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Exam 9: Evaluating Decentralized Operations

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Question 21

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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

E) A) and B)
F) A) and C)

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Question 22

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Separation of businesses into more manageable operating units is termed decentralization.

A) True
B) False

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Question 23

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A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

Which of the following is a measure of a manager's performance working in a profit center?

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

Match each of the following phrases as describing (a) an advantage, (b) a disadvantage, or (c) neither of decentralization.

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

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

In a profit center, the manager has responsibility and authority for making decisions that affect

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

Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be

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%.

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.

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

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

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 operating expenses.

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 will Jefferson's total income from operations increase?

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determing the rate of return on investment, is called

Using the data below for 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.

One of the advantages of decentralization is that delegating authority to managers closest to the operation always  results in better decisions.