Exam 24: Evaluating Decentralized Operations

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the year ended December 31 are as follows: a.Prepare condensed income statements for the past year for each division. b.Using the DuPont formula, determine the profit margin, investment turnover, and return on investment (ROI) for each division. Round the profit margin percentage to two decimal places, the investment turnover to four decimal places, and the return on investment to one decimal place.

The entity that pays for the right or license to market another company's goods or services is called the

The right or license granted to an individual or group to market another company's goods or services is called a patent.

The manager of the Furniture Department of a leading retailer does not control the salaries of departmental personnel.

The budget for Department 6 of Cardinal Company for the current month ending March 31 is as follows: During March, the costs incurred in Department 6 of Cardinal Company were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; and maintenance, $9,456. a.Prepare a budget performance report for the supervisor of Department 6 of Cardinal Company for the month of March. b.Are there any significant variances (5% or greater) of the budgeted amounts that should be examined by the supervisor?

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3.00 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.​ -Square Yard Products Inc.'s total operating income will increase by

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

One of the advantages of decentralization is that delegating authority to managers closest to the operation always​ results in better decisions.

The ratio of sales to investment is termed the return on investment.

Division G of Elephant Preservation Inc. has sales of $895,000, cost of goods sold of $475,000, operating expenses of $79,500, and invested assets of $750,000. Round percentages to one decimal place and investment turnover to two decimal places.​ Compute: a. The return on investment for Division G. b. The profit margin for Division G. c. The investment turnover for Division G.

Match each definition that follows with the term (a-e) it defines. -Earned by profit centers A)Controllable revenues B)Profit margin C)Investment turnover D)Return on investments (ROI)e.Residual income

Nelson Company's Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units. The $4.00 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. The range of a possible transfer price should be

A cost driver is used to allocate support department expenses. Match each of the following cost drivers with the appropriate department (a-h). -Number of work orders A)Purchasing B)Payroll Accounting C)Human Resources D)Maintenance E)Information Systems F)Marketing G)President's Office H)Transportation

In a cost center, the manager has responsibility and authority for making decisions that affect

Match each of the following phrases as describing (a) an advantage, (b) a disadvantage, or (c) neither of decentralization. -Responsibilities delegated to unit managers A)Advantage of decentralization B)Disadvantage of decentralization C)Neither an advantage nor a disadvantage

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.

The profit center income statement should include only revenues and expenses that are controlled by the manager.

For higher levels of management, responsibility accounting reports

If operating income for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?