Question 1

For what does responsibility accounting hold managers responsible?

Accepted Answer

A) All costs charged to a manager's subunit 
B) All costs charged to a manager's subunit plus a share of company-wide fixed costs 
C) Only the costs that a manager can control 
D) Only the costs that a manager have personally approved 
A) All costs charged to a manager's subunit 
B) All costs charged to a manager's subunit plus a share of company-wide fixed costs 
C) Only the costs that a manager can control 
D) Only the costs that a manager have personally approved

Question 2

The 2017 income statement for the Clothing Division of Tom Ron Surf Company is as follows: $$\begin{array} { l r } 
\text { Sales } & \$ 445,000 \
\text { Operating expenses } & 270,000 \
\text { Net operating income } & 175,000 \
\text { Interest expense } & 35,000 \
\text { Earnings before taxes } & 140,000 \
\text { Income tax expense } ( 30 \% ) & 42,000 \
\text { Net income } & \$ 98,000
\end{array}$$ How much is net operating profit after taxes?

Accepted Answer

A) $108,500 
B) $133,000 
C) $73,500 
D) $122,500 
A) $108,500 
B) $133,000 
C) $73,500 
D) $122,500

Question 3

Why are accounting distortions removed when evaluating performance using EVA?

Accepted Answer

A) To remove amounts that are a free source of financing 
B) To remove amounts that divisional managers are unable to control 
C) To remove the costs of assets that must be capitalized under GAAP 
D) To encourage managers to spend money on elements that will benefit the company in the long run 
A) To remove amounts that are a free source of financing 
B) To remove amounts that divisional managers are unable to control 
C) To remove the costs of assets that must be capitalized under GAAP 
D) To encourage managers to spend money on elements that will benefit the company in the long run

Question 4

Companies evaluate performance of subunits and subunit managers in order to

Accepted Answer

A) identify successful operations. 
B) influence the behavior of managers. 
C) determine areas that need improvement. 
D) All of these answer choices are correct. 
A) identify successful operations. 
B) influence the behavior of managers. 
C) determine areas that need improvement. 
D) All of these answer choices are correct.

Question 5

The Global Division of Station Depot has invested capital of $920,000.If residual income is $4,600 and net operating profit after taxes is $69,000, how much is the cost of capital?

Accepted Answer

A) 7.00% 
B) 6.67% 
C) 7.50% 
D) 8.00% 
A) 7.00% 
B) 6.67% 
C) 7.50% 
D) 8.00%

Question 6

Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper.Information related to the two subsidiaries follows. $\begin{array}{lrr}&\text { Yard Recycling}&\text { Paper Recycling }\
\text { Total assets } & \$ 8,000,000 & \$ 15,000,000 \
\text { Noninterest-bearing current liabilities } & 500,000 & 1,000,000 \
\text { Net income } & 1,500,000 & 2,600,000 \
\text { Interest expense } & 600,000 & 800,000 \
\text { Required rate of return } & 8 \% & 11 \% \
\text { Cost of capital } & 7 \% & 9 \% \
\text { Tax rate } & 30 \% & 32 \%
\end{array}$ How much is the return on investment for the Paper Recycling Division?

Accepted Answer

A) 19.65% 
B) 20.40% 
C) 22.46% 
D) 14.69% 
A) 19.65% 
B) 20.40% 
C) 22.46% 
D) 14.69%

Question 7

Using NOPAT as 'income' in the residual income model is appropriate because managers do not control the choice of using debt versus equity financing for the assets invested in their division.

Accepted Answer

A) True 
 B)False

Question 8

Consider the following information for Haley and Morris, Inc. $\begin{array}{lrr}&\text { December } 31\&2017&2018\
\text { Total assets } & \$ 40,000,000 & \$ 50,000,000 \
\text { Noninterest-bearing current liabilities } & 800,000 & 1,400,000 \
\text { Net income } & 2,600,000 & 3,400,000 \
\text { Interest expense } & 300,000 & 400,000 \
\text { Tax rate } & 30 \% & 30 \%
\end{array}$ How much is the return on investment for 2018?

