Exam 8: Performance Evaluation for Decentralized Operations

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

The excess of divisional income from operations over a minimum acceptable income from operations is termed the residual income.

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

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

Which of the following expenses incurred by a department store is an indirect expense?

The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the rate of return on investment, is called

The Nelson Company's radio division currently is purchasing transistors from the 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 they have plenty of capacity to manufacture the units.The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs.What should be the range of a possible transfer price?

For higher levels of management, responsibility accounting reports

If income from operations for a division is $5,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

The negotiated price approach allows the managers of decentralized units to agree on the transfer price.

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

Heart Company has two divisions.Division A is interested in purchasing 10,000 units from Division B.Capacity is available for Division B to produce these units.The per-unit market price is $30 per unit, with a variable cost of $25.The manager of Division A has offered to purchase the units at $22 per unit.In an effort to make this transfer price beneficial for the company as a whole, what is the range of prices that should be used during negotiations between the two divisions?

Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $33,000 and a desired minimum rate of return of 7.5%.The rate of return on investment for Blaser Corporation is

Paduka Industries has several divisions.The Eastern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $151,000.Determine the minimum acceptable rate of return on divisional assets.

What is the profit margin for Division D?

If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%.

Match each of the following phrases as describing a an advantage, b a disadvantage, or c neither of decentralization. -Separate office staff

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

An activity base is used to charge service department expenses.Match each of the following activity bases with the appropriate department a-h. -Number of employees

The profit margin for Central Division is 20% and the investment turnover is 2.8.What is the rate of return on investment for Central Division?