Question 1

Zygot Inc.had $650,000 invested in assets, sales of $1,250,000, operating income amounting to $140,000, and a minimum acceptable rate of return of 12% on its invested assets.The rate of return on investment for Zygot is:

Accepted Answer

A)   16.2%.
B)   21.5%.
C)   14.5%.
D)   25.0%.E) B) and C)
F) None of the above

Question 2

The service department will determine its service department charge rate and charge the company's divisions or departments based on the usage of the service by each department.

Accepted Answer

A) True 
 B)False

Question 3

The manager of a profit center does not make decisions concerning the fixed assets invested in the center.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The excess of divisional operating income over a minimum amount of desired operating income is termed residual income.

Accepted Answer

A) True 
 B)False

Question 6

What additional information is needed to find the rate of return on investment if operating income is known?

Accepted Answer

A)   Invested assets
B)   Residual income
C)   Direct expenses
D)   SalesE) C) and D)
F) A) and B)

Question 7

If Division Q's operating income was $60,000 and invested assets amounted to $400,000, the rate of return on investment calculated would be 15%.

Accepted Answer

A) True 
 B)False

Question 8

Responsibility accounting reports for profit centers are normally in the form of balance sheets.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a approach used for setting transfer prices?

Accepted Answer

A)   Market price approach
B)   Revenue price approach
C)   Negotiated price approach
D)   Cost price approachE) A) and B)
F) None of the above

Question 10

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:

Accepted Answer

A)   miscellaneous administrative expenses.
B)   indirect expenses.
C)   direct expenses.
D)   variable expenses.E) C) and D)
F) B) and C)

Question 11

Which of the following expenses incurred by a department store is an indirect expense?

Accepted Answer

A)   Insurance on merchandise inventory
B)   Sales salaries
C)   Depreciation on store equipment
D)   Salary of vice-president of financeE) A) and D)
F) C) and D)

Question 12

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.E) A) and C)
F) A) and D)

Question 13

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 indirect expenses.

Accepted Answer

A) True 
 B)False

Question 14

Division B's profit margin is 16%, and the investment turnover is 1.80.What is Division B's rate of return on investment?

Accepted Answer

A)   15.7%
B)   28.8%
C)   17.0%
D)   10.6%E) C) and D)
F) B) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Operating income for Division M is $150,000, and operating income before service department charges is $975,000.Therefore,:

Accepted Answer

A)   total operating expenses are $825,000.
B)   total manufacturing expenses are $825,000.
C)   direct materials, direct labor, and factory overhead total $825,000.
D)   total service department charges are $825,000.E) B) and D)
F) All of the above

Question 17

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 18

The manager of the furniture department of a leading retailer does not have control on salaries of the department personnel.

Accepted Answer

A) True 
 B)False

Question 19

How do the responsibilities of a manager in an investment center compare to the responsibilities of managers in a cost or profit center?

Accepted Answer

A)   Investment center managers have more authority and responsibility than managers of a cost or profit center.
B)   Investment center managers have more authority and responsibility than managers of a cost center but less than managers of a profit center.
C)   Investment center managers have about the same authority and responsibility as managers of a cost or profit center.
D)   Investment center managers have more authority and responsibility than managers of a profit center but less than managers of a cost center.E) A) and B)
F) A) and D)

Question 20

Property tax expense for a department store's store equipment is an example of a direct expense.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The excess of divisional operating income over a minimum amount of desired operating income is termed residual income.

Correct AnswerverifiedShow Answer

How do the responsibilities of a manager in an investment center compare to the responsibilities of managers in a cost or profit center?

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Division B's profit margin is 16%, and the investment turnover is 1.80.What is Division B's rate of return on investment?

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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 indirect expenses.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a approach used for setting transfer prices?

Correct AnswerverifiedShow Answer

The manager of a profit center does not make decisions concerning the fixed assets invested in the center.

Correct AnswerverifiedShow Answer

Which of the following expenses incurred by a department store is an indirect expense?

Correct AnswerverifiedShow Answer

What additional information is needed to find the rate of return on investment if operating income is known?

Correct AnswerverifiedShow Answer

The manager of the furniture department of a leading retailer does not have control on salaries of the department personnel.

Correct AnswerverifiedShow Answer

Zygot Inc.had $650,000 invested in assets, sales of $1,250,000, operating income amounting to $140,000, and a minimum acceptable rate of return of 12% on its invested assets.The rate of return on investment for Zygot is:

Correct AnswerverifiedShow Answer

Property tax expense for a department store's store equipment is an example of a direct expense.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Division Q's operating income was $60,000 and invested assets amounted to $400,000, the rate of return on investment calculated would be 15%.

Correct AnswerverifiedShow Answer

The service department will determine its service department charge rate and charge the company's divisions or departments based on the usage of the service by each department.

Correct AnswerverifiedShow Answer

Operating income for Division M is $150,000, and operating income before service department charges is $975,000.Therefore,:

Correct AnswerverifiedShow Answer

Responsibility accounting reports for profit centers are normally in the form of balance sheets.

Correct AnswerverifiedShow Answer

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