Three measures of investment center performance are income from operations, rate of return on investment, and residual income... ABC Corporation has three service departments with the fo
Trang 1Chapter 24 Performance Evaluation for Decentralized
7 One of the advantages of decentralization is that delegating authority to managers closest to the operation
always results in better decisions
True False
Trang 2
8 Developing and retaining quality managers is an advantage of decentralization
Trang 317 Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses
Trang 426 The profit center income statement should include only revenues and expenses that are controlled by the manager
31 The service department will determine its service department charge rate and charge the company’s
divisions or departments according to their use of that particular service department
Trang 535 Three measures of investment center performance are income from operations, rate of return on investment, and residual income
Trang 643 The major advantage of 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
True False
44 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 True False
45 The excess of divisional income from operations over a minimum amount of desired income from
operations is termed the residual income
True False
46 The minimum amount of desired divisional income from operations is set by top management by
establishing a maximum rate of return considered acceptable for invested assets
True False
47 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
Trang 751 If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%
Trang 859 In rate of return on investment analysis, the investment turnover component focuses on efficiency in the use
of assets and indicates the rate at which sales are being generated for each dollar of invested assets
True False
60 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
Trang 968 Under the negotiated price approach, the transfer price is the price at which the product or service
transferred could be sold to outside buyers
1 Equally amongst divisions Maintenance
2 Number of work orders Human Resources
3 Number of computers in department Payroll Accounting
4 Number of advertising campaigns Purchasing
5 Number of payroll checks President’s office
7 Number of miles Transportation
8 Number of purchase requisitions Information Systems
73 Match the following terms with the best definition given below
1 Ratio of income from operations to sales Residual income
2 Income from operations minus minimum
acceptable income from operations
Rate of return on
investments
3 Income from operations divided by invested
4 Earned by profit centers Controllable revenues
5 Ratio of sales to invested assets Investment turnover
Trang 10
74 Which of the following would be most effective in a small owner/manager-operated business?
76 Which of the following is NOT a disadvantage of decentralized operation?
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
77 Which is the best example of a decentralized operation?
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
78 All of the following are advantages of decentralization except:
A Managers make better decisions when closer to the operation of the company
B Expertise in all areas of the business is difficult, decentralization makes it better to delegate certain responsibilities
C Each decentralized operation purchases their own assets and pays for operating costs
D Decentralized managers can respond quickly to customer satisfaction and quality service
Trang 1180 Which of the following is a disadvantage of decentralization?
A Decisions made by one manager may negatively affect the profitability of the entire company
B Helps retain quality managers
C Decision making by managers closest to the operations
D Managers are able to acquire expertise in their areas of responsibility
83 For higher levels of management, responsibility accounting reports:
A are more detailed than for lower levels of management
B are more summarized than for lower levels of management
C contain about the same level of detail as reports for lower levels of management
D are rarely provided or reviewed
84 Most manufacturing plants are considered cost centers because they have control over
A sales and costs
B fixed assets and costs
C costs only
D fixed assets and sales
85 The following is a measure of a manager’s performance working in a cost center
A budget performance report
B rate of return and residual income measures
C divisional income statements
D balance sheet
Trang 12
86 A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):
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
88 Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?
