Question 1

If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment computed would be 6.7%.

Accepted Answer

A) True 
 B)False

Question 2

If operating income for a division is $30,000, sales are $243,750, and invested assets are $187,500, the investment turnover would be 1.3.

Accepted Answer

A) True 
 B)False

Question 3

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: $$\begin{array} { l r r r } 
& \begin{array} { r } 
\text { Northern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Southern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Corporate } \
\text { Total }
\end{array} \
\text { Cost of goods sold } & \$ 310,000 & \$ 175,000 & \
\text { Direct operating expenses } & 250,000 & 115,000 & \
\text { Net sales } & 600,000 & 410,000 & \
\text { Interest expense } & & & \$ 12,000 \
\text { General overhead } && & 101,000 \
\text { Income tax } & && 26,700
\end{array}$$ ? The gross profit for the Southern Division is:

Accepted Answer

A)  $150,000. 
B)  $295,000. 
C)  $235,000. 
D)  $120,000.

Question 4

Abe Inc's Division A has a rate of return on investment of 18% and an investment turnover of 1.1.What is the division's profit margin?

Accepted Answer

A)  9.4% 
B)  14.2% 
C)  11.7% 
D)  16.4%

Question 5

Division Y has generated sales revenue of $260,000 and achieved operating income of $18,500 using $20,000 of invested assets.If management desires a minimum rate of return of 10%, the profit margin would be:

Accepted Answer

A)  19.5%. 
B)  14.4%. 
C)  10.2%. 
D)  7.1%.

Question 6

Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.Division X's investment turnover is larger than that of Division Y (1.2 to 1.0).Which of the following statements is true?

Accepted Answer

A)  Division Y will have a higher return on investment as it is using its assets more efficiently in generating sales. 
B)  Division X will have a higher return on investment as it is generating more operating income. 
C)  Division X will have a higher return on investment as it is using its assets more efficiently in generating sales. 
D)  Division Y will have a higher return on investment as it is generating more operating income.

Question 7

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 8

Responsibility accounting for a profit center focuses on reporting:

Accepted Answer

A)  the controllable revenues only. 
B)  controllable revenues, controllable expenses, and controllable profits. 
C)  controllable revenues, controllable expenses, controllable profits, and investment in assets controlled by the manager of the center. 
D)  controllable expenses, and controllable profits, but not controllable revenues.

Question 9

The sales, operating income, and invested assets for each division of Garner Company are as follows: $$\begin{array} { l r r r } 
& & \text { Operating } & \text { Invested } \
 & \underline { \text { Sales } } & \underline { \text { Income } } & \underline { \text { Assets } } \
\text { Division } \mathrm{E} & \$ 3,000,000 & \$ 470,000 & \$ 2,500,000 \
\text { Division } \mathrm{F} & 3,600,000 & 430,000 & 2,400,000 \
\text { Division } \mathrm{G} & 6,000,000 & 560,000 & 3,000,000
\end{array}$$ ?
(a)Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division.Round to one decimal place.
(b)Which division is (are) the most profitable as per dollar invested?

Accepted Answer

The answer of The sales, operating income, and invested assets...

Question 10

The following data are taken from the management accounting reports of Dancer Co.: $$\begin{array} { l r r r } 
& { \text { Div. A } } & \text { Div. B } &{ \text { Div. C } } \
\text { Operating income } & \$ 3,600,000 & \$ 3,700,000 & \$ 2,700,000 \
\text { Total service department charges } & 3,400,000 & 2,100,000 & 2,200,000
\end{array}$$ ? If an incentive bonus is paid to the manager who achieved the highest operating income before service department charges, it follows that:

Accepted Answer

A)  division A's manager is given the bonus. 
B)  division B's manager is given the bonus. 
C)  division C's manager is given the bonus. 
D)  the managers of Divisions B and C divide the bonus.

Question 11

The minimum amount of desired divisional operating income is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Accepted Answer

A) True 
 B)False

Question 12

Rooney Inc.had $375,000 in invested assets, sales of $735,000, operating income amounting to $105,000, and a minimum acceptable rate of return of 12% on its invested assets.The residual income for Rooney is:

Accepted Answer

A)  $42,500. 
B)  $20,500. 
C)  $60,000. 
D)  $37,500.

Question 13

Which of the following statements is used to measure the performance of a profit center's manager?

Accepted Answer

A)  A divisional statement of cash flows 
B)  A divisional bank reconciliation statement 
C)  A divisional balance sheet 
D)  A divisional income statement

Question 14

The minimum amount of desired divisional operating income is set by top management by establishing a maximum rate of return that is expected from the invested assets.

Accepted Answer

A) True 
 B)False

Question 15

Separation of businesses into more manageable operating units is termed centralization.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  Invested Assets/Sales 
B)  Operating Income/Invested Assets 
C)  Operating Income/Sales 
D)  Sales/Invested Assets

Question 17

The profit center income statement should include only those revenues and expenses that can be controlled by the manager.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment computed would be 6.7%.

If operating income for a division is $30,000, sales are $243,750, and invested assets are $187,500, the investment turnover would be 1.3.

Abe Inc's Division A has a rate of return on investment of 18% and an investment turnover of 1.1.What is the division's profit margin?

Division Y has generated sales revenue of $260,000 and achieved operating income of $18,500 using $20,000 of invested assets.If management desires a minimum rate of return of 10%, the profit margin would be:

Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.Division X's investment turnover is larger than that of Division Y (1.2 to 1.0) .Which of the following statements is true?

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

Responsibility accounting for a profit center focuses on reporting:

The minimum amount of desired divisional operating income is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Rooney Inc.had $375,000 in invested assets, sales of $735,000, operating income amounting to $105,000, and a minimum acceptable rate of return of 12% on its invested assets.The residual income for Rooney is:

Which of the following statements is used to measure the performance of a profit center's manager?

The minimum amount of desired divisional operating income is set by top management by establishing a maximum rate of return that is expected from the invested assets.

Separation of businesses into more manageable operating units is termed centralization.

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

The profit center income statement should include only those revenues and expenses that can be controlled by the manager.