Accepted Answer

A) 7.57% 
B) 7.24% 
C) 6.42% 
D) 7.82% 
A) 7.57% 
B) 7.24% 
C) 6.42% 
D) 7.82%

Question 9

Western Electric reported the following results for 2017: $$\begin{array} { l r } 
\text { Sales } & \$ 8,400,000 \
\text { Investment turnover } & 2.5 \
\text { Return on investment } & 12 \%
\end{array}$$ Given this information, how much is the company's NOPAT?

Accepted Answer

A) $1,008,000 
B) $2,520,000 
C) $403,200 
D) $3,360,000 
A) $1,008,000 
B) $2,520,000 
C) $403,200 
D) $3,360,000

Question 10

In a decentralized organization, performance evaluations encourage managers to behave as if their own personal goals are congruent with the goals of the company as a whole.

Accepted Answer

A) True 
 B)False

Question 11

A profit margin of 12 percent indicates that each dollar of assets invested generated 12 cents of profit.

Accepted Answer

A) True 
 B)False

Question 12

Last year, Green Thumb's Residential Division reported sales of $950,000, interest expense of $100,000, and net income of $126,000.The company's tax rate is 30 percent, and it has an 8 percent cost of capital and a 9 percent required rate of return.Residential Division has noninterest-bearing current liabilities that total $75,000 and it has total assets of $820,000.How much is the Residential Division's residual income/(loss)?

Accepted Answer

A) $136,400 
B) $128,950 
C) $96,400 
D) ($3,600) 
A) $136,400 
B) $128,950 
C) $96,400 
D) ($3,600)

Question 13

Evaluating the performance of a subunit is the same as evaluating the performance of the subunit manager.

Accepted Answer

A) True 
 B)False

Question 14

One of the primary tools for evaluating the performance of investment centers is residual income.

Accepted Answer

A) True 
 B)False

Question 15

A cost center

Accepted Answer

A) is responsible for generating profit. 
B) should be evaluated using return on investment to best motivate managers. 
C) places its managers responsible for all costs under their control. 
D) requires a set of performance measures that are more complex than those for an investment center. 
A) is responsible for generating profit. 
B) should be evaluated using return on investment to best motivate managers. 
C) places its managers responsible for all costs under their control. 
D) requires a set of performance measures that are more complex than those for an investment center.

Question 16

Cost centers, profit centers, and investment centers are all responsible for controlling costs in the respective subunit.

Accepted Answer

A) True 
 B)False

Question 17

The manager of the West Division of Beach Clothing Company is evaluating the acquisition of a new embroidery machine.The budgeted operating income of the West Division was $4,000,000 with total assets of $22,000,000 and noninterest-bearing current liabilities of $1,000,000.The proposed investment would add $750,000 to operating income and would require an additional investment of $3,500,000.The targeted rate of return for the West Division is 14 percent and the cost of capital is 9 percent.Ignoring taxes, how much is the residual income of the West division if the embroidery machine is not purchased?

Accepted Answer

A) $202,000 
B) $1,930,000 
C) $2,110,000 
D) $1,060,000 
A) $202,000 
B) $1,930,000 
C) $2,110,000 
D) $1,060,000

Question 18

Global Division of Food National Distribution's economic value added for 2017 was $1,600.The company's cost of capital for the year was 16 percent and the company's adjusted net operating profit after taxes (NOPAT) was $3,500.How much is the amount of the Global Division's invested capital after adjustment for accounting distortions when calculating EVA?

Accepted Answer

A) $31,875 
B) $21,875 
C) $11,875 
D) $41,875 
A) $31,875 
B) $21,875 
C) $11,875 
D) $41,875

Question 19

The following information is reported for the current year for North Atlantic Division of XT Enterprises: $$\begin{array} { l r } 
\text { Sales } & \$ 3,800,000 \
\text { Interest expense } & \$ 250,000 \
\text { Net income } & \$ 500,000 \
\text { Total assets } & \$ 5,000,000 \
\text { Noninterest-bearing current liabilities } & \$ 400,000 \
\text { Cost of capital } & 8 \% \
\text { Required rate of return } & 14 \% \
\text { Tax rate } & 30 \%
\end{array}$$ How much is the division's residual income?

