Question 1

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.

Accepted Answer

A) True 
 B)False

Question 2

The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar.

Accepted Answer

A) True 
 B)False

Question 3

The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:

Accepted Answer

A)  profit margin 
B)  residual income 
C)  rate of return on investment 
D)  gross profit

Question 4

Which is the best example of a decentralized operation?

Accepted Answer

A)  One owner who prepares plans and makes decisions for the entire company. 
B)  Each unit is responsible for their own operations and decision making. 
C)  In a major company, operating decisions are made by top management. 
D)  None of the above. All are examples of a centralized management.

Question 5

The minimum amount of desired divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Accepted Answer

A) True 
 B)False

Question 6

Match the following terms with the best definition given below.

Accepted Answer

The answer of Match the following terms with the best...

Question 7

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

Accepted Answer

A)  not only costs and revenues, but also assets invested in the center 
B)  the assets invested in the center, but not costs and revenues 
C)  both costs and revenues for the department or division 
D)  costs and assets invested in the center, but not revenues

Question 8

Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000.
Required:
Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment.
Round profit margin percentage to two decimal places and investment turnover to three decimal places.

Accepted Answer

The answer of Ralston Company has income from operations of...

Question 9

In an investment center, the manager has responsibility and authority for making decisions that affect:

Accepted Answer

A)  costs 
B)  revenues 
C)  assets 
D)  costs, revenues, and assets

Question 10

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 11

A manager in a cost center also has responsibility and authority over the revenues and the costs.

Accepted Answer

A) True 
 B)False

Question 12

Avey Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Avey Corporation is:

Accepted Answer

A)  8% 
B)  10% 
C)  18% 
D)  7.5%

Question 13

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

Accepted Answer

A)  Cost price approach 
B)  Negotiated price approach 
C)  Revenue price approach 
D)  Market price approach

Question 14

If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%.

Accepted Answer

A) True 
 B)False

Question 15

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 16

A decentralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A) True 
 B)False

Question 17

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 will the income of the Micro Division be after all service department allocations?

Accepted Answer

A)  $305,000 
B)  $650,000 
C)  $345,000 
D)  $610,000

Question 18

If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.

Accepted Answer

A) True 
 B)False

Question 19

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Accepted Answer

A) True 
 B)False

Question 20

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31:  The gross profit for the Locomotive Division is:

Accepted Answer

A)  $57,960 
B)  $14,790 
C)  $27,240 
D)  $47,280

Exam 24: Performance Evaluation for Decentralized Operations

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.

The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar.

The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:

Which is the best example of a decentralized operation?

The minimum amount of desired divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Match the following terms with the best definition given below.

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

In an investment center, the manager has responsibility and authority for making decisions that affect:

Identify the formula for the rate of return on investment.

A manager in a cost center also has responsibility and authority over the revenues and the costs.

Avey Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Avey Corporation is:

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%.

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 decentralized business organization is one in which all major planning and operating decisions are made by top management.

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 will the income of the Micro Division be after all service department allocations?

If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The gross profit for the Locomotive Division is: