Question 1

The ABC Company has three divisions: A Division,B Division,and C Division.   What was B Division's return on investment (ROI)last year?

Accepted Answer

A) 16.00%. 
B) 20.00%. 
C) 24.00%. 
D) 33.75%. 
A) 16.00%. 
B) 20.00%. 
C) 24.00%. 
D) 33.75%.

Question 2

Divisional income statements do not have to follow generally accepted accounting principles (GAAP)because they are internal reports.GAAP is only required for external reports.

Accepted Answer

A) True 
 B)False

Question 3

All other things the same,which of the following would increase residual income?

Accepted Answer

A) Increase in average operating assets. 
B) Decrease in average operating assets. 
C) Increase in minimum required return. 
D) Decrease in net operating income. 
A) Increase in average operating assets. 
B) Decrease in average operating assets. 
C) Increase in minimum required return. 
D) Decrease in net operating income.

Question 4

The use of residual income reduces,but does not eliminate,the suboptimization problem.Suboptimization may still exist since accounting income does not necessarily reflect economic performance.

Accepted Answer

A) True 
 B)False

Question 5

The profit margin ratio is computed by dividing after-tax operating income by sales.This is the definition of the profit margin ratio.

Accepted Answer

A) True 
 B)False

Question 6

The following information is available for Company X:   What is Company X's return on investment (ROI)?

Accepted Answer

A) 6.0%. 
B) 10.0%. 
C) 15.0%. 
D) 24.0%. 
A) 6.0%. 
B) 10.0%. 
C) 15.0%. 
D) 24.0%.

Question 7

Use the following information to compute residual income:

Accepted Answer

A) $12,000. 
B) $22,500. 
C) $30,000. 
D) $48,000. 
A) $12,000. 
B) $22,500. 
C) $30,000. 
D) $48,000.

Question 8

One advantage of using after-tax income as a performance measure of divisional results is it's a financial accounting measure that is also used to compute the organizational income.This makes it easier to understand and compare.

Accepted Answer

A) True 
 B)False

Question 9

How will decreases in the following items affect residual income?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 10

Which of the following will not result in an increase in the residual income,assuming other factors remain constant?

Accepted Answer

A) An increase in sales. 
B) An increase in the minimum required rate of return. 
C) A decrease in expenses. 
D) A decrease in operating assets. 
A) An increase in sales. 
B) An increase in the minimum required rate of return. 
C) A decrease in expenses. 
D) A decrease in operating assets.

Question 11

How will decreases in the following items affect return on investment (ROI)?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 12

Historical costs are based on the original costs to acquire a long-term asset,while current costs represent the costs to replace the long-term asset.These are the definitions of historical and current cost.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

Accepted Answer

A) ROI uses accounting income which is based on historical costs. 
B) ROI cannot be used to compare divisions of different sizes. 
C) ROI has the potential to create goal congruence problems. 
D) ROI fails to align some costs incurred in one period with the benefits received in another perioD.ROI can be used to compare different sized divisions-this is an advantage of ROI. 
A) ROI uses accounting income which is based on historical costs. 
B) ROI cannot be used to compare divisions of different sizes. 
C) ROI has the potential to create goal congruence problems. 
D) ROI fails to align some costs incurred in one period with the benefits received in another perioD.ROI can be used to compare different sized divisions-this is an advantage of ROI.

Question 14

The following information has been gathered for the Green Division:   Compute the Green Division's residual income.

Accepted Answer

A) $1,800. 
B) $2,700. 
C) $3,600. 
D) $5,400. 
A) $1,800. 
B) $2,700. 
C) $3,600. 
D) $5,400.

Question 15

The Najacht Division of the Rassbach Company has a return on investment (ROI)of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?

Accepted Answer

A) $6,000. 
B) $12,000. 
C) $24,000. 
D) $48,000. 
A) $6,000. 
B) $12,000. 
C) $24,000. 
D) $48,000.

Question 16

Welsh Corporation's return on investment (ROI)on some new equipment was 20% using beginning-of-year net book value.The gross book value of the equipment is $250,000.Accumulated depreciation at the beginning of the year was $10,000.This represents one-half year's straight-line depreciation.What is the annual before-tax cash flow from the new equipment?

Accepted Answer

A) $68,000. 
B) $60,000. 
C) $48,000. 
D) $20,000. 
A) $68,000. 
B) $60,000. 
C) $48,000. 
D) $20,000.

The ABC Company has three divisions: A Division,B Division,and C Division. What was B Division's return on investment (ROI)last year?

Divisional income statements do not have to follow generally accepted accounting principles (GAAP)because they are internal reports.GAAP is only required for external reports.

All other things the same,which of the following would increase residual income?

The use of residual income reduces,but does not eliminate,the suboptimization problem.Suboptimization may still exist since accounting income does not necessarily reflect economic performance.

The profit margin ratio is computed by dividing after-tax operating income by sales.This is the definition of the profit margin ratio.

The following information is available for Company X: What is Company X's return on investment (ROI)?

Use the following information to compute residual income:

One advantage of using after-tax income as a performance measure of divisional results is it's a financial accounting measure that is also used to compute the organizational income.This makes it easier to understand and compare.

How will decreases in the following items affect residual income?

Which of the following will not result in an increase in the residual income,assuming other factors remain constant?

How will decreases in the following items affect return on investment (ROI)?

Historical costs are based on the original costs to acquire a long-term asset,while current costs represent the costs to replace the long-term asset.These are the definitions of historical and current cost.

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

The following information has been gathered for the Green Division: Compute the Green Division's residual income.

The Najacht Division of the Rassbach Company has a return on investment (ROI)of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 14: Business Unit Performance Measurement

The ABC Company has three divisions: A Division,B Division,and C Division. What was B Division's return on investment (ROI)last year?

Divisional income statements do not have to follow generally accepted accounting principles (GAAP)because they are internal reports.GAAP is only required for external reports.

All other things the same,which of the following would increase residual income?

The use of residual income reduces,but does not eliminate,the suboptimization problem.Suboptimization may still exist since accounting income does not necessarily reflect economic performance.

The profit margin ratio is computed by dividing after-tax operating income by sales.This is the definition of the profit margin ratio.

The following information is available for Company X: What is Company X's return on investment (ROI)?

Use the following information to compute residual income:

One advantage of using after-tax income as a performance measure of divisional results is it's a financial accounting measure that is also used to compute the organizational income.This makes it easier to understand and compare.

How will decreases in the following items affect residual income?

Which of the following will not result in an increase in the residual income,assuming other factors remain constant?

How will decreases in the following items affect return on investment (ROI)?

Historical costs are based on the original costs to acquire a long-term asset,while current costs represent the costs to replace the long-term asset.These are the definitions of historical and current cost.

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

The following information has been gathered for the Green Division: Compute the Green Division's residual income.

The Najacht Division of the Rassbach Company has a return on investment (ROI)of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters