Question 1

Which of the following would most likely be evaluated using residual income?

Accepted Answer

A) cost center 
B) profit center 
C) revenue center 
D) investment center

Question 2

The primary objective in setting transfer prices is to achieve goal congruence by selecting a price that will maximize the overall company profits.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following four perspectives of the balanced scorecard enables management to answer the question,"How can we continue to improve and create value?"

Accepted Answer

A) financial 
B) customer 
C) internal business 
D) learning and growth

Question 4

Profit center responsibility reports include ________.

Accepted Answer

A) revenues only 
B) invested capital 
C) both revenues and expenses 
D) returns on investments

Question 5

Which of the following is the correct formula for the profit margin ratio?

Accepted Answer

A) Net profit / Sales 
B) Net sales / Average total assets 
C) Net profit × Capital invested 
D) Operating income / Net sales

Question 6

The primary objective in setting transfer prices is to ________.

Accepted Answer

A) establish a system that determines the best transfer prices for the company as a whole 
B) evaluate the managers of the responsibility centers involved 
C) achieve goal congruence by selecting a price that will maximize overall company profits 
D) make it easy for managers to select prices that maximize division profits

Question 7

Net income is used in the numerator of the return on investment formula.

Accepted Answer

A) True 
 B)False

Question 8

The manager of a cost center is responsible for controlling costs and generating revenues for the company.

Accepted Answer

A) True 
 B)False

Question 9

Which responsibility center managers are responsible for both generating revenue and either controlling costs or efficiently managing invested capital?

Accepted Answer

A) cost and profit centers 
B) revenue and profit centers 
C) profit and investment centers 
D) revenue and investment centers

Question 10

When a division is operating at capacity,the transfer price should be ________.

Accepted Answer

A) based on opportunity cost 
B) a market-based transfer price 
C) a cost-based transfer price 
D) the total manufacturing cost

Question 11

The return on investment formula focuses on the amount of operating income earned before considering other revenue and expense items,such as interest expense.

Accepted Answer

A) True 
 B)False

Question 12

Worldwide Logistics provides the following information: $$\begin{array} { | l | r | } 
\hline \text { Operating income } & \$ 1,500,000 \
\hline \text { Net sales } & \$ 14,000,000 \
\hline \text { Average total assets } & \$ 2,000,000 \
\hline \text { Management's target rate of return } & 30 \% \
\hline
\end{array}$$ What is the company's residual income?

Accepted Answer

A) $500,000 
B) $600,000 
C) $1,550,000 
D) $900,000

Question 13

Provisions Company,a manufacturer of office supplies,provides the following financial information: $$\begin{array} { | l | r | r | } 
\hline & \text { Pen Division } & \text { Pencil Division } \
\hline \text { Operating income } & \$ 100,000 & \$ 40,000 \
\hline \text { Net sales } & \$ 500,000 & \$ 150,000 \
\hline \text { Total assets at Jan. 1 } & \$ 580,000 & \$ 350,000 \
\hline \text { Total assets at Dec. 31 } & \$ 610,000 & \$ 300,000 \
\hline
\end{array}$$ Calculate the return on investment for the Pen Division.(Round your answer to two decimal places.)

Accepted Answer

A) 16.81% 
B) 12.31% 
C) 17.24% 
D) 16.39%

Question 14

The best measure for evaluating the effectiveness of a manger in an investment center would be ________.

Accepted Answer

A) residual income measures 
B) success in controlling costs 
C) success in meeting budgeted revenues 
D) current ratio measures

Question 15

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its customers.

Accepted Answer

A) True 
 B)False

Question 16

In decentralized companies,performance evaluation systems provide upper management with the feedback it needs to maintain control over the entire organization.

Accepted Answer

A) True 
 B)False

Question 17

Return on investment measures the profitability of an investment center but not the efficiency in using its assets.

Accepted Answer

A) True 
 B)False

Question 18

How is the use of a balanced scorecard as a performance evaluation system helpful to companies?

Accepted Answer

The answer of How is the use of a balanced...

Question 19

Which of the following is the correct formula for calculating return on investment?

Accepted Answer

A) Net profit / Sales 
B) Gross profit / Sales 
C) Operating income / Average total assets 
D) Earnings available to stockholders / Number of outstanding shares of stock

Question 20

Sirius,Inc.has average total assets of $300,000.The annual operating income of the company is $125,000.The target rate of return for the company is 15%.Calculate the residual income.

Accepted Answer

A) $45,000 
B) $175,000 
C) $18,750 
D) $80,000

Exam 24: Responsibility Accounting and Performance Evaluation

Which of the following would most likely be evaluated using residual income?

The primary objective in setting transfer prices is to achieve goal congruence by selecting a price that will maximize the overall company profits.

Which of the following four perspectives of the balanced scorecard enables management to answer the question,"How can we continue to improve and create value?"

Profit center responsibility reports include ________.

Which of the following is the correct formula for the profit margin ratio?

The primary objective in setting transfer prices is to ________.

Net income is used in the numerator of the return on investment formula.

The manager of a cost center is responsible for controlling costs and generating revenues for the company.

Which responsibility center managers are responsible for both generating revenue and either controlling costs or efficiently managing invested capital?

When a division is operating at capacity,the transfer price should be ________.

The return on investment formula focuses on the amount of operating income earned before considering other revenue and expense items,such as interest expense.

The best measure for evaluating the effectiveness of a manger in an investment center would be ________.

The transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its customers.

In decentralized companies,performance evaluation systems provide upper management with the feedback it needs to maintain control over the entire organization.

Return on investment measures the profitability of an investment center but not the efficiency in using its assets.

How is the use of a balanced scorecard as a performance evaluation system helpful to companies?

Which of the following is the correct formula for calculating return on investment?

Sirius,Inc.has average total assets of $300,000.The annual operating income of the company is $125,000.The target rate of return for the company is 15%.Calculate the residual income.