Accepted Answer

A) $31,000 
B) $275,000 
C) $644,000 
D) $307,000 
A) $31,000 
B) $275,000 
C) $644,000 
D) $307,000

Question 20

Canal Tower is a division of Sounder Products.For the most recent year, Canal Tower had net income of $16,000,000.Included in income was interest expense of $1,200,000.The operation's tax rate is 40 percent.Total assets of Canal Tower are $225,000,000, current liabilities are $40,000,000, of which $35,000,000 are noninterest-bearing.How much is return on investment for Canal Tower?

Accepted Answer

A) 8.0% 
B) 8.8% 
C) 9.1% 
D) 7.4% 
A) 8.0% 
B) 8.8% 
C) 9.1% 
D) 7.4%

For what does responsibility accounting hold managers responsible?

Why are accounting distortions removed when evaluating performance using EVA?

Companies evaluate performance of subunits and subunit managers in order to

The Global Division of Station Depot has invested capital of $920,000.If residual income is $4,600 and net operating profit after taxes is $69,000, how much is the cost of capital?

Using NOPAT as 'income' in the residual income model is appropriate because managers do not control the choice of using debt versus equity financing for the assets invested in their division.

Western Electric reported the following results for 2017: Sales \ 8,400,000 Investment turnover 2.5 Return on investment 12\% Given this information, how much is the company's NOPAT?

In a decentralized organization, performance evaluations encourage managers to behave as if their own personal goals are congruent with the goals of the company as a whole.

A profit margin of 12 percent indicates that each dollar of assets invested generated 12 cents of profit.

Evaluating the performance of a subunit is the same as evaluating the performance of the subunit manager.

One of the primary tools for evaluating the performance of investment centers is residual income.

A cost center

Cost centers, profit centers, and investment centers are all responsible for controlling costs in the respective subunit.

Managerial Accounting in the Information Age

Job-Order Costing for Manufacturing and Service Companies

Process Costing

Cost-Volume-Profit Analysis

Variable Costing

Cost Allocation and Activity-Based Costing

The Use of Cost Information in Management Decision Making

Pricing Decisions

Capital Budgeting Decisions

Budgetary Planning and Control

Standard Costs and Variance Analysis

Statement of Cash Flows

Analyzing Financial Statements: a Managerial Perspective

Filters

Exam 12: Decentralization and Performance Evaluation

For what does responsibility accounting hold managers responsible?

Why are accounting distortions removed when evaluating performance using EVA?

Companies evaluate performance of subunits and subunit managers in order to

The Global Division of Station Depot has invested capital of $920,000.If residual income is $4,600 and net operating profit after taxes is $69,000, how much is the cost of capital?

Using NOPAT as 'income' in the residual income model is appropriate because managers do not control the choice of using debt versus equity financing for the assets invested in their division.

Western Electric reported the following results for 2017: Sales \ 8,400,000 Investment turnover 2.5 Return on investment 12\% Given this information, how much is the company's NOPAT?

In a decentralized organization, performance evaluations encourage managers to behave as if their own personal goals are congruent with the goals of the company as a whole.

A profit margin of 12 percent indicates that each dollar of assets invested generated 12 cents of profit.

Evaluating the performance of a subunit is the same as evaluating the performance of the subunit manager.

One of the primary tools for evaluating the performance of investment centers is residual income.

A cost center

Cost centers, profit centers, and investment centers are all responsible for controlling costs in the respective subunit.

Managerial Accounting in the Information Age

Job-Order Costing for Manufacturing and Service Companies

Process Costing

Cost-Volume-Profit Analysis

Variable Costing

Cost Allocation and Activity-Based Costing

The Use of Cost Information in Management Decision Making

Pricing Decisions

Capital Budgeting Decisions

Budgetary Planning and Control

Standard Costs and Variance Analysis

Statement of Cash Flows

Analyzing Financial Statements: a Managerial Perspective

Filters