A Depreciation expense office equipment
B Insurance on inventory of sporting goods
C Uncollectible accounts expense
D Office salaries
89 Which of the following expenses incurred by a department store is an indirect expense?
A Insurance on merchandise inventory
B Sales salaries
C Depreciation on store equipment
D Salary of vice-president of finance
Trang 1392 In evaluating the profit center manager, the income from operations should be compared:
A across profit centers
B to historical performance or budget
C to the competitor's net income
D to the total company earnings per share
93 Income from operations of the Commercial Aviation Division is $2,225,000 If income from operations before service department charges is $3,250,000:
A operating expenses are $1,025,000
B total service department charges are $1,025,000
C noncontrollable charges are $1,025,000
D direct manufacturing charges are $1,025,000
A net income was $400,000
B the gross profit margin was $400,000
C income from operations before service department charges was $1,550,000
D consolidated net income was $400,000
96 To calculate income from operations, total service department charges are:
A added to income from operations before service department charges
B subtracted from operating expenses
C subtracted from income from operations before service department charges
D subtracted from gross profit margin
Trang 1498 Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000 Therefore:
A total operating expenses are $755,000
B total manufacturing expenses are $755,000
C direct materials, direct labor, and factory overhead total $755,000
D total service department charges are $755,000
99 The following data are taken from the management accounting reports of Dulcimer Co.:
Income from operations $1,900,000 $1,450,000 $1,450,000
Total service department charges 1,700,000 1,050,000 1,100,000
If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges, it follows that:
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
Corporate Total
Trang 15102 The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31:
Division
Locomotive Division
Corporate Total
Corporate Total
Corporate Total
Trang 16The income from operations for the Locomotive Division is:
Corporate Total
C expenses and fixed assets
D revenues, expenses, net income or loss from operations
107 Some organizations use internal service departments to provide like services to several divisions or
departments within an organization Which of the following would probably not lend itself as a service
Trang 17108 The following is a measure of a manager’s performance working in a profit center
A balance sheet
B rate of return and residual income measures
C budget performance report
D divisional income statements
109 Which of the following would not be considered an internal centralized service department?
A Payroll accounting department
B Manufacturing department
C Information systems department
D Purchasing department
110 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
111 Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting
to $99,000, and a desired minimum rate of return of 15%
The profit margin for Mason is:
112 Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting
to $99,000, and a desired minimum rate of return of 15%
The investment turnover for Mason is:
Trang 18113 Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting
to $99,000, and a desired minimum rate of return of 15%
The residual income for Mason is:
114 Hamlin Corporation had $220,000 in invested assets, sales of $242,000, income from operations
amounting to $70,400, and a desired minimum rate of return of 3% The rate of return on investment for Hamlin is:
115 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 profit margin for Chicks is:
116 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:
Trang 19117 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 residual income for Chicks is:
Trang 20121 The Clydesdale Company has sales of $4,500,000 It also has invested assets of $2,000,000 and operating expenses of $3,600,000 The company has established a minimum rate of return of 7%
What is Clydesdale Company's residual income?
A the assets invested in the center, but not costs and revenues
B costs and assets invested in the center, but not revenues
C both costs and revenues for the department or division
D not only costs and revenues, but also assets invested in the center
Trang 21126 The profit margin is the:
A ratio of income from operations to sales
B ratio of income from operations to invested assets
C ratio of assets to liabilities
D ratio of sales to invested assets
127 The investment turnover is the:
A ratio of income from operations to sales
B ratio of income from operations to invested assets
C ratio of assets to liabilities
D ratio of sales to invested assets
128 Identify the formula for the rate of return on investment
A Invested Assets/Income From Operations
B Sales/Invested Assets
C Income From Operations/Sales
D Income From Operations/Invested Assets
129 Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?
A Sales/Income From Operations
B Income From Operations/Sales
B Income From Operations/Invested Assets
C Income From Operations/Sales
Trang 22132 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?
133 The Eastern Division of Kentucky Company has a rate of return on investment of 28% and a profit margin
of 20% What is the investment turnover?
136 The best measure of managerial efficiency in the use of investments in assets is:
A rate of return on stockholders' equity
B investment turnover
C income from operations
D inventory turnover
Trang 23
137 Two divisions of Central Company (Divisions X and Y) have the same profit margins Division X's investment turnover is larger than that of Division Y (1.2 to 1.0) Income from operations for Division X is
$55,000, and income from operations for Division Y is $43,000 Division X has a higher return on investment than Division Y by:
A using income from operations as a performance measure
B comparing the profit margins
C applying a negotiated price measure
D using its assets more efficiently in generating sales
Trang 24142 A factor in determining the rate of return on investment the ratio of income from operations to sales is called:
145 Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000
What is the rate of return on investment for Division A?
146 Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000
What is the profit margin for Division A?
Trang 25147 Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses
of $43,000, and invested assets of $150,000
What is the investment turnover for Division A?
150 Investment centers differ from profit centers in that they
A are responsible for net income only
B are able to invest in assets
C have less responsibilities than cost centers and profit centers
D are only responsible for revenues
151 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?
