Exam 23: Performance Evaluation for Decentralized Operations

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.

The excess of divisional income from operations over a minimum acceptable income from operations is termed the residual income.

The term used to describe expenses that are incurred by a specific department is

The cost price approach for transfer pricing is most often used between responsibility centers organized as cost centers that are not concerned with the revenue.

How much will Division 3's income from operations increase?

Which of the following formulas is the investment turnover factor as used in determining the rate of return on investment?

What is Clydesdale Company's profit margin?

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

The manager of a profit center does not make decisions concerning the fixed assets invested in the center.

What is the investment turnover for Division A?

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 purchase requisitions

The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

How much will Division A's income from operations increase?

What additional information is needed to calculate the rate of return on investment if income from operations is known?

The investment turnover for Mason is

The approach that required the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the

The minimum acceptable divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Some items are omitted from each of the following condensed divisional income statements of Demi Inc. a) Determine the amount of the missing items, identifying them by letter a-f). b) Based on income from operations, which division is the most profitable?

Paduka Industries has several divisions. The Eastern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $151,000. Determine the minimum acceptable rate of return on divisional assets.

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.