Question 1

Why might it be misleading to compare the ROI of international divisions?

Accepted Answer

A) the absence of activity-based management 
B) differing production technologies 
C) the lack of good information 
D) differing environmental factors 
A) the absence of activity-based management 
B) differing production technologies 
C) the lack of good information 
D) differing environmental factors D

Question 2

Bernie Manufacturing Company has two divisions,X and Y.Division X prepares the steel for processing.Division Y processes the steel into the final product.No inventories exist in either division at the beginning or end of the current year.During the year,Division X prepared 80,000 kgs.of steel at a cost of $800,000.All the steel was transferred to Division Y where additional operating costs of $5 per kg.were incurred.The final product was sold for $3,000,000.
a.Determine the gross profit for each division and for the company as a whole if the transfer price is $8 per kg.
b.Determine the gross profit for each division and for the company as a whole if the transfer price is $12 per kg.

Accepted Answer

a.
$\begin{array}{lccc}
&\underline{\text { Division } X} & \underline{\text { Division } Y} &\underline{ \text { Total }}\
 \text { Sales } & \$ 640,000 & \$ 3,000,000 & \$ 3,640,000 \
 \text { Cost of goods sold } & 800,000 & \underline{1,040,000} * & 1,840,000 \
 \text { Gross profit } & \underline{\underline{\$(160,000})} & \$ \underline{\underline{\$ 1,960,000}} & \$ 1,800,000 \

\end{array}$

$* \$ 640,000 + \$ 5 ( 80,000 )$

b.
$\begin{array}{lccc}
&\underline{\text { Division } X} & \underline{\text { Division } Y} &\underline{ \text { Total }}\
 \text { Sales } & \$ 960,000 & \$ 3,000,000 & \$ 3,960,000 \
 \text { Cost of goods sold } & 800,000 & \underline{1,360,000} \text { * } & \underline{2,160,000} \
 \text { Gross profit } & \$ 160,000 & \$ 1,640,000 & \$ 1,800,000 \

\end{array}$

$* \$ 960,000+\$ 5(80,000)$

Question 3

Which of the following is an example of an investment centre?

Accepted Answer

A) a production department 
B) a company 
C) a marketing department 
D) a credit department 
A) a production department 
B) a company 
C) a marketing department 
D) a credit department B

Question 4

It is important to separate the evaluation of a manager from the evaluation of his or her division in a multinational firm.What should be omitted from manager's evaluation?

Accepted Answer

A) revenues 
B) income taxes 
C) operating costs 
D) cost of goods sold 
A) revenues 
B) income taxes 
C) operating costs 
D) cost of goods sold

Question 5

Stevens Company has two divisions that report on a decentralized basis.Their results for the current year were as follows:
$$\begin{array} { l c c } 
& \text { Halmet } & \text { Ball } \
\text { Sales } & \$ 150,000 & \$ 300,000 \
\text { Income } & \$ 15,000 & \$ 45,000 \
\text { Asset base }  & \$ 7,000 & \$ 150,000 \
\text { Weighted average cost of capital }& 12 \% & 12 \%
\end{array}$$  Compute the following amounts for each division: 
a.Return on investment (ROI)if the desired rate of return is 12 percent.
b.Residual income if the desired rate of return is 20 percent.
c.EVA.
d.Turnover.
e.Margin for each division.

Accepted Answer

a.Helmet Division: ROI = $15,000/$75,000

Question 6

How is return on investment (ROI)calculated?

Accepted Answer

A) operating income divided by sales 
B) operating income divided by average operating assets 
C) sales divided by average operating assets 
D) operating asset turnover divided by the operating income margin 
A) operating income divided by sales 
B) operating income divided by average operating assets 
C) sales divided by average operating assets 
D) operating asset turnover divided by the operating income margin

Question 7

Under what conditions are multiple measures of performance beneficial?

Accepted Answer

A) if they are all financial measures 
B) if they include nonfinancial operating measures 
C) if they focus only on short-run factors 
D) if they focus only on continuous improvement 
A) if they are all financial measures 
B) if they include nonfinancial operating measures 
C) if they focus only on short-run factors 
D) if they focus only on continuous improvement

Question 8

The Auto Division of Big Department Store had a net income of $560,000,a net asset base of $4,000,000,and a required rate of return of 12 percent.Sales for the period totalled $3,000,000.What is the residual income for the period?

