Question 1

In evaluating investment center performance,ROI proves to be such a comprehensive performance measure that other performance measures are rarely needed.

Accepted Answer

A) True 
 B)False  False

Question 2

Compute the June 20xx cost of capital (rounded to nearest percent)for an investment center with the following information: $\begin{array}{lr}
\text { Pre-tax operating income for June 20xx } & \$ 17,500,000 \
\text { Assets at June 30, 20xx } & 6,200,000 \
\text { Current liabilities at June 30, 20xx } & 4,000,000 \
\text { Long-term liabilities at June 30, 20xx } & 1,500,000 \
\text { Income tax expense for June 30,20xx } & 5,000,000 \
\text { EVA } & 11,940,000
\end{array}$

Accepted Answer

A)  10 percent 
B)  25 percent 
C)  13 percent 
D)  17 percent 
A)  10 percent 
B)  25 percent 
C)  13 percent 
D)  17 percent B

Question 3

Which of the following represents a basic stakeholder of an organization?

Accepted Answer

A)  The account receivable clerk of the organization 
B)  A vice president of the organization 
C)  A line supervisor of the organization 
D)  All of these choices 
A)  The account receivable clerk of the organization 
B)  A vice president of the organization 
C)  A line supervisor of the organization 
D)  All of these choices D

Question 4

By balancing all stakeholders' needs,managers are more likely to achieve their objectives in

Accepted Answer

A)  the long term. 
B)  the short term. 
C)  the short term as well as the long term. 
D)  all areas of the organization. 
A)  the long term. 
B)  the short term. 
C)  the short term as well as the long term. 
D)  all areas of the organization.

Question 5

Compute the average assets invested for the Hi Ho investment center as shown below. $\begin{array}{lr}
&\text { Hi Ho Subsidiary }\
\text { Total sales } & \$ 20,000 \
\text { Operating income } & \$ 5,000 \
\text { Beginning assets invested } & \$ 14,000 \
\text { Ending assets invested } & \$ 14,600 \
\text { Average assets invested } & \$ ? \
\text { Desired ROI } & 25 \%\
\text { Residual income }&\$?
\end{array}$

Accepted Answer

A)  $14,400 
B)  $14,450 
C)  $14,350 
D)  $14,300 
A)  $14,400 
B)  $14,450 
C)  $14,350 
D)  $14,300

Question 6

Compute the return on investment (rounded to nearest percent)for the Tim Tom investment center as shown below. $\begin{array}{lr}
&\text { Tim Tom Subsidiary }\
\text { Total sales } & \$ 1,600 \
\text { Operating income } & \$ 180 \
\text { Average assets invested } & \$ 900 \
\text { Profit margin } & ? \
\text { Asset turnover } & ? \
\text { ROI } & ?
\end{array}$

Accepted Answer

A)  20% 
B)  17% 
C)  14% 
D)  11% 
A)  20% 
B)  17% 
C)  14% 
D)  11%

Question 7

Residual income is the amount of profit left after subtracting expenses of a particular investment center.

Accepted Answer

A) True 
 B)False

Question 8

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the question below.   What is the direct materials variance between the actual results and the flexible budget?

Accepted Answer

A)  $14 (U) 
B)  $14 (F) 
C)  $30 (U) 
D)  $30 (F) 
A)  $14 (U) 
B)  $14 (F) 
C)  $30 (U) 
D)  $30 (F)

Question 9

Compute the profit margin (rounded to nearest percent)for the Tim Tom investment center as shown below. $\begin{array}{lr}
&\text { Tim Tom Subsidiary }\
\text { Total sales } & \$ 1,600 \
\text { Operating income } & \$ 180 \
\text { Average assets invested } & \$ 900 \
\text { Profit margin } & ? \
\text { Asset turnover } & ? \
\text { ROI } & ?
\end{array}$

Accepted Answer

A)  7% 
B)  9% 
C)  12% 
D)  18% 
A)  7% 
B)  9% 
C)  12% 
D)  18%

Question 10

The manager of Center C is responsible for the online order operations of a large retailer.What type of responsibility center is Center C?

Accepted Answer

A)  Discretionary cost center 
B)  Profit center 
C)  Revenue center 
D)  Investment center 
A)  Discretionary cost center 
B)  Profit center 
C)  Revenue center 
D)  Investment center

Question 11

Which of the following performance measures is most concerned with long-term financial performance?

Accepted Answer

A)  Economic value added 
B)  Residual income 
C)  ROI 
D)  None of these choices 
A)  Economic value added 
B)  Residual income 
C)  ROI 
D)  None of these choices

Question 12

A performance management and evaluation system allows a company to identify how well it is doing,where it is going,and what improvements will make it more profitable.

Accepted Answer

A) True 
 B)False

Question 13

What are some items that can affect an investment center's EVA calculation,and how can EVA be improved?

Accepted Answer

Some items that can affect an investment

Question 14

Provide three examples of something that an organization might want to measure and a performance measurement that could be utilized in each example.

