Question 1

A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.

Accepted Answer

A) True 
 B)False

Question 2

The original cost of an asset less any accumulated depreciation

Accepted Answer

The answer of The original cost of an asset less...

Question 3

would not increase return on investment.

Accepted Answer

A)  A decrease in expenses 
B)  An increase in sales revenue 
C)  A decrease in inventories 
D)  All of these answers are correct.

Question 4

Income divided by revenue

Accepted Answer

The answer of Income divided by revenue...

Question 5

The joint formulation by a manager and his or her superior of a set of goals and plans for achieving the goals for a forthcoming period is known as:

Accepted Answer

A)  managerial effort 
B)  management by objectives 
C)  management by opinion 
D)  capital budgeting

Question 6

How does the presence or absence of idle capacity affect the optimal transfer- pricing policy?

Accepted Answer

The answer of How does the presence or absence of...

Question 7

Performance- based rewards can be informal.

Accepted Answer

A) True 
 B)False

Question 8

Identify which of the following statements is a benefit of decentralization.

Accepted Answer

A)  Managers acquire decision- making ability and other management skills that help them move upward in the organization, assuring continuity of leadership. 
B)  Managers make decisions which enhance their segment's performance. 
C)  Managers save time dealing with managers from other segments regarding transfer prices. 
D)  Top- level managers have the best information concerning local conditions.

Question 9

The following information pertains to Saturn Company: $\begin{array}{ll}
\text { Total assets } & \$ 50,000 \
\text { Total current liabilities } & 30,000 \
\text { Total expenses } & 60,000 \
\text { Total liabilities } & 45,000 \
\text { Total revenues } & \$8 0,000
\end{array}$ If invested capital is defined as total assets, the capital turnover is:

Accepted Answer

A)  0.633 
B)  0.400 
C)  1.792 
D)  1.600

Question 10

The following information is available for the Copeland Company: $\begin{array}{ll}
\text { Sales } & \$ 1,000,000 \
\text { Invested c apital } & 312,500 \
\text { ROI } & 10 \%
\end{array}$ The return on sales is:

Accepted Answer

A)  1.000% 
B)  3.125% 
C)  10.000% 
D)  None of these answers is correct.

Question 11

The following information pertains to Gloria Company: Property, plant and $\begin{array}{rrrr}
\text { Currentassets } & \$ 200,000 & \text { Currentliabilities } & \$ 100,000 \
\text { equipment } & 400,000 & \text { Long term liabilities } & 200,000\
\text { Constructioninprogress } &50,000&\text { Stockholders'equity }&350,000\
\text { Total assets }&\$650,000&\text { Total equities }&\$650,000
\end{array}$ $\begin{array}{rrrr}
\text { Currentassets } & \$ 200,000 & \text { Currentliabilities } & \$ 100,000 \
\text { equipment } & 400,000 & \text { Long term liabilities } & 200,000\
\text { Constructioninprogress } &50,000&\text { Stockholders'equity }&350,000\
\text { Total assets }&\$650,000&\text { Total equities }&\$650,000
\end{array}$ Invested capital is _ if it is defined as total assets employed.

Accepted Answer

A)  $650,000 
B)  $350,000 
C)  $550,000 
D)  $600,000

Question 12

The asset section of the January 1, 20X9, balance sheet of Big Valley Company includes a machine which was acquired on January 1, 20X5. The machine's original cost was $500,000, and the estimated life was determined to be 10 years. The estimated residual value was zero, and the straight- line method of depreciation was chosen. The book value of the machine as of January 1, 20X9, is:

Accepted Answer

A)  $450,000 
B)  $300,000 
C)  $500,000 
D)  $250,000

Question 13

Income taxes rarely influence the setting of transfer prices.

Accepted Answer

A) True 
 B)False

Question 14

In general, for companies using ROI, the most profitable divisions have more incentive to invest in new projects than do the least profitable divisions.

Accepted Answer

A) True 
 B)False

Question 15

ROI = income (or profit) / investment.

