Question 1

Three measures of investment center performance are income from operations,rate of return on investment,and residual income.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not one of the common types of responsibility centers?

Accepted Answer

A)   cost center
B)   profit center
C)   investment center
D)   revenue centerE) All of the above
F) A) and D)

Question 3

The profit center income statement should include only revenues and expenses that are controlled by the manager.

Accepted Answer

A) True 
 B)False

Question 4

If the profit margin for a division is 11% and the investment turnover is 1.5,the rate of return on investment is 7.3%.

Accepted Answer

A) True 
 B)False

Question 5

The ratio of sales to investment is termed the rate of return on investment.

Accepted Answer

A) True 
 B)False

Question 6

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is

Accepted Answer

A)   $65,000
B)   $215,000
C)   $635,000
D)   $150,000E) B) and C)
F) C) and D)

Question 7

If income from operations for a division is $120,000,sales are $975,000,and invested assets are $750,000,the investment turnover is 1.3.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

If Division Q's yearly 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 10

Office salaries expense for a department store is an indirect expense.

Accepted Answer

A) True 
 B)False

Question 11

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 12

What is Clydesdale Company's rate of return on investment?

Accepted Answer

A)   56%
B)   20%
C)   45%
D)   25%E) B) and D)
F) C) and D)

Question 13

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 is $68,000.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a measure of a cost center manager's performance?

Accepted Answer

A)   budget performance report
B)   rate of return and residual income measures
C)   divisional income statements
D)   balance sheetE) B) and D)
F) All of the above

Question 15

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

Accepted Answer

A)   $780,000
B)   $375,000
C)   $575,000
D)   $435,000E) All of the above
F) C) and D)

Question 16

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

Accepted Answer

A)   rate of return on stockholders' equity
B)   investment turnover
C)   income from operations
D)   inventory turnoverE) All of the above
F) A) and B)

Question 17

What additional information is needed to calculate the rate of return on investment if income from operations is known?

Accepted Answer

A)   invested assets
B)   residual income
C)   direct expenses
D)   salesE) C) and D)
F) All of the above

Question 18

The three common types of responsibility centers are referred to as cost centers,profit centers,and investment centers.

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Income from operations for Division L is $250,000,total service department charges are $400,000 and operating expenses are $2,750,000.What are the revenues for Division L?

Accepted Answer

A)   $650,000
B)   $3,000,000
C)   $3,400,000
D)   $2,750,000E) None of the above
F) A) and B)

Exam 23: Evaluating Decentralized Operations

Three measures of investment center performance are income from operations,rate of return on investment,and residual income.

Correct AnswerverifiedShow Answer

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 is $68,000.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following is a measure of a cost center manager's performance?

Correct AnswerverifiedShow Answer

The ratio of sales to investment is termed the rate of return on investment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If income from operations for a division is $120,000,sales are $975,000,and invested assets are $750,000,the investment turnover is 1.3.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not one of the common types of responsibility centers?

Correct AnswerverifiedShow Answer

What is Clydesdale Company's rate of return on investment?

Correct AnswerverifiedShow Answer

If the profit margin for a division is 11% and the investment turnover is 1.5,the rate of return on investment is 7.3%.

Correct AnswerverifiedShow Answer

Office salaries expense for a department store is an indirect expense.

Correct AnswerverifiedShow Answer

What additional information is needed to calculate the rate of return on investment if income from operations is known?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Income from operations for Division L is $250,000,total service department charges are $400,000 and operating expenses are $2,750,000.What are the revenues for Division L?

Correct AnswerverifiedShow Answer

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The three common types of responsibility centers are referred to as cost centers,profit centers,and investment centers.

Correct AnswerverifiedShow Answer

The profit center income statement should include only revenues and expenses that are controlled by the manager.

Correct AnswerverifiedShow Answer

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