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Exam 23: Performance Evaluation for Decentralized Operations

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Question 111

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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) A) and D)
F) C) and D)

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Question 112

Multiple Choice

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Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

A) profit center
B) investment center
C) production center
D) cost center

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

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Question 113

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

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

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

The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business.

The profit margin for Mason is

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: $\begin{array} { | l | l | l | l | } \hline & \text { Micro } & \text { Macro } & \text { Super } \\\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \\\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \\\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \\\hline \text { Number of invoices processed } & 700 & 800 & 500 \\\hline \text { Number of employees } & 130 & 145 & 125 \\\hline\end{array}$ -What will the income of the Macro Division be after all service department allocations?

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

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

Which of the following is not a measure that management can use in evaluating and controlling investment center performance?

The sales, income from operations, and invested assets for each division of Wren Company are as follows: Management has established a minimum rate of return for invested assets of 8%. a) Determine the residual income for each division. b) Based on residual income, which of the divisions is the most profitable?

The DuPont formula uses financial information to measure the performance of a business.

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: $\begin{array} { | l | l | l | l | } \hline & \text { Micro } & \text { Macro } & \text { Super } \\\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \\\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \\\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \\\hline \text { Number of invoices processed } & 700 & 800 & 500 \\\hline \text { Number of employees } & 130 & 145 & 125 \\\hline\end{array}$ -What will the income of the Micro Division be after all service department allocations?

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.

An activity base is used to charge service department expenses. Match each of the following activity bases with the appropriate department a-h) . -Number of employees

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. What is the rate of return on assets?