Accepted Answer

A) $80,000 
B) $120,000 
C) $360,000 
D) $480,000 
A) $80,000 
B) $120,000 
C) $360,000 
D) $480,000

Question 9

Which of the following is a disadvantage of ROI?

Accepted Answer

A) It discourages managers from investing in projects that would decrease their ROI. 
B) It discourages managers from paying careful attention to the relationships among sales,expenses,and investment. 
C) It discourages cost efficiency. 
D) It discourages excessive investment in operating assets. 
A) It discourages managers from investing in projects that would decrease their ROI. 
B) It discourages managers from paying careful attention to the relationships among sales,expenses,and investment. 
C) It discourages cost efficiency. 
D) It discourages excessive investment in operating assets.

Question 10

What defines the bargaining range?

Accepted Answer

A) market price and the minimum transfer price 
B) market price and the maximum transfer price 
C) the minimum transfer price and the maximum transfer price 
D) the negotiated transfer price and the market price 
A) market price and the minimum transfer price 
B) market price and the maximum transfer price 
C) the minimum transfer price and the maximum transfer price 
D) the negotiated transfer price and the market price

Question 11

O'Neil Company requires a return on capital of 15 percent.The following information is available for the current year:
    
a.Compute return on investment using both book and current values for each division.(Round answer to three decimal places.)
b.Compute residual income for both book and current values for each division.
c.Does book value or current value provide the better basis for performance evaluation?
d.Which division do you consider the most successful?

Accepted Answer

@#IMG-DLM& 
c.When available,current values are th

Question 12

The following information pertains to the three divisions of Marlow Company: $\begin{array}{lrrr}
& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Return on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What is the residual income for Division X?

Accepted Answer

A) $(36,000) 
B) $(9,000) 
C) $36,000 
D) $45,000 
A) $(36,000) 
B) $(9,000) 
C) $36,000 
D) $45,000

Question 13

If the National Division of Canadian Products Company had a turnover ratio of 4.2 and a margin of 0.10,what would be the return on investment?

Accepted Answer

A) 23.8% 
B) 42.0% 
C) 238.0% 
D) 420.0% 
A) 23.8% 
B) 42.0% 
C) 238.0% 
D) 420.0%

Question 14

What exists when the major functions of an organization are controlled by top management?

Accepted Answer

A) decentralization 
B) centralization 
C) optimization 
D) participation 
A) decentralization 
B) centralization 
C) optimization 
D) participation

Question 15

What is an example of goal incongruence?

Accepted Answer

A) an incentive plan arranged so the managers' goals are allied with the shareholders' goals 
B) managers operating the business in the best interest of the shareholders 
C) tying management rewards to shareholder results 
D) offering a divisional manager a bonus exclusively for increasing the divisional ROI 
A) an incentive plan arranged so the managers' goals are allied with the shareholders' goals 
B) managers operating the business in the best interest of the shareholders 
C) tying management rewards to shareholder results 
D) offering a divisional manager a bonus exclusively for increasing the divisional ROI

Question 16

Provide the missing data in the following situations:
$\begin{array}{lrrr}
&\text { Sigma } & \text { Tau } & \text { Gamma } \
&\text { Division } & \text { Division } & \text { Division }\
\text { Sales } & \$(\mathrm{a}) & \$ 250,000 & \$(\mathrm{~g}) \
\text { Operating assets } & \$(\mathrm{~b}) & \$(\mathrm{~d}) & \$ 800,000 \
\text { Net operating income } & \$ 400,000 & \$ 10,000 & \$ 144,000 \
\text { Margin } & 0.08 & (\mathrm{e}) & 0.12 \
\text { Turnover } & (\mathrm{c}) & (\mathrm{f}) & 1.5 \
\text { Return on investment } & 16 \% & 10 \% & (\mathrm{~h})
\end{array}$

Accepted Answer

a. @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM&@#LAT-DLM&

b. @#LAT-DLM&@#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM&@#LAT-DLM&

Question 17

Which of the following would be a reason for decentralization?

