Exam 14: Performance Evaluation for Decentralized Operations

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets.If management desires a minimum rate of return of 12%,the profit margin would be:

Income from operations of the Commercial Aviation Division is $3,300,000.If income from operations before service department charges is $3,900,000:

The excess of divisional income from operations over a minimum acceptable divisional income from operations is termed:

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

The major shortcoming of using income from operations as an investment center performance measure is that,it ignores the amount of assets invested in each center.

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

The rates at which services are charged to each division are called service department charge rates.

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also to the total magnitude of income from operations earned by each division.

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Which type of organization would be most effective for a small owner/manager-operated business?

In the rate of return on investment analysis,the investment turnover component focuses on the efficiency in the use of assets and indicates the number of sales dollar generated for each dollar of invested assets.

By using the rate of return on investment as a divisional performance measure,divisional managers will always be motivated to invest in proposals that will increase the overall rate of return for the company.

Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the investment turnover would be 5.0.

In large businesses,decentralization is often advantageous because:

The excess of divisional income from operations over a minimum amount of desired income from operations is termed residual income.

Which of the following is a disadvantage of decentralized operation?

In a profit center,the department manager has responsibility for and the authority to make decisions that affect:

The objective of transfer pricing is to encourage each division's manager to transfer goods and services in such a manner that will increase the overall company income.

A decentralized business organization is one in which all major planning and operating decisions are made by top management.