Exam 14: Performance Evaluation for Decentralized Operations

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

The manager of a cost center has the responsibility for making decisions affecting:

If divisional operating income is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income would be $32,000.

Materials used by Meeta-Products Inc.in producing Division A's product are currently purchased from outside suppliers at a cost of $12 per unit.However, the same materials are available from Division B.Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $7 per unit.A transfer price of $9 per unit is established, and 35,000 units of material are transferred with no reduction in Division B's current sales. How much would Meeta-Products total operating income increase?

The three common types of responsibility centers are referred to as asset centers, liabilities centers, and equity centers.

Service department charges are similar to the expenses that would be incurred if the profit center purchased the services from outside the company.

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

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

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: Northern Southern Corporate Division Division Total Cost of goods sold \ 310,000 \ 175,000 Direct operating expenses 250,000 115,000 Net sales 600,000 410,000 Interest expense \ 12,000 General overhead 101,000 Income tax 26,700 ? The net income for Globe Corporation is:

The financial performance of responsibility centers is evaluated in the balanced scorecard under the financial section of the scorecard.

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Which of the following would not be considered as an internal centralized service department?

Division Z of Stark Inc.has a rate of return on investment of 17% and a profit margin of 9%.What is its investment turnover?

Assume that divisional operating income amounts to $325,000 and top management has established 10% as the minimum rate of return on divisional assets totaling $1,250,000.The residual income for the division is:

Materials used by Meeta-Products Inc.in producing Division A's product are currently purchased from outside suppliers at a cost of $12 per unit.However, the same materials are available from Division B.Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $7 per unit.A transfer price of $9 per unit is established, and 35,000 units of material are transferred with no reduction in Division B's current sales. How much would Division A's operating income increase?

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

A responsibility center in which the authority and responsibility for costs and revenues is vested on the department manager is termed an investment center.

Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar.

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