Accepted Answer

Answers will vary.The following are thre

Question 15

A flexible budget is derived by multiplying actual unit output by the standard unit costs.

Accepted Answer

A) True 
 B)False

Question 16

How is the contribution margin calculated when utilizing variable costing?

Accepted Answer

A)  Sales less variable cost of goods sold 
B)  Sales less variable cost of goods sold, less variable selling and administrative expenses 
C)  Sales less cost of goods sold 
D)  Sales less variable cost of goods sold, less variable selling and administrative expenses, less fixed cost of goods sold, less fixed selling and administrative expenses 
A)  Sales less variable cost of goods sold 
B)  Sales less variable cost of goods sold, less variable selling and administrative expenses 
C)  Sales less cost of goods sold 
D)  Sales less variable cost of goods sold, less variable selling and administrative expenses, less fixed cost of goods sold, less fixed selling and administrative expenses

Question 17

As the staff accountant for Investment Centers Beta and Gamma,compute the residual income for each investment center,using the following information:
 $$\begin{array} { | l r r | } 
\hline & \text { Beta } & \text { Gamuma } \
\text { Operating income } & \$ 850,000 & \$ 1,000,000 \
\text { Actual ROI } & 28 \% & 49 \% \
\text { Desired ROI } & 32 \% & 35 \% \
\text { As5ets invested } & \$ 585,000 & \$ 750,000 \
\hline
\end{array}$$

Accepted Answer

Investment Center Beta: $850,0

Question 18

A report for a responsibility center includes costs and revenues that are both controllable and uncontrollable by a manager.

Accepted Answer

A) True 
 B)False

Question 19

Why might stock options not be the best way to promote coordination of goals?

Accepted Answer

A)  Stock prices can fluctuate quickly. 
B)  Many of the variables that affect stock prices are beyond a manager's control. 
C)  Employees generally do not value stock options very highly. 
D)  None of these choices 
A)  Stock prices can fluctuate quickly. 
B)  Many of the variables that affect stock prices are beyond a manager's control. 
C)  Employees generally do not value stock options very highly. 
D)  None of these choices

Question 20

What are some of the limitations of utilizing ROI,residual income,and EVA to measure the performance of investment centers?

Accepted Answer

All three measure focus on short-term fi

Exam 22: Performance Management and Evaluation

In evaluating investment center performance,ROI proves to be such a comprehensive performance measure that other performance measures are rarely needed.

Which of the following represents a basic stakeholder of an organization?

By balancing all stakeholders' needs,managers are more likely to achieve their objectives in

Compute the average assets invested for the Hi Ho investment center as shown below. Hi Ho Subsidiary Total sales \ 20,000 Operating income \ 5,000 Beginning assets invested \ 14,000 Ending assets invested \ 14,600 Average assets invested \ ? Desired ROI 25\% Residual income \?

Compute the return on investment (rounded to nearest percent)for the Tim Tom investment center as shown below. Tim Tom Subsidiary Total sales \ 1,600 Operating income \ 180 Average assets invested \ 900 Profit margin ? Asset turnover ? ROI ?

Residual income is the amount of profit left after subtracting expenses of a particular investment center.

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the question below. What is the direct materials variance between the actual results and the flexible budget?

Compute the profit margin (rounded to nearest percent)for the Tim Tom investment center as shown below. Tim Tom Subsidiary Total sales \ 1,600 Operating income \ 180 Average assets invested \ 900 Profit margin ? Asset turnover ? ROI ?

The manager of Center C is responsible for the online order operations of a large retailer.What type of responsibility center is Center C?

Which of the following performance measures is most concerned with long-term financial performance?

A performance management and evaluation system allows a company to identify how well it is doing,where it is going,and what improvements will make it more profitable.

What are some items that can affect an investment center's EVA calculation,and how can EVA be improved?

Provide three examples of something that an organization might want to measure and a performance measurement that could be utilized in each example.

A flexible budget is derived by multiplying actual unit output by the standard unit costs.

How is the contribution margin calculated when utilizing variable costing?

As the staff accountant for Investment Centers Beta and Gamma,compute the residual income for each investment center,using the following information: Beta Gamuma Operating income \ 850,000 \ 1,000,000 Actual ROI 28\% 49\% Desired ROI 32\% 35\% As5ets invested \ 585,000 \ 750,000

A report for a responsibility center includes costs and revenues that are both controllable and uncontrollable by a manager.

Why might stock options not be the best way to promote coordination of goals?

What are some of the limitations of utilizing ROI,residual income,and EVA to measure the performance of investment centers?

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Contributed Capital

Investments

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

The Changing Business Environment - a Managers Perspective

Cost Concepts and Cost Allocation

Costing Systems- Job Order Costing

Costing Systems- Process Costing

Value-Based Systems- Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Pricing Decisions,incltarget Costing and Transfer Pricing

Quality Management and Measurement

Financial Analysis of Performance

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