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Exam 24: Performance Evaluation for Decentralized Operations

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Question 51

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In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

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

E) B) and C)
F) All of the above

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Question 52

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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.

A) True
B) False

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Question 53

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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%.

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:

The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar.

In an investment center, the manager has responsibility and authority for making decisions that affect:

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.

Match the following terms with the best definition given below.

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

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

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 Corporation is:

Identify the formula for the rate of return on investment.

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

A manager in a cost center also has responsibility and authority over the revenues and the costs.

The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What will the income of the Micro Division be after all service department allocations?

Which is the best example of a decentralized operation?

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

Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000. Required: 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.