Trang 26152 The balanced scorecard measures financial and nonfinancial performance of a business The balanced scorecard measures four areas Identify one of the following that is not included as a performance
153 The following is a measure of a manager’s performance working in an investment center
A rate of return on investment
B residual income
C divisional income statements
D all of the responses
156 The balanced scorecard measures
A only financial information
B only nonfinancial information
C both financial and nonfinancial information
D external and internal information
Trang 27
157 Which of the following is not a commonly used approach to setting transfer prices?
A Market price approach
B Revenue price approach
C Negotiated price approach
D Cost price approach
158 Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:
A Cost price approach
B Negotiated price approach
C Revenue price approach
D Market price approach
159 Materials used by Square Yard Products Inc in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit However, the same materials are available from Division 6 Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales
How much would Division 3's income from operations increase?
How much would Division 6's income from operations increase?
Trang 28161 Materials used by Square Yard Products Inc in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit However, the same materials are available from Division 6 Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales
How much would Square Yard Products total income from operations increase?
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales
How much would Division C's income from operations increase?
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales
How much would Division A's income from operations increase?
Trang 29164 Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit However, the same materials are available from Division A Division
A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit
A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales
How much would Jefferson's total income from operations increase?
$4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs
What should be the range of a possible transfer price?
A No transfer should take place
167 The transfer price which uses a variety of cost concepts is the
A Negotiated price approach
B Standard cost approach
C Cost price approach
D Market price approach
168 The transfer price that must be less than the market price but greater than the supplying division’s variable costs per unit is called
A the cost price approach
B the negotiated cost approach
C the standard cost approach
D the market price approach
Trang 30
169 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?
170 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
171 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
Trang 31What is the service department charge rate for the Personnel Department?
172 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
173 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
Trang 32How much service department cost will be allocated to the Micro Division?
174 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
175 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
Trang 33How much service department cost would be allocated to the Super Division?
176 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
177 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
Trang 34What will the income of the Macro Division be after all service department allocations?
178 ABC Corporation has three service departments with the following costs and activity base:
Service Department Cost Activity Base for Allocation
Graphics Production $200,000 # of copies
Accounting $500,000 # of invoices processed
Personnel Department $400,000 # of employees
ABC has three operating divisions, Micro, Macro and Super Their revenue, cost and activity information are as follows:
Trang 35180 Using the data from the Ace Guitar Company, determine the divisional income from operations for the A and B regions
181 The Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales
of $786,000 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
Trang 36183 The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at
$55 per unit Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units By how much will each division’s income increase as a result of this transfer?
Trang 37186 Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of
Trang 38Allocate service department expenses proportional to the sales of each district
Trang 39During March, the costs incurred in Department 10 of Treble Company were materials, $204,000; factory wages, $285,000; supervisory salaries,
$63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456 (a) Prepare a budget performance report for the supervisor of Department 10 of Treble Company for the month of March
(b) Are there any significant variances (5% or greater) of the budgeted amounts that should be examined by the supervisor?
192 A department store apportions payroll costs on the basis of the number of payroll checks issued
Accounting costs are apportioned on the basis of the number of reports The payroll costs for the year were
$231,000 and the accounting costs for the year totaled $75,500 The departments and the number of payroll checks and accounting reports for each are as follows:
Trang 40The operating expenses of Department B include $50,000 for direct expenses
It is estimated that the discontinuance of Department B would not have affected the sales of the other departments nor have reduced the indirect expenses of the business Assuming the accuracy of these estimates, determine the effect (increase or decrease and amount) on the income from operations of the business if Department B had been discontinued
194 Some items are omitted from each of the following condensed divisional income statements of Demi Inc
Eastern Division Western Division Central Division
Cost of goods sold 480,000 120,000 $ (5)
Gross profit $230,000 $ (3) $200,000
Operating expenses 95,000 160,000 $ (6)
Income from operations $ (2) $ (4) $ 75,000
(a) Determine the amount of the missing items, identifying them by number
(b) Based on income from operations, which division is the most profitable?
195 Using the data from the Coffee & Cocoa Company,
(a) determine the divisional income from operations for the three regions by allocating the service department expenses proportional to
the sales of the regions
(b) determine the increase or decrease in net income if C Region did not operate