Question 1

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 2

The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income.

Accepted Answer

A) True 
 B)False

Question 3

If the profit margin for a division is 8% and the investment turnover is 1.20,the rate of return on investment is 6.7%.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  liabilities.
B)  assets.
C)  equity.
D)  costs.E) All of the above
F) B) and D)

Question 5

In large businesses,decentralization is often advantageous because

Accepted Answer

A)  it allows top management to make all decisions,thus ensuring that overall operational goals are met.
B)  it prevents decisions from one unit to negatively affect the profitability of the entire company.
C)  it allows departmental managers to focus on acquiring expertise in their areas of responsibility.
D)  all of these are advantages of decentralization.E) A) and B)
F) A) and C)

Question 6

If divisional income from operations is $75,000,invested assets are $637,500,and the minimum rate of return on invested assets is 6%,the residual income is $36,750.

Accepted Answer

A) True 
 B)False

Question 7

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets.If management desires a minimum rate of return of 12%,the profit margin is

Accepted Answer

A)  59.5%.
B)  13.4%.
C)  12%.
D)  8%.E) C) and D)
F) A) and B)

Question 8

Division I of Norris Company has a rate of return on investment of 28% and a profit margin of 20%.What is the investment turnover?

Accepted Answer

A)  3.6
B)  1.4
C)  5.0
D)  .7E) None of the above
F) A) and B)

Question 9

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 B)
F) B) and D)

Question 10

The following data are taken from the management accounting reports of Dancer Co.:

If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges,it follows that

Accepted Answer

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.E) A) and B)
F) A) and D)

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

Accepted Answer

A) True 
 B)False  True

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 $32,000.

Accepted Answer

A) True 
 B)False

Question 14

Espinosa Corporation had $220,000 in invested assets,sales of $242,000,income from operations amounting to $48,400,and a desired minimum rate of return of 3%.The rate of return on investment for Espinosa is

Accepted Answer

A)  20%.
B)  22%.
C)  3%.
D)  6.4%.E) B) and D)
F) All of the above

Question 15

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

Accepted Answer

A)  Sales/Income From Operations
B)  Income From Operations/Sales
C)  Invested Assets/Sales
D)  Sales/Invested AssetsE) A) and B)
F) C) and D)

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  $103,000.
B)  $229,800.
C)  $176,400.
D)  $76,200.E) A) and C)
F) A) and B) C

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

Accepted Answer

A) True 
 B)False  False

Exam 14: Performance Evaluation for Decentralized Operations

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.

Correct AnswerverifiedShow Answer

The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income.

Correct AnswerverifiedShow Answer

If the profit margin for a division is 8% and the investment turnover is 1.20,the rate of return on investment is 6.7%.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In large businesses,decentralization is often advantageous because

Correct AnswerverifiedShow Answer

If divisional income from operations is $75,000,invested assets are $637,500,and the minimum rate of return on invested assets is 6%,the residual income is $36,750.

Correct AnswerverifiedShow Answer

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets.If management desires a minimum rate of return of 12%,the profit margin is

Correct AnswerverifiedShow Answer

Division I of Norris Company has a rate of return on investment of 28% and a profit margin of 20%.What is the investment turnover?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following data are taken from the management accounting reports of Dancer Co.: If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges,it follows that

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

Correct AnswerverifiedTrue

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 $32,000.

Correct AnswerverifiedShow Answer

Espinosa Corporation had $220,000 in invested assets,sales of $242,000,income from operations amounting to $48,400,and a desired minimum rate of return of 3%.The rate of return on investment for Espinosa is

Correct AnswerverifiedShow Answer

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The balanced scorecard attempts to evaluate the underlying financial drivers of nonfinancial performance.

Correct AnswerverifiedFalse

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True

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C

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