Exam 8: Performance Evaluation for Decentralized Operations

The Magnolia Company Division A has income from operations of $80,000 and assets of $400,000. The minimum acceptable rate of return on assets is 12%. What is the residual income for the division?

Two divisions of Central Company (Divisions X and Y) have the same profit margins. Division X's investment turnover is larger than that of Division Y (1.2 to 1.0). Income from operations for Division X is $55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment than Division Y by:

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?

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 rate of return on investment for Division X?

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:

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.

The materials used by the Holly Company Division A are currently purchased from outside supplier. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The normal price that Division B normally sells its units is $53 per unit. What is the range of transfer prices that the two division managers should negotiate?

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

Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar.

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:

Most manufacturing plants are considered cost centers because they have control over

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

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department.

A department store apportions payroll costs on the basis of the number of payroll checks issued. Accounting costs are apportioned on the basis of the number of reports. The payroll costs for the year were $231,000 and the accounting costs for the year totaled $75,500. The departments and the number of payroll checks and accounting reports for each are as follows:

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

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 will the income of the Micro Division be after all service department allocations?

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

The profit margin for Division B is 8% and the investment turnover is 1.20. What is the rate of return on investment for Division B?