Question 1

How much will Division C's income from operations increase?

Accepted Answer

A)  $0 
B)  $75,000 
C)  $12,500 
D)  $50,000

Question 2

Developing and retaining quality managers are advantages of decentralization.

Accepted Answer

A) True 
 B)False

Question 3

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum rate of return of 3%. The rate of return on investment for Marshall is

Accepted Answer

A)  9.1% 
B)  30% 
C)  3.0% 
D)  27.3%

Question 4

How much will Jefferson's total income from operations increase?

Accepted Answer

A)  $37,500 
B)  $100,000 
C)  $62,500 
D)  $150,000

Question 5

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 6

Which of the following expenses incurred by a department store is an indirect expense?

Accepted Answer

A)  insurance on merchandise inventory 
B)  sales salaries 
C)  depreciation on store equipment 
D)  salary of vice president of finance

Question 7

What is the profit margin?

Accepted Answer

A)  33.3% 
B)  5.2% 
C)  16.0% 
D)  19.1%

Question 8

Match each of the following phrases as describing a) an advantage, b) a disadvantage, or c) neither of decentralization.
-Operational issues are made by managers closest to the operations

Accepted Answer

A) Advantage of decentralization 
B) Disadvantage of decentralization 
C) Neither an advantage or disadvantage

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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: $$\begin{array} { | l | l | l | l | } 
\hline & \text { Micro } & \text { Macro } & \text { Super } \
\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \
\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \
\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \
\hline \text { Number of invoices processed } & 700 & 800 & 500 \
\hline \text { Number of employees } & 130 & 145 & 125 \
\hline
\end{array}$$
-What is the service department charge rate for Graphics Production?

Accepted Answer

A)  $2.00 
B)  $10.00 
C)  $6.66 
D)  $0.50

Question 11

Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

Accepted Answer

A)  net income was $300,000 
B)  the gross profit margin was $300,000 
C)  income from operations before service department charges was $1,650,000 
D)  consolidated net income was $300,000

Question 12

Responsibility accounting reports for profit centers will include

Accepted Answer

A)  costs only 
B)  revenues only 
C)  expenses and fixed assets 
D)  revenues, expenses, net income or loss from operations

Question 13

Heart Company has two divisions. Division A is interested in purchasing 10,000 units from Division B. Capacity is available for Division B to produce these units. The per-unit market price is $30 per unit, with a variable cost of $25. The manager of Division A has offered to purchase the units at $22 per unit. In an effort to make this transfer price beneficial for the company as a whole, what is the range of prices that should be used during negotiations between the two divisions?

Accepted Answer

A)  $22 to $30 
B)  $22 to $25 
C)  over $30 
D)  $25 to $30

Question 14

Match each definition that follows with the term a-e) it defines.
-Ratio of sales to invested assets

Accepted Answer

A) Controllable revenues 
B) Profit margin 
C) Investment turnover 
D) Rate of return on investments 
E) Residual income

Question 15

Which of the following is a measure of a cost center manager's performance?

Accepted Answer

A)  budget performance report 
B)  rate of return and residual income measures 
C)  divisional income statements 
D)  balance sheet

Question 16

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h).
-Number of advertising campaigns

Accepted Answer

A) Purchasing 
B) Payroll accounting 
C) Human resources 
D) Maintenance 
E) Information systems
F)Marketing
G)President's Office
H)Transportation

Question 17

The profit margin is the

Accepted Answer

A)  ratio of income from operations to sales 
B)  ratio of income from operations to invested assets 
C)  ratio of assets to liabilities 
D)  ratio of sales to invested assets

Question 18

The rates at which centralized services are charged to each division are called service department charge rates.

Accepted Answer

A) True 
 B)False

Question 19

In an investment center, the manager has responsibility and authority for making decisions that affect

Accepted Answer

A)  costs only 
B)  revenues only 
C)  assets only 
D)  costs, revenues, and assets

Question 20

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 operating expenses.

Accepted Answer

A) True 
 B)False

Exam 23: Performance Evaluation for Decentralized Operations

How much will Division C's income from operations increase?

Developing and retaining quality managers are advantages of decentralization.

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum rate of return of 3%. The rate of return on investment for Marshall is

How much will Jefferson's total income from operations increase?

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 expenses incurred by a department store is an indirect expense?

What is the profit margin?

Match each of the following phrases as describing a) an advantage, b) a disadvantage, or c) neither of decentralization. -Operational issues are made by managers closest to the operations

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

Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

Responsibility accounting reports for profit centers will include

Match each definition that follows with the term a-e) it defines. -Ratio of sales to invested assets

Which of the following is a measure of a cost center manager's performance?

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h) . -Number of advertising campaigns

The profit margin is the

The rates at which centralized services are charged to each division are called service department charge rates.

In an investment center, the manager has responsibility and authority for making decisions that affect

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 operating expenses.