Exam 23: Performance Evaluation for Decentralized Operations

Identify the formula for the rate of return on investment.

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

A portion of the divisional income statement for the year just ended is presented below in condensed form. The operating expenses of Department B include $50,000 for direct expenses. It is estimated that the discontinuance of Department B would not have affected the sales of the other departments nor have reduced the indirect expenses of the business. Assuming the accuracy of these estimates, determine the effect (increase or decrease and amount) on the income from operations of the business if Department B had been discontinued.

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%.

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

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The profit margin for Chicks is:

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The gross profit for the Locomotive Division is:

Some items are omitted from each of the following condensed divisional income statements of Demi Inc.

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What is the service department charge rate for the Accounting Department?

Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the profit margin for Division A?

The minimum amount of desired divisional income from operations is set by top management by establishing a maximum rate of return considered acceptable for invested assets.

Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the profit margin for Division X?

Division X reported income from operations of $975,000 and total service department charges of $575,000. Therefore:

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 3's income from operations increase?

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

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: How much service department cost will be allocated to the Micro Division?

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

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Square Yard Products total income from operations increase?