation expense on store equipment for a department store is an indirect expense.

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

The profit margin for Division C is 6% and the investment turnover is 1.2. What is the rate of return on investment for Division B?

Match each of the following phrases as describing a) an advantage, b) a disadvantage, or c) neither of decentralization. -Separate sales forces

A department store apportions payroll costs on the basis of the number of payroll checks issued. Accounting costs are apportioned on the basis of the number of reports. The payroll costs for the year were $231,000, and the accounting costs for the year totaled $75,500. The departments and the number of payroll checks and accounting reports for each are as follows: Determine the amount of a) payroll cost and b) accounting cost to be apportioned to each department.

Match each definition that follows with the term a-e) it defines. -Earned by profit centers

Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

Which is the best example of a decentralized operation?

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h). -Number of miles