Exam 8: Performance Evaluation for Decentralized Operations

Three measures of investment center performance are income from operations, rate of return on investment, and residual income.

What is the service department charge rate for the Accounting Department?

The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets.This year, the invested assets totaled $475,000, and net income was $275,000.What is the rate of return on assets?

Using the data below for the Ace Guitar Company, determine the divisional income from operations for the A and B regions. Allocate service department expenses proportional to the sales of each region.Round percentage of sales allocation to one decimal place.

The transfer price approach that uses a variety of cost concepts is the

Separation of businesses into more manageable operating units is termed decentralization.

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 purchase requisitions

The sales, income from operations, and invested assets for each division of Grosbeak Company are as follows: a Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division.Round profit margin percentage to two decimal places, investment turnover to four decimal places, and rate of return on investment to one decimal place. b Which division is the most profitable per dollar invested?

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

In evaluating the profit center manager, the income from operations should be compared

The primary accounting tool for controlling and reporting for cost centers is a budget.

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit.However, the same materials are available from Division B.Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. a If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase? b Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division A increase? c Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division B increase? d If the negotiated price approach is used, what would be the range of acceptable transfer prices?

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is

What is the investment turnover for Division A?

The balanced scorecard measures

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum rate of return of 3%.The rate of return on investment for Marshall is

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

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