Exam 24: Performance Evaluation for Decentralized Operations

The major shortcoming of income from operations as an investment center performance measure is that it ignores the amount of revenues earned by the center.

What additional information is needed to find the rate of return on investment if income from operations is known?

Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets?

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 would be allocated to the Macro Division?

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much would Jefferson's total income from operations increase?

The ratio of sales to invested assets is termed the investment turnover component of the rate of return on investment.

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

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 Rails Division is:

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the profit margin?

Assume that Division J has achieved income from operations of $165,000 using $900,000 of invested assets. If management desires a minimum rate of return of 11%, the residual income is:

The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's investment turnover?

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 would be allocated to the Super Division?

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses.

The sales, income from operations, and invested assets for each division of Wren Company are as follows: Management has established a minimum rate of return for invested assets of 8%.

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The profit margin for Mason is:

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?

Pacific Division for Bean Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit margin?

It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

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?