Exam 14: Performance Evaluation for Decentralized Operations

Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

Division I of Norris Company has a rate of return on investment of 28% and a profit margin of 20%. What is the investment turnover?

Responsibility accounting reports for profit centers will include:

The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

Which of the following is used to measure a manager's performance working in a profit center?

The service department will determine its service department charge rate and charge the company's divisions or departments based on the usage of the service by each department.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover would be 5.0.

The ratio of income from operations to sales is termed the profit margin, a component of the rate of return on investment.

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets. If management desires a minimum rate of return of 12%, the profit margin would be:

Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases.

Which of the following would not be considered as an internal centralized service department?

Responsibility accounting reports for profit centers are normally in the form of balance sheets.

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Depreciation expense on store equipment for a department store is a direct expense.

The balanced scorecard measures:

Service department charges are similar to the expenses that would be incurred if the profit center purchased the services from outside the company.

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

The ratio of sales to invested assets is termed investment turnover.

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

Materials used by Beta-Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $15 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 $12 per unit. A transfer price of $13 per unit is established, and 50,000 units of material are transferred with no reduction in Division 6's current sales. How much would Beta-Products total income from operations increase?