Question 1

Mandolin 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 $17. The manager of Division A has offered to purchase the units at $15 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)   $15 to $30
B)   $15 to $17
C)   over $30
D)   $17 to $30 D

Question 2

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  False

Question 3

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.

Accepted Answer

A) True 
 B)False  False

Question 4

The primary accounting tool for controlling and reporting for cost centers is a budget.

Accepted Answer

A) True 
 B)False

Question 5

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31:  The income from operations for the Rails Division is:

Accepted Answer

A)   $60,800
B)   $33,600
C)   $8,700
D)   $21,150

Question 6

The following is a measure of a manager's performance working in an investment center.

Accepted Answer

A)   rate of return on investment
B)   residual income
C)   divisional income statements
D)   all of the responses

Question 7

The best measure of managerial efficiency in the use of investments in assets is:

Accepted Answer

A)   rate of return on stockholders' equity
B)   investment turnover
C)   income from operations
D)   inventory turnover

Question 8

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:
 What is the service department charge rate for the Personnel Department?

Accepted Answer

A)   $2,758
B)   $3,200
C)   $3,077
D)   $1,000

Question 9

Using the data from the Ace Guitar Company, determine the divisional income from operations for the A and B regions.
  Allocate service department expenses proportional to the sales of each region. Round percentage of sales allocation to one decimal place.

Accepted Answer

The answer of Using the data from the Ace Guitar...

Question 10

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

Accepted Answer

A) True 
 B)False

Question 11

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

Accepted Answer

A) True 
 B)False

Question 12

The profit margin for Division B is 8% and the investment turnover is 1.20. What is the rate of return on investment for Division B?

Accepted Answer

A)   8%
B)   6.7%
C)   7.3%
D)   9.6%

Question 13

Depreciation expense on store equipment for a department store is an indirect expense.

Accepted Answer

A) True 
 B)False

Question 14

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

Accepted Answer

A) True 
 B)False

Question 15

Pacific Division for Bean Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit margin?

Accepted Answer

A)   28%
B)   20%
C)   14%
D)   39.2%

Question 16

Which of the following is NOT a disadvantage of decentralized operation?

Accepted Answer

A)   Competition among managers decreases profits
B)   Duplication of operations
C)   Price cutting by departments that are competing in the same product market
D)   Top management freed from everyday tasks to do strategic planning

Question 17

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

Accepted Answer

A)   the cost price approach
B)   the negotiated cost approach
C)   the standard cost approach
D)   the market price approach

Question 18

Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets?

Accepted Answer

A)   26.3%
B)   25.0%
C)   4.0%
D)   380.0%

Question 19

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The investment turnover for Chicks is:

Accepted Answer

A)   1.3
B)   1.5
C)   1.0
D)   1.1

Question 20

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

Accepted Answer

A)   a cost center
B)   a profit center
C)   an operating center
D)   an investment center

Exam 23: Performance Evaluation for Decentralized Operations

Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.

The primary accounting tool for controlling and reporting for cost centers is a budget.

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The income from operations for the Rails Division is:

The following is a measure of a manager's performance working in an investment center.

The best measure of managerial efficiency in the use of investments in assets is:

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: What is the service department charge rate for the Personnel Department?

Using the data from the Ace Guitar Company, determine the divisional income from operations for the A and B regions. Allocate service department expenses proportional to the sales of each region. Round percentage of sales allocation to one decimal place.

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

The profit margin for Division B is 8% and the investment turnover is 1.20. What is the rate of return on investment for Division B?

Depreciation expense on store equipment for a department store is an indirect expense.

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

Pacific Division for Bean Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit margin?

Which of the following is NOT a disadvantage of decentralized operation?

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets?

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The investment turnover for Chicks is:

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called: