Question 1

Evaluating segments based on the segment's return on investment will

Accepted Answer

A) encourage each segment's manager to select only projects that are above the company's current return on investment. 
B) encourage each segment's manager to only select projects that are above the individual segment's current return on investment. 
C) encourage each segment's manager to select only projects below the company's required rate of return. 
D) encourage managers to select only projects below the segment's cost of capital. 
A) encourage each segment's manager to select only projects that are above the company's current return on investment. 
B) encourage each segment's manager to only select projects that are above the individual segment's current return on investment. 
C) encourage each segment's manager to select only projects below the company's required rate of return. 
D) encourage managers to select only projects below the segment's cost of capital.

Question 2

Under which one of the following performance evaluation methods will a manager most likely 'overinvest'?

Accepted Answer

A) ROI 
B) Residual income 
C) EVA 
D) Profit 
A) ROI 
B) Residual income 
C) EVA 
D) Profit

Question 3

Economic value added is residual income adjusted for

Accepted Answer

A) noninterest-bearing current liabilities. 
B) interest and the related tax effect. 
C) financing costs that the manager is unable to control. 
D) accounting distortions. 
A) noninterest-bearing current liabilities. 
B) interest and the related tax effect. 
C) financing costs that the manager is unable to control. 
D) accounting distortions.

Question 4

Firms that grant substantial decision-making authority to the managers of subunits are referred to as

Accepted Answer

A) residual organizations. 
B) profit centers. 
C) responsibility organizations. 
D) decentralized organizations. 
A) residual organizations. 
B) profit centers. 
C) responsibility organizations. 
D) decentralized organizations.

Question 5

Return on investment can be improved by increasing net income or increasing the assets invested.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) 0.76 
B) 0.71 
C) 0.83 
D) 0.15 
A) 0.76 
B) 0.71 
C) 0.83 
D) 0.15

Question 7

Hardin Division of WestCo.has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its noninterest-bearing current liabilities are $20,000.What is Hardin Division's investment turnover as it relates to investment center performance evaluation?

Accepted Answer

A) 5.00 
B) 6.25 
C) 1.25 
D) 0.80 
A) 5.00 
B) 6.25 
C) 1.25 
D) 0.80

Question 8

If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the additional investment

Accepted Answer

A) may reduce profit by the cost of the investment. 
B) will decrease the level of assets. 
C) may decrease the return on investment. 
D) may increase investment turnover. 
A) may reduce profit by the cost of the investment. 
B) will decrease the level of assets. 
C) may decrease the return on investment. 
D) may increase investment turnover.

Question 9

Last year, Processor Division of Mathews PC Company earned NOPAT of $200,000 on sales of $2,600,000.The division had invested capital of $1,600,000 with $62,000 of noninterest-bearing current liabilities.How much is the division's return on investment?

Accepted Answer

A) 12.5% 
B) 13.0% 
C) 7.7% 
D) 61.5% 
A) 12.5% 
B) 13.0% 
C) 7.7% 
D) 61.5%

Question 10

The manager of the Beach Division of Treat Time is evaluating the acquisition of a new mobile ice cream server.The budgeted operating income of the Beach Division is currently $2,940,000 with total assets of $28,600,000 and noninterest-bearing current liabilities of $600,000.The proposed investment would add $18,000 to operating income and would require an additional investment of $120,000.The targeted rate of return for the Beach Division is 9 percent.Ignoring taxes, how much is the return on investment of the Beach Division if the ice cream server is purchased?

Accepted Answer

A) 10.52% 
B) 15.00% 
C) 10.56% 
D) 12.75% 
A) 10.52% 
B) 15.00% 
C) 10.56% 
D) 12.75%

Question 11

Why is return on investment better than income as a measure of performance for an investment center?

Accepted Answer

A) The calculation for income is determined by GAAP, while return on investment is adjusted to meet the needs of the company. 
B) Return on investment is easier to calculate than income. 
C) Return on investment considers the amount invested as well as the income. 
D) Return on investment is forward looking, while income is backward looking. 
A) The calculation for income is determined by GAAP, while return on investment is adjusted to meet the needs of the company. 
B) Return on investment is easier to calculate than income. 
C) Return on investment considers the amount invested as well as the income. 
D) Return on investment is forward looking, while income is backward looking.

Question 12

Which of the following performance measures is considered the most sophisticated and is felt to give top management the most comprehensive method of evaluating subunits?

Accepted Answer

A) Balanced scorecard 
B) Return on investment 
C) Economic value added 
D) Net income 
A) Balanced scorecard 
B) Return on investment 
C) Economic value added 
D) Net income

Question 13

If responsibility centers are ranked in order of increasing responsibility, the ranking is

Accepted Answer

A) investment centers, cost centers, profit centers. 
B) cost centers, investment centers, profit centers. 
C) cost centers, profit centers, investment centers. 
D) investment centers, profit centers, cost centers. 
A) investment centers, cost centers, profit centers. 
B) cost centers, investment centers, profit centers. 
C) cost centers, profit centers, investment centers. 
D) investment centers, profit centers, cost centers.

Question 14

Tomlinson Tech has a cost of capital of 8 percent, a required rate of return of 9.5 percent, and an income tax rate of 30 percent.The Consumer Division of Tomlinson Tech has assets totaling $2,800,000 and current liabilities at $180,000 with $40,000 of this amount being interest-bearing.Sales for the year totaled $1,900,000 and interest expense totaled $20,000.Net income was $166,500 for the year.How much is the Consumer Division's NOPAT?

