Question 1

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

Accepted Answer

A)  Competition among managers decreases profits of the company 
B)  Duplication of operations 
C)  Price cutting by departments that are competing in the same product market 
D)  Top management has less time to devote to long range strategic planning.

Question 2

In the rate of return on investment analysis, the investment turnover component focuses on the efficiency in the use of assets and indicates the number of sales dollar generated for each dollar of invested assets.

Accepted Answer

A) True 
 B)False

Question 3

The rates at which services are charged to each division are called service department charge rates.

Accepted Answer

A) True 
 B)False

Question 4

The following data are taken from the management accounting reports of Dancer Co.: $\begin{array}{llll}
\underline{\text { Div. C }}&\underline{ \text { Div. B }} &\underline{ \text { Div. A} } & \
2,700,000 & \$ 3,700,000 & \$ 3,600,000 & \text { Income from operations } \
2,200,000 & 2,100,000 & 3,400,000 & \text { Total service department charges }
\end{array}$ If an incentive bonus is paid to the manager who achieved the highest income from operations 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 5

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover would be 1.2.

Accepted Answer

A) True 
 B)False

Question 6

If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover would be 6.3.

Accepted Answer

A) True 
 B)False

Question 7

In large businesses, decentralization is often advantageous because:

Accepted Answer

A)  it allows top management to make all decisions, thus ensuring that overall operational goals are met. 
B)  it prevents decisions from one unit to negatively affect the profitability of the entire company. 
C)  it allows departmental managers to focus on acquiring expertise in their areas of responsibility. 
D)  it prevents duplication of assets and expense.

Question 8

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Accepted Answer

A) True 
 B)False

Question 9

Since transfer prices will affect a division's financial performance, it is used by decentralized segments of a business.

Accepted Answer

A) True 
 B)False

Question 10

The major advantage of using the rate of return on investment over income from operations as a divisional performance measure is that, divisional investment is directly considered and thus comparability of divisions is facilitated.

Accepted Answer

A) True 
 B)False

Question 11

The balanced scorecard evaluates managers on financial and nonfinancial measures of performance.

Accepted Answer

A) True 
 B)False

Question 12

The profit margin for Division K is 9% and the investment turnover is 1.20. What is the rate of return on investment for Division K?

Accepted Answer

A)  10.8% 
B)  6.7% 
C)  7.5% 
D)  9.6%

Question 13

To calculate income from operations, total service department charges are:

Accepted Answer

A)  subtracted from income from operations before service department charges. 
B)  subtracted from operating expenses. 
C)  added to income from operations before service department charges. 
D)  subtracted from gross profit margin.

Question 14

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):

Accepted Answer

A)  profit center. 
B)  investment center. 
C)  volume center. 
D)  cost center.

Question 15

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

Accepted Answer

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

Question 16

Budget performance reports prepared for the vice-president of production would generally contain less detail than the reports prepared for the various plant managers.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true of the balanced scorecard?

Accepted Answer

A)  It ignores the financial performance of the company. 
B)  It has the ability to reveal the underlying nonfinancial drivers of financial performance. 
C)  It aims to improve the nonfinancial performance of the business. 
D)  It focuses primarily on the short term performance of the business.

Question 18

The profit margin is the ratio of:

Accepted Answer

A)  income from operations to sales. 
B)  income from operations to invested assets. 
C)  assets to liabilities. 
D)  sales to invested assets.

Question 19

Identify the formula for the rate of return on investment.

Accepted Answer

A)  Invested Assets/Income From Operations 
B)  Sales/Invested Assets 
C)  Income From Operations/Sales 
D)  Income From Operations/Invested Assets

Question 20

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income would be $32,000.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

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

In the rate of return on investment analysis, the investment turnover component focuses on the efficiency in the use of assets and indicates the number of sales dollar generated for each dollar of invested assets.

The rates at which services are charged to each division are called service department charge rates.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover would be 1.2.

If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover would be 6.3.

In large businesses, decentralization is often advantageous because:

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Since transfer prices will affect a division's financial performance, it is used by decentralized segments of a business.

The major advantage of using the rate of return on investment over income from operations as a divisional performance measure is that, divisional investment is directly considered and thus comparability of divisions is facilitated.

The balanced scorecard evaluates managers on financial and nonfinancial measures of performance.

The profit margin for Division K is 9% and the investment turnover is 1.20. What is the rate of return on investment for Division K?

To calculate income from operations, total service department charges are:

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n) :

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

Budget performance reports prepared for the vice-president of production would generally contain less detail than the reports prepared for the various plant managers.

Which of the following is true of the balanced scorecard?

The profit margin is the ratio of:

Identify the formula for the rate of return on investment.

If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income would be $32,000.