Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Accepted Answer

A)  Market price 
B)  Cost price 
C)  Negotiated price 
D)  Variable price 
A)  Market price 
B)  Cost price 
C)  Negotiated price 
D)  Variable price

Question 3

The profit margin, a component of the rate of return on investment, focuses on the profitability by indicating the rate of profit earned on each sales dollar.

Accepted Answer

A) True 
 B)False

Question 4

Sales commissions expense for a department store is an example of a direct expense.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

Accepted Answer

A)  Rate of return on investment 
B)  Negotiated price 
C)  Residual income 
D)  Operating income 
A)  Rate of return on investment 
B)  Negotiated price 
C)  Residual income 
D)  Operating income

Question 6

For higher levels of management, responsibility accounting reports:

Accepted Answer

A)  are more detailed than for lower levels of management. 
B)  are more summarized than for lower levels of management. 
C)  contain almost the same level of detail as reports for lower levels of management. 
D)  are rarely provided or reviewed. 
A)  are more detailed than for lower levels of management. 
B)  are more summarized than for lower levels of management. 
C)  contain almost the same level of detail as reports for lower levels of management. 
D)  are rarely provided or reviewed.

Question 7

The following data are taken from the management accounting reports of Dancer Co.: $$\begin{array} { l r r r } 
& \text { Div. A } & \text { Div. B } & \text { Div. C } \
\text { Operating income } & \$ 1,800,000 & \$ 1,350,000 & \$ 1,900,000 \
\text { Total service department charges } & 1,700,000 & 1,050,000 & 1,100,000
\end{array}$$ ? If an incentive bonus is paid to the manager who achieved the highest operating income before service department charges, it follows that

Accepted Answer

A)  division A's manager is given the bonus. 
B)  division B's manager is given the bonus. 
C)  division C's manager is given the bonus. 
D)  the managers of Divisions B and C divide the bonus. 
A)  division A's manager is given the bonus. 
B)  division B's manager is given the bonus. 
C)  division C's manager is given the bonus. 
D)  the managers of Divisions B and C divide the bonus.

Question 8

The ratio of sales to invested assets is termed the investment turnover, a component of the rate of return on investment.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  $150,000. 
B)  $120,000. 
C)  $295,000. 
D)  $154,400. 
A)  $150,000. 
B)  $120,000. 
C)  $295,000. 
D)  $154,400.

Question 10

The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the revenues of that department.

Accepted Answer

A) True 
 B)False

Question 11

Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets.If the management desires a minimum rate of return of 12% on the invested assets, Division A's residual income would be:

Accepted Answer

A)  $85,000. 
B)  $52,500. 
C)  $81,500. 
D)  $38,000. 
A)  $85,000. 
B)  $52,500. 
C)  $81,500. 
D)  $38,000.

Question 12

The excess of actual operating income over a minimum acceptable operating income is called:

Accepted Answer

A)  net profit. 
B)  gross profit. 
C)  non-operating income. 
D)  residual income. 
A)  net profit. 
B)  gross profit. 
C)  non-operating income. 
D)  residual income.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment computed would be 16.5%.

Accepted Answer

A) True 
 B)False

Question 15

The balanced scorecard measures:

Accepted Answer

A)  only financial information. 
B)  only nonfinancial information. 
C)  both financial and nonfinancial information. 
D)  both external and internal information. 
A)  only financial information. 
B)  only nonfinancial information. 
C)  both financial and nonfinancial information. 
D)  both external and internal information.

Question 16

Division X's profit margin is 17%, and its investment turnover is 4.2.What is the rate of return on investment for Division X?

Accepted Answer

A)  4.0% 
B)  71.4% 
C)  26.8% 
D)  38.2% 
A)  4.0% 
B)  71.4% 
C)  26.8% 
D)  38.2%

Question 17

The sales, operating income, and invested assets for each division of Salem Company are as follows: $$\begin{array} { l r r r } 
& & \text { Operating } & \text { Invested } \
 & \underline { \text { Sales } } & \underline { \text { Income } } & \underline { \text { Assets } } \
\text { Division C } & \$ 4,000,000 & \$ 410,000 & \$ 3,500,000 \
\text { Division D } & 3,500,000 & 600,000 & 4,000,000 \
\text { Division E } & 2,250,000 & 780,000 & 7,000,000
\end{array}$$ ?
Management has established a minimum rate of return for invested assets of 11%.
?
(a)Determine the residual income for each division.
(b)Based on residual income, which division is the most profitable?

Accepted Answer

? (a) Divi

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Depreciation expense--office equipment 
B)  Insurance on inventory of sporting goods 
C)  Uncollectible accounts expense 
D)  Office salaries 
A)  Depreciation expense--office equipment 
B)  Insurance on inventory of sporting goods 
C)  Uncollectible accounts expense 
D)  Office salaries

Question 20

Some organizations use internal service departments to provide services to several divisions or departments within an organization.Which of the following would probably not lend itself as a service department?

Accepted Answer

A)  Inventory Control 
B)  Payroll Accounting 
C)  Information Systems 
D)  Human Resources 
A)  Inventory Control 
B)  Payroll Accounting 
C)  Information Systems 
D)  Human Resources

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

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

The profit margin, a component of the rate of return on investment, focuses on the profitability by indicating the rate of profit earned on each sales dollar.

Sales commissions expense for a department store is an example of a direct expense.

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

For higher levels of management, responsibility accounting reports:

The ratio of sales to invested assets is termed the investment turnover, a component of the rate of return on investment.

The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the revenues of that department.

Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets.If the management desires a minimum rate of return of 12% on the invested assets, Division A's residual income would be:

The excess of actual operating income over a minimum acceptable operating income is called:

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

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment computed would be 16.5%.

The balanced scorecard measures:

Division X's profit margin is 17%, and its investment turnover is 4.2.What is the rate of return on investment for Division X?

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.

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

Some organizations use internal service departments to provide services to several divisions or departments within an organization.Which of the following would probably not lend itself as a service department?

The Role of Accounting in Business

Basic Accounting Systems: Cash Basis

Basic Accounting Systems: Accrual Basis

Accounting for Merchandising Businesses

Internal Control and Cash

Receivables and Inventories

Fixed Assets, Natural Resources, and Intangible Assets

Liabilities and Stockholders Equity

Metric Analysis of Financial Statements

Accounting for Manufacturing Operations

Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Costs

Capital Investment Analysis

Filters

Exam 14: Performance Evaluation for Decentralized Operations

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

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

The profit margin, a component of the rate of return on investment, focuses on the profitability by indicating the rate of profit earned on each sales dollar.

Sales commissions expense for a department store is an example of a direct expense.

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

For higher levels of management, responsibility accounting reports:

The ratio of sales to invested assets is termed the investment turnover, a component of the rate of return on investment.

The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the revenues of that department.

Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets.If the management desires a minimum rate of return of 12% on the invested assets, Division A's residual income would be:

The excess of actual operating income over a minimum acceptable operating income is called:

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

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment computed would be 16.5%.

The balanced scorecard measures:

Division X's profit margin is 17%, and its investment turnover is 4.2.What is the rate of return on investment for Division X?

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.

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

Some organizations use internal service departments to provide services to several divisions or departments within an organization.Which of the following would probably not lend itself as a service department?

The Role of Accounting in Business

Basic Accounting Systems: Cash Basis

Basic Accounting Systems: Accrual Basis

Accounting for Merchandising Businesses

Internal Control and Cash

Receivables and Inventories

Fixed Assets, Natural Resources, and Intangible Assets

Liabilities and Stockholders Equity

Metric Analysis of Financial Statements

Accounting for Manufacturing Operations

Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Costs

Capital Investment Analysis

Filters