Accepted Answer

A) $180,500 
B) $172,500 
C) $186,500 
D) $152,500 
A) $180,500 
B) $172,500 
C) $186,500 
D) $152,500

Question 15

Which of the following statements is true?
I.Managers have a tendency to overinvest when return on investment is used as a performance measure.
II.Managers have a tendency to underinvest when profit is used as a performance measure.

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 16

Which of the following is not one of the set of dimensions considered in the balanced scorecard?

Accepted Answer

A) Customer 
B) Internal processes 
C) Competition 
D) Learning and growth 
A) Customer 
B) Internal processes 
C) Competition 
D) Learning and growth

Question 17

Economic value added is calculated as the return on investment adjusted for accounting distortions.

Accepted Answer

A) True 
 B)False

Question 18

Why is an adjustment made to net income when calculating NOPAT?

Accepted Answer

A) It is an amount on which income taxes are not considered. 
B) This adjustment amount has no cost of capital associated with it. 
C) Only assets that incur no interest costs are included with NOPAT. 
D) Divisional managers have no ability to control costs such as these. 
A) It is an amount on which income taxes are not considered. 
B) This adjustment amount has no cost of capital associated with it. 
C) Only assets that incur no interest costs are included with NOPAT. 
D) Divisional managers have no ability to control costs such as these.

Question 19

Tomlinson Tech has a cost of capital of 8 percent, a required rate of return of 9.5 percent, and an income tax rate of 30 percent.The Consumer Division of Tomlinson Tech has assets totaling $2,800,000 and current liabilities at $180,000 with $40,000 of this amount being interest-bearing.Sales for the year totaled $1,900,000 and interest expense totaled $20,000.Net income was $166,500 for the year.How much is the Consumer Division's residual income/(loss)?

Accepted Answer

A) ($32,300) 
B) ($72,200) 
C) ($46,300) 
D) None of these answer choices are correct. 
A) ($32,300) 
B) ($72,200) 
C) ($46,300) 
D) None of these answer choices are correct.

Question 20

Hardin Division of WestCo has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its non-interest-bearing current liabilities are $20,000.What is Hardin Division's profit margin as it relates to investment center performance evaluation?

Accepted Answer

A) 8.0% 
B) 6.25% 
C) 5.0% 
D) 6.8% 
A) 8.0% 
B) 6.25% 
C) 5.0% 
D) 6.8%

Evaluating segments based on the segment's return on investment will

Under which one of the following performance evaluation methods will a manager most likely 'overinvest'?

Economic value added is residual income adjusted for

Firms that grant substantial decision-making authority to the managers of subunits are referred to as

Return on investment can be improved by increasing net income or increasing the assets invested.

Hardin Division of WestCo.has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its noninterest-bearing current liabilities are $20,000.What is Hardin Division's investment turnover as it relates to investment center performance evaluation?

If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the additional investment

Last year, Processor Division of Mathews PC Company earned NOPAT of $200,000 on sales of $2,600,000.The division had invested capital of $1,600,000 with $62,000 of noninterest-bearing current liabilities.How much is the division's return on investment?

Why is return on investment better than income as a measure of performance for an investment center?

Which of the following performance measures is considered the most sophisticated and is felt to give top management the most comprehensive method of evaluating subunits?

If responsibility centers are ranked in order of increasing responsibility, the ranking is

Which of the following statements is true? I.Managers have a tendency to overinvest when return on investment is used as a performance measure. II.Managers have a tendency to underinvest when profit is used as a performance measure.

Which of the following is not one of the set of dimensions considered in the balanced scorecard?

Economic value added is calculated as the return on investment adjusted for accounting distortions.

Why is an adjustment made to net income when calculating NOPAT?

Hardin Division of WestCo has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its non-interest-bearing current liabilities are $20,000.What is Hardin Division's profit margin as it relates to investment center performance evaluation?

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

Evaluating segments based on the segment's return on investment will

Under which one of the following performance evaluation methods will a manager most likely 'overinvest'?

Economic value added is residual income adjusted for

Firms that grant substantial decision-making authority to the managers of subunits are referred to as

Return on investment can be improved by increasing net income or increasing the assets invested.

Hardin Division of WestCo.has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its noninterest-bearing current liabilities are $20,000.What is Hardin Division's investment turnover as it relates to investment center performance evaluation?

If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the additional investment

Last year, Processor Division of Mathews PC Company earned NOPAT of $200,000 on sales of $2,600,000.The division had invested capital of $1,600,000 with $62,000 of noninterest-bearing current liabilities.How much is the division's return on investment?

Why is return on investment better than income as a measure of performance for an investment center?

Which of the following performance measures is considered the most sophisticated and is felt to give top management the most comprehensive method of evaluating subunits?

If responsibility centers are ranked in order of increasing responsibility, the ranking is

Which of the following statements is true? I.Managers have a tendency to overinvest when return on investment is used as a performance measure. II.Managers have a tendency to underinvest when profit is used as a performance measure.

Which of the following is not one of the set of dimensions considered in the balanced scorecard?

Economic value added is calculated as the return on investment adjusted for accounting distortions.

Why is an adjustment made to net income when calculating NOPAT?

Hardin Division of WestCo has sales of $300,000 and NOPAT of $15,000.The company's invested capital is $240,000 and its non-interest-bearing current liabilities are $20,000.What is Hardin Division's profit margin as it relates to investment center performance evaluation?

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