Question 1

Basically, EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons).

Accepted Answer

A) True 
 B)False

Question 2

In calculating residual income, the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment.

Accepted Answer

A) True 
 B)False

Question 3

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI)? (Note: Round answer to two decimal places.)

Accepted Answer

A)  73.80% 
B)  42.00% 
C)  67.50% 
D)  23.80%

Question 4

JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division.The manager of the Western Division had wanted to purchase replacement airplanes for the division.However, he decided against it because, although revenues would increase and the new planes would be less expensive to operate, the initial cost of the planes was quite large.The Western Division is most probably accounted for as a(n)

Accepted Answer

A)  cost center. 
B)  investment center. 
C)  profit center. 
D)  revenue center. 
E)  None of these.

Question 5

________________ is the difference between realization and sacrifice, where realization is what the customer receives and sacrifice is what is given up in return.

Accepted Answer

The answer of ________________ is the difference between realization and...

Question 6

Select the term from below to match with the correct statement.
-The manager of a(n) ___________ is evaluated on the basis of income.

Accepted Answer

A) centralization 
B) revenue center 
C) profit center 
D) cost center 
E) investment center
F)decentralization

Question 7

Which of the following results from decentralization?

Accepted Answer

A)  It results in better local decision-making by central management as they are in contact with immediate operating conditions. 
B)  It results in better implementation of decisions as central management is charged with both making and implementing decisions. 
C)  It results in the usage of a firm's resources to maximize firm value by the lower-level managers. 
D)  It results in enhanced competition as segments are protected from dealing with market forces. 
E)  All of these.

Question 8

Several transfer pricing policies are used in practice.These transfer pricing policies include market price, cost-based transfer prices, and negotiated transfer prices.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a disadvantage of the ROI performance measure?

Accepted Answer

A)  It encourages managers to focus on the long run rather than the short run. 
B)  It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole. 
C)  It encourages myopic behavior. 
D)  All of these are disadvantages of the ROI measure.

Question 10

The selling division is forced to transfer a product internally when a cost-based transfer pricing policy is set by top management.

Accepted Answer

A) True 
 B)False

Question 11

In terms of operating income for the company as a whole, the transfer price set by the buying and selling divisions nets out.

Accepted Answer

A) True 
 B)False

Question 12

A(n) ________________ is when a manager is responsible only for sales.

Accepted Answer

The answer of A(n) ________________ is when a manager is...

Question 13

The following information pertains to the three divisions of Yang Company:

- What is the turnover for Division C?

Accepted Answer

A)  3.28 
B)  0.20 
C)  6.670 
D)  1.500

Question 14

_____________ is the ratio of operating income to sales.

Accepted Answer

The answer of _____________ is the ratio of operating income...

Question 15

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

Accepted Answer

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

Question 16

Division A produces a component and wants to sell it to Division B.The transfer price is

Accepted Answer

A)  revenue to Division 'A' and a cost to Division B. 
B)  revenue to Division 'B' and a cost to Division A. 
C)  revenue to Division 'A' and no effect on Division B. 
D)  a cost to Division 'B' and no effect on Division A.

Question 17

The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division.

Accepted Answer

A) True 
 B)False

Question 18

The practice of delegating decision-making authority to lower levels of management in a company is called centralization.

Accepted Answer

A) True 
 B)False

Question 19

Select the term from below to match with the correct statement.
-A(n) ___________ is a responsibility center in which a manager is responsible only for costs.

Accepted Answer

A) centralization 
B) revenue center 
C) profit center 
D) cost center 
E) investment center
F)decentralization

Question 20

The difference between realization and sacrifice defines

Accepted Answer

A)  target objectives. 
B)  reliability. 
C)  single-loop feedback. 
D)  customer value. 
E)  None of these.

Exam 11: Performance Evaluation and Decentralization

Basically, EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons).

In calculating residual income, the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment.

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI) ? (Note: Round answer to two decimal places.)

________________ is the difference between realization and sacrifice, where realization is what the customer receives and sacrifice is what is given up in return.

Select the term from below to match with the correct statement. -The manager of a(n) ___________ is evaluated on the basis of income.

Which of the following results from decentralization?

Several transfer pricing policies are used in practice.These transfer pricing policies include market price, cost-based transfer prices, and negotiated transfer prices.

Which of the following is not a disadvantage of the ROI performance measure?

The selling division is forced to transfer a product internally when a cost-based transfer pricing policy is set by top management.

In terms of operating income for the company as a whole, the transfer price set by the buying and selling divisions nets out.

A(n) ________________ is when a manager is responsible only for sales.

The following information pertains to the three divisions of Yang Company: - What is the turnover for Division C?

_____________ is the ratio of operating income to sales.

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

Division A produces a component and wants to sell it to Division B.The transfer price is

The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division.

The practice of delegating decision-making authority to lower levels of management in a company is called centralization.

Select the term from below to match with the correct statement. -A(n) ___________ is a responsibility center in which a manager is responsible only for costs.

The difference between realization and sacrifice defines