Accepted Answer

A) Managers will make decisions for their own benefit,rather than the organization's benefit. 
B) Upper-level managers have better access to information. 
C) Upper management can spend more time focusing on strategic planning and decision making. 
D) Lower-level managers with decision-making ability are less motivated. 
A) Managers will make decisions for their own benefit,rather than the organization's benefit. 
B) Upper-level managers have better access to information. 
C) Upper management can spend more time focusing on strategic planning and decision making. 
D) Lower-level managers with decision-making ability are less motivated.

Question 18

What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?

Accepted Answer

A) the negotiated transfer price 
B) the minimum transfer price 
C) the maximum transfer price 
D) the coordinated transfer price 
A) the negotiated transfer price 
B) the minimum transfer price 
C) the maximum transfer price 
D) the coordinated transfer price

Question 19

What type of responsibility centre would a manufacturing division of a company most likely be evaluated as?

Accepted Answer

A) cost centre 
B) investment centre 
C) revenue centre 
D) asset centre 
A) cost centre 
B) investment centre 
C) revenue centre 
D) asset centre

Question 20

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } 
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure. The Engine Division has excess capacity.What is the best transfer price to avoid transfer price problems?

Accepted Answer

A) $300 
B) $900 
C) $1,350 
D) $2,100 
A) $300 
B) $900 
C) $1,350 
D) $2,100

Why might it be misleading to compare the ROI of international divisions?

Which of the following is an example of an investment centre?

It is important to separate the evaluation of a manager from the evaluation of his or her division in a multinational firm.What should be omitted from manager's evaluation?

How is return on investment (ROI)calculated?

Under what conditions are multiple measures of performance beneficial?

The Auto Division of Big Department Store had a net income of $560,000,a net asset base of $4,000,000,and a required rate of return of 12 percent.Sales for the period totalled $3,000,000.What is the residual income for the period?

Which of the following is a disadvantage of ROI?

What defines the bargaining range?

If the National Division of Canadian Products Company had a turnover ratio of 4.2 and a margin of 0.10,what would be the return on investment?

What exists when the major functions of an organization are controlled by top management?

What is an example of goal incongruence?

Which of the following would be a reason for decentralization?

What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?

What type of responsibility centre would a manufacturing division of a company most likely be evaluated as?

A: Basic Cost Management Concepts

B: Basic Cost Management Concepts

Cost Behaviour

Cost-Volume-Profit Analysis

Job-Order Costing Systems

Process Costing

Activity-Based Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Tactical Decision Making

Pricing and Profitability Analysis

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Inventory Management: Economic Order Quantity,jit,and the Theory of Constraints

Filters

Exam 10: Responsibility Accounting,performance Evaluation,and Transfer Pricing

Why might it be misleading to compare the ROI of international divisions?

Which of the following is an example of an investment centre?

It is important to separate the evaluation of a manager from the evaluation of his or her division in a multinational firm.What should be omitted from manager's evaluation?

How is return on investment (ROI)calculated?

Under what conditions are multiple measures of performance beneficial?

The Auto Division of Big Department Store had a net income of $560,000,a net asset base of $4,000,000,and a required rate of return of 12 percent.Sales for the period totalled $3,000,000.What is the residual income for the period?

Which of the following is a disadvantage of ROI?

What defines the bargaining range?

If the National Division of Canadian Products Company had a turnover ratio of 4.2 and a margin of 0.10,what would be the return on investment?

What exists when the major functions of an organization are controlled by top management?

What is an example of goal incongruence?

Which of the following would be a reason for decentralization?

What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?

What type of responsibility centre would a manufacturing division of a company most likely be evaluated as?

A: Basic Cost Management Concepts

B: Basic Cost Management Concepts

Cost Behaviour

Cost-Volume-Profit Analysis

Job-Order Costing Systems

Process Costing

Activity-Based Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Tactical Decision Making

Pricing and Profitability Analysis

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Inventory Management: Economic Order Quantity,jit,and the Theory of Constraints

Filters