Question 1

If the margin of 0.3 stayed the same and the turnover ratio of 5.0 increased by 10 percent,the ROI would

Accepted Answer

A) increase by 10 percent. 
B) decrease by 10 percent. 
C) increase by 15 percent. 
D) remain the same.

Question 2

___________________ is after tax operating income minus the dollar cost of capital employed.

Accepted Answer

The answer of ___________________ is after tax operating income minus...

Question 3

Figure 12-5. The following information pertains to the three divisions of Yang Company:
 Refer to Figure 12-5.What are the average operating assets for Division B?

Accepted Answer

A) $125,000 
B) $120,000 
C) $18,000 
D) $420,000

Question 4

Marshal Company has the following data for one of its manufacturing plants:
Maximum units produced in a quarter = 425,000 units
Actual units produced in a quarter = 354,500 units
Productive hours in one quarter = 35,450 hours
Required:

Accepted Answer

The answer of Marshal Company has the following data for...

Question 5

Economic value added (EVA)is similar to ROI in that it links net income to capital employed.

Accepted Answer

A) True 
 B)False

Question 6

The level of the transfer price can affect the overall company because

Accepted Answer

A) the higher the transfer price,the higher the operating income. 
B) it may impact on the taxes paid by the multinational company. 
C) the lower the transfer price,the lower the total costs. 
D) internal transfers are always costly to the firm. 
E) the transfer price may be higher than the cost-based price.

Question 7

The use of residual income encourages managers to accept any project that earns above the minimum rate.

Accepted Answer

A) True 
 B)False

Question 8

Figure 12-4. Quinn Inc.has a number of divisions.One division,Style,makes zippers that are used in the manufacture of boots.Another division,LeatherStuff,makes boots that use the zippers and needs 90,000 zippers per year.Style incurs the following costs for one zipper:
 Quinn has capacity to make 950,000 zippers per year,but due to a soft market,only plans to produce and sell 620,000 zippers next year.LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives).
Refer to Figure 12-4.Assume that Quinn allows negotiated transfer pricing.What is the ceiling of the bargaining range and which division sets it?

Accepted Answer

A) $3.50; Style 
B) $3.50; LeatherStuff 
C) $2.70; Style 
D) $2.70; LeatherStuff 
E) $1.38; Style

Question 9

The Balanced Scorecard perspective that defines the capabilities than an organization needs to create long-term growth and improvement is the ____ perspective.

Accepted Answer

A) learning and growth 
B) internal business process 
C) customer 
D) financial 
E) none of these

Question 10

Noble Company has two divisions,the Domestic Division and the International Division.Last year,the Domestic Division earned $360,000 using average operating assets of $1,440,000.Sales for the Domestic Division were $3,600,000.Last year,the International Division earned $560,000 using average operating assets of $2,800,000.Sales for the International Division were $7,000,000.

Accepted Answer

The answer of Noble Company has two divisions,the Domestic Division...

Question 11

You decide
Explain the differences between centralized and decentralized decision making.Also list some of the reasons why a company would choose to decentralize.

Accepted Answer

The answer of You decide
Explain the differences between centralized and...

Question 12

Turnover is the most common measure of performance for an investment center.

Accepted Answer

A) True 
 B)False

Question 13

The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are:  What is the transfer price based on full cost plus a markup of 30 percent?

Accepted Answer

A) $2,925 
B) $585 
C) $2,760 
D) $2,730

Question 14

Turnover is the ratio of sales to average operating assets.

Accepted Answer

A) True 
 B)False

Question 15

Figure 12-8
Bostonian Inc.has a number of divisions,including Delta Division and ListenNow Division.The ListenNow Division owns and operates a line of MP3 players.Each year the ListenNow Division purchases component AZ in order to manufacture the MP3 players.Currently it purchases this component from an outside supplier for $6.50 per component.The manager of the Delta Division has approached the manager of the ListenNow Division about selling component AZ to the ListenNow Division.The full product cost of component AZ is $3.10.The Delta Division can sell all of the components AZ it makes to outside companies for $6.50.The ListenNow Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year.
Refer to Figure 12-8.Assume that the company policy is that all transfer prices are negotiated by the divisions involved.
Required:
A.What is the maximum transfer price? Which division sets it?
B.What is the minimum transfer price? Which division sets it?
C.If the transfer takes place,what will be the transfer price?

Accepted Answer

The answer of Figure 12-8
Bostonian Inc.has a number of divisions,including...

Question 16

When the selling division can sell and the buying division can buy externally at the market price,the company as a whole will be in the same position whether or not a market price transfer takes place internally.

Accepted Answer

A) True 
 B)False

Question 17

Using EVA to calculate residual income,the dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed.

Accepted Answer

A) True 
 B)False

Question 18

What are the advantages and disadvantages of return on investment (ROI)?
Three advantages of ROI are:

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 19

Shandling Company had operating income of $70,000,sales of $218,750,and turnover of 0.5.What is Shandling's ROI?

Accepted Answer

A) 32% 
B) 50% 
C) 16% 
D) 64% 
E) cannot be determined from this information

Question 20

Which of the following is not an advantage of ROI?

Accepted Answer

A) It encourages managers of departments with high ROIs to invest in average ROI projects. 
B) It encourages managers to pay careful attention to the relationships among sales,expenses,and investment. 
C) It encourages cost efficiency. 
D) It discourages excessive investment in operating assets.

Exam 12: Performance Evaluation and Decentralization

If the margin of 0.3 stayed the same and the turnover ratio of 5.0 increased by 10 percent,the ROI would

___________________ is after tax operating income minus the dollar cost of capital employed.

Figure 12-5. The following information pertains to the three divisions of Yang Company: Refer to Figure 12-5.What are the average operating assets for Division B?

Marshal Company has the following data for one of its manufacturing plants: Maximum units produced in a quarter = 425,000 units Actual units produced in a quarter = 354,500 units Productive hours in one quarter = 35,450 hours Required:

Economic value added (EVA)is similar to ROI in that it links net income to capital employed.

The level of the transfer price can affect the overall company because

The use of residual income encourages managers to accept any project that earns above the minimum rate.

The Balanced Scorecard perspective that defines the capabilities than an organization needs to create long-term growth and improvement is the ____ perspective.

You decide Explain the differences between centralized and decentralized decision making.Also list some of the reasons why a company would choose to decentralize.

Turnover is the most common measure of performance for an investment center.

The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are: What is the transfer price based on full cost plus a markup of 30 percent?

Turnover is the ratio of sales to average operating assets.

When the selling division can sell and the buying division can buy externally at the market price,the company as a whole will be in the same position whether or not a market price transfer takes place internally.

Using EVA to calculate residual income,the dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed.

What are the advantages and disadvantages of return on investment (ROI)? Three advantages of ROI are:

Shandling Company had operating income of $70,000,sales of $218,750,and turnover of 0.5.What is Shandling's ROI?

Which of the following is not an advantage of ROI?