Accepted Answer

A) True 
 B)False

Question 16

Wayne Company's records reveal the following: Division $A$
$\begin{array}{ll}
\text { M arket pric of finished part to out siders } & \$ 75 \
\text { Variable costs per part } & 51 \
\text { Contribution margin per part } & \$ 24 \
\text { Tot al contribution for } 10000 \text { parts } & \$ 240,000
\end{array}$

Division $B$
$\begin{array} { l  }
 \text {ales price of finished product }& \$105\
\text {Variable costs: }& \
\text { Division A (1 p art @ $ \$ 51) $}&\$51 \
\text {Division $ B $ }& \
\text {Processing }&\$27 \
\text {Selling }&12&39&-90 \
\text { Contribution margin per unit}&&&\$15 \
\text { Total contribution for } 10,000&&&\$150,000 \
\text {units }& \
\end{array}$
 The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier. If Division A wants to transfer the parts to Division B for $81, the manager of Division B would:

Accepted Answer

A)  buy from Division A, as this would be in the best interest of the company as a whole 
B)  probably ask Division A's manager to split the difference between the $81 and the market price of $75 to arrive at a transfer price of $78 
C)  buy the part from Division A as long as Division A could supply a large enough quantity to make it profitable to Division B 
D)  not want to buy from Division A, as the same product could be purchased at the market price of $75

Question 17

Tyson Company's revenues are $300 and invested capital is $240. Expenses are currently 80% of sales. Tyson Company's current return on investment is:

Accepted Answer

A)  80% 
B)  25% 
C)  100% 
D)  None of these answers is correct.

Question 18

The following data are available for the three divisions of Barnum Company: $\begin{array}{llll}&\text { Division } X&\text { Division } Y&\text { Division } Z\
\text { Income } & \text { (a) } & \$ 45,000 & \text { (i) } \
\text { Revenue } & \text { (b) } & \text { (e) } & \$ 84,000 \
\text { ROI } & 15 \% & (\mathrm{f}) & 12 \% \
\text { Invested capital } & \$ 150,000 & \text { (g) } & \$ 35,000\
\text { Return on sales } & 8 \% & 9 \% & (\mathbf{j}) \
\text { Cost of capital } & \mathbf{1 2} \% & (\mathbf{h}) & 10 \% \
\text { C apital turnover } & (\text { c) } & 2.5 & (\mathbf{k}) \
\text { Residual income } & \text { (d) } & \$ 15,000 & \text { (1) }
\end{array}$ Required: Provide the missing data.

Accepted Answer

The answer of The following data are available for the...

Question 19

is a measure of income or profit divided by the investment required to obtain that income or profit.

Accepted Answer

A)  Return on investment 
B)  Return on sales 
C)  Residual income 
D)  Capital turnover

Question 20

The lower in the organization that the freedom to make decisions exists, the greater the centralization.

Accepted Answer

A) True 
 B)False

Exam 10: Management Control in Decentralized Organizations

A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.

The original cost of an asset less any accumulated depreciation

would not increase return on investment.

Income divided by revenue

The joint formulation by a manager and his or her superior of a set of goals and plans for achieving the goals for a forthcoming period is known as:

How does the presence or absence of idle capacity affect the optimal transfer- pricing policy?

Performance- based rewards can be informal.

Identify which of the following statements is a benefit of decentralization.

The following information is available for the Copeland Company: $\begin{array}{ll}\text { Sales } & \$ 1,000,000 \\\text { Invested c apital } & 312,500 \\\text { ROI } & 10 \%\end{array}$ The return on sales is:

Income taxes rarely influence the setting of transfer prices.

In general, for companies using ROI, the most profitable divisions have more incentive to invest in new projects than do the least profitable divisions.

ROI = income (or profit) / investment.

Tyson Company's revenues are $300 and invested capital is $240. Expenses are currently 80% of sales. Tyson Company's current return on investment is:

is a measure of income or profit divided by the investment required to obtain that income or profit.

The lower in the organization that the freedom to make decisions exists, the greater the centralization.