Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text { Video Division }\\ \text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\ \text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\ \text { Invested capital } & \$ 15,000,000 & \$ 17,500,000 \end{array}$ As it relates to investment center evaluation, how much is the profit margin of the Video Division?

A) 11.4% B) 71.43% C) 60.00% D) 16.00% A) 11.4% B) 71.43% C) 60.00% D) 16.00%

The 2017 income statement for the East Division of Procter Wells Company is as follows: $\begin{array}{lr} \text { Sales } & \$ 1,800,000 \\ \text { Operating expenses } & 1,380,000 \\ \text { Net operating income } & 420,000 \\ \text { Interest expense } & 120,000 \\ \text { Earnings before taxes } & 300,000 \\ \text { Income tax expense }(40 \%) & 120,000 \\ \text { Net income } & \$ 180,000 \\ \hline \end{array}$ This division's invested capital is $4,000,000.How much is the East Division's return on investment?

A) 6.3% B) 5.7% C) 10.5% D) 7.5% A) 6.3% B) 5.7% C) 10.5% D) 7.5%

The following data pertains to the Electronics Division of the Maxwell & Ashley Company: $\begin{array}{lr} \text { Sales } & \$ 1,000,000 \\ \text { Invested capital } & \$ 700,000 \\ \text { Noninterest-bearing current liabilities } & \$ 80,000 \\ \text { Net operating profit after taxes } & \$ 82,000 \\ \text { Minimum required rate of return } & 9 \% \\ \text { Cost of capital } & 7 \% \end{array}$ How much is residual income for the Electronics Division?

A) $19,000 B) $33,000 C) $26,200 D) $38,600 A) $19,000 B) $33,000 C) $26,200 D) $38,600

Exam 12: Decentralization and Performance Evaluation

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: Audio Division Video Division NOPAT \ 1,400,000 \ 2,000,000 Sales \ 10,000,000 \ 12,500,000 Invested capital \ 15,000,000 \ 17,500,000 As it relates to investment center evaluation, how much is the profit margin of the Video Division?

(Multiple Choice)

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Question 61

NOPAT does not hold the investment center manager responsible for

(Multiple Choice)

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Question 62

The 2017 income statement for the East Division of Procter Wells Company is as follows: Sales \ 1,800,000 Operating expenses 1,380,000 Net operating income 420,000 Interest expense 120,000 Earnings before taxes 300,000 Income tax expense (40\%) 120,000 Net income \ 180,000 This division's invested capital is $4,000,000.How much is the East Division's return on investment?

(Multiple Choice)

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Question 63

A balanced scorecard is used to evaluate investment centers.

(True/False)

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Question 64

When performance evaluation is based on return on investment, managers will usually accept projects that yield less than the required rate of return.

(True/False)

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Question 65

Responsibility accounting holds managers responsible for all direct and allocated costs charged to their operational unit.

(True/False)

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(28)

Question 66

Winton Company has three divisions.The Florida Division has a 30 percent tax rate, a 4.5 percent cost of capital, and a 7.5 percent required rate of return.During the fiscal year, the division reported sales of $3,920,000.Interest expense was $120,000 and net income was $122,800.The Florida Division has total assets of $2,950,000 and noninterest-bearing liabilities of $150,000.How much is the Florida Division's invested capital?

(Multiple Choice)

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(26)

Question 67

The following data pertains to the Electronics Division of the Maxwell & Ashley Company: Sales \ 1,000,000 Invested capital \ 700,000 Noninterest-bearing current liabilities \ 80,000 Net operating profit after taxes \ 82,000 Minimum required rate of return 9\% Cost of capital 7\% How much is residual income for the Electronics Division?

(Multiple Choice)

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(33)

Question 68

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 invested capital?

(Multiple Choice)

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Question 69

The Jersey Division of Yankee Products has invested capital of $1,400,000.This division incurred $80,000 in interest expense and $140,000 in income tax expense in 2017.If this division reported a return on investment of 14 percent, how much is net operating profit after taxes?

(Multiple Choice)

4.9/5

(30)

Question 70

Leon Division had interest expense of $94,400.Its income tax rate was 32%.Leon Division generated net income totaling $784,400.With $2,400,000 of assets invested in Leon Division, for how much profit is the Leon Division manager responsible?

(Multiple Choice)

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(32)

Question 71

The four dimensions of performance that are considered in a balanced scorecard are financial, customer, internal processes, and strategy.

(True/False)

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Question 72

Which of the following determines the level of decentralization in a company?

(Multiple Choice)

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Question 73

A strategy map is a diagram of relationships across the four dimensions of a balanced scorecard.

(True/False)

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Question 74

Managers tend to under invest when return on investment is used to evaluate them.

(True/False)

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Question 75

Why is an adjustment made to assets when determining residual income?

(Multiple Choice)

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Question 76

The Pastry Division of Dream Bread has invested capital of $1,300,000.During the past year, the Pastry Division reported sales of $1,200,000 and earned $400,000 of NOPAT.How much return did the Pastry Division generate on each dollar of assets invested in the division?

(Multiple Choice)

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Question 77

Increased motivation of managers is an advantage of decentralization.

(True/False)

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Question 78

Marine Division of Sando Company reported net operating profit after taxes of $27,000 in 2017.The cost of capital was 14 percent and the invested capital was $150,000.Current year R&D expense is $80,000.If R&D had been capitalized, amortization would have been $20,000 for 2017.The income tax rate is 30 percent.How much is adjusted NOPAT to be used in calculating EVA for 2017?

(Multiple Choice)

4.7/5

(32)

Question 79

Return on investment is the ratio of

(Multiple Choice)

4.8/5

(40)

Question 80

Showing 61 - 80 of 136

NOPAT does not hold the investment center manager responsible for

A balanced scorecard is used to evaluate investment centers.

When performance evaluation is based on return on investment, managers will usually accept projects that yield less than the required rate of return.

Responsibility accounting holds managers responsible for all direct and allocated costs charged to their operational unit.

The Jersey Division of Yankee Products has invested capital of $1,400,000.This division incurred $80,000 in interest expense and $140,000 in income tax expense in 2017.If this division reported a return on investment of 14 percent, how much is net operating profit after taxes?

Leon Division had interest expense of $94,400.Its income tax rate was 32%.Leon Division generated net income totaling $784,400.With $2,400,000 of assets invested in Leon Division, for how much profit is the Leon Division manager responsible?

The four dimensions of performance that are considered in a balanced scorecard are financial, customer, internal processes, and strategy.

Which of the following determines the level of decentralization in a company?

A strategy map is a diagram of relationships across the four dimensions of a balanced scorecard.

Managers tend to under invest when return on investment is used to evaluate them.

Why is an adjustment made to assets when determining residual income?

The Pastry Division of Dream Bread has invested capital of $1,300,000.During the past year, the Pastry Division reported sales of $1,200,000 and earned $400,000 of NOPAT.How much return did the Pastry Division generate on each dollar of assets invested in the division?

Increased motivation of managers is an advantage of decentralization.

Return on investment is the ratio of

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

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