Question 1

Developing and retaining quality managers is an advantage of decentralization.

Accepted Answer

A) True 
 B)False

Question 2

To calculate income from operations, total service department charges are:

Accepted Answer

A)  added to income from operations before service department charges 
B)  subtracted from operating expenses 
C)  subtracted from income from operations before service department charges 
D)  subtracted from gross profit margin 
A)  added to income from operations before service department charges 
B)  subtracted from operating expenses 
C)  subtracted from income from operations before service department charges 
D)  subtracted from gross profit margin

Question 3

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

Accepted Answer

A) True 
 B)False

Question 4

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

Accepted Answer

A)  the cost price approach 
B)  the negotiated cost approach 
C)  the standard cost approach 
D)  the market price approach 
A)  the cost price approach 
B)  the negotiated cost approach 
C)  the standard cost approach 
D)  the market price approach

Question 5

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 Super Division be after all service department allocations?

Accepted Answer

A)  $300,000 
B)  $325,000 
C)  $550,000 
D)  $200,000 
A)  $300,000 
B)  $325,000 
C)  $550,000 
D)  $200,000

Question 6

The profit center income statement should include only controllable revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

Accepted Answer

A)  a cost center 
B)  a profit center 
C)  an operating center 
D)  an investment center 
A)  a cost center 
B)  a profit center 
C)  an operating center 
D)  an investment center

Question 9

The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.

Accepted Answer

A) True 
 B)False

Question 10

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

Accepted Answer

A) True 
 B)False

Question 11

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?

Accepted Answer

A)  $200,000 
B)  $145,000 
C)  $60,000 
D)  $345,000 
A)  $200,000 
B)  $145,000 
C)  $60,000 
D)  $345,000

Question 12

Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z?

Accepted Answer

A)  $650,000 
B)  $2,516,000 
C)  $2,916,000 
D)  $2,666,000 
A)  $650,000 
B)  $2,516,000 
C)  $2,916,000 
D)  $2,666,000

Question 13

The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

Accepted Answer

A)  10% 
B)  12.5% 
C)  9% 
D)  6% 
A)  10% 
B)  12.5% 
C)  9% 
D)  6%

Question 14

The DuPont formula uses financial information to measure the performance of a business.

Accepted Answer

A) True 
 B)False

Question 15

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 rate of return on investment for Division A?

Accepted Answer

A)  19.3% 
B)  48.0% 
C)  18.7% 
D)  5.47% 
A)  19.3% 
B)  48.0% 
C)  18.7% 
D)  5.47%

Question 16

Which of the following is NOT a disadvantage of decentralized operation?

Accepted Answer

A)  Competition among managers decreases profits 
B)  Duplication of operations 
C)  Price cutting by departments that are competing in the same product market 
D)  Top management freed from everyday tasks to do strategic planning 
A)  Competition among managers decreases profits 
B)  Duplication of operations 
C)  Price cutting by departments that are competing in the same product market 
D)  Top management freed from everyday tasks to do strategic planning

Question 17

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Sales/Income From Operations 
B)  Income From Operations/Sales 
C)  Invested Assets/Sales 
D)  Sales/Invested Assets 
A)  Sales/Income From Operations 
B)  Income From Operations/Sales 
C)  Invested Assets/Sales 
D)  Sales/Invested Assets

Question 20

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2.
   Allocate service department expenses proportional to the sales of each district.

Accepted Answer

% of Sales Allocation:
District 1 = $300

Exam 24: Performance Evaluation for Decentralized Operations

Developing and retaining quality managers is an advantage of decentralization.

To calculate income from operations, total service department charges are:

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

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 Super Division be after all service department allocations?

The profit center income statement should include only controllable revenues and expenses.

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

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

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?

Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z?

The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

The DuPont formula uses financial information to measure the performance of a business.

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 rate of return on investment for Division A?

Which of the following is NOT a disadvantage of decentralized operation?

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

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

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

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2. Allocate service department expenses proportional to the sales of each district.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Differential Analysis and Product Pricing

Capital Investment Analysis

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