Question 1

How much will Division 3's income from operations increase?

Accepted Answer

A)   $150,000
B)   $50,000
C)   $32,000
D)   $72,000E) A) and D)
F) B) and C)

Question 2

What is Clydesdale Company's profit margin?

Accepted Answer

A)   20%
B)   80%
C)   44.4%
D)   18%E) A) and D)
F) B) and C)

Question 3

The minimum acceptable 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 4

The term used to describe expenses that are incurred by a specific department is

Accepted Answer

A)   indirect expenses
B)   margin expenses
C)   departmental expenses
D)   direct expensesE) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

What is the investment turnover for Division A?

Accepted Answer

A)   0.93
B)   9.3
C)   1.07
D)   10.7E) A) and C)
F) All of the above

Question 7

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

Accepted Answer

A) True 
 B)False

Question 8

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) None of the above
F) A) and B)

Question 9

Which of the following formulas is the investment turnover factor as used in determining the rate of return on investment?

Accepted Answer

A)   Invested assets/Sales
B)   Income from operations/Invested assets
C)   Income from operations/Sales
D)   Sales/Invested assetsE) None of the above
F) A) and C)

Question 10

The approach that required the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the

Accepted Answer

A)   cost price approach
B)   negotiated cost approach
C)   standard cost approach
D)   market price approachE) All of the above
F) A) and B)

Question 11

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 12

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 purchase requisitions

Accepted Answer

A)  Purchasing
B)  Payroll accounting
C)  Human resources
D)  Maintenance
E)  Information systemsF) MarketingG) President's OfficeH) TransportationI) A) and E)
J) B) and H)

Question 13

Paduka Industries has several divisions. The Eastern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $151,000. Determine the minimum acceptable rate of return on divisional assets.

Accepted Answer

$200,000 -...

Question 14

The investment turnover for Mason is

Accepted Answer

A)   1.08
B)   0.93
C)   6.57
D)   7.07E) B) and C)
F) A) and D)

Question 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

Some items are omitted from each of the following condensed divisional income statements of Demi Inc.  a) Determine the amount of the missing items, identifying them by letter a-f).
b) Based on income from operations, which division is the most profitable?

Accepted Answer

a)a)$710,000
b)$135,000
c)$300...

Question 18

How much will Division A's income from operations increase?

Accepted Answer

A)   $0
B)   $75,000
C)   $25,000
D)   $50,000E) A) and C)
F) B) and D)

Question 19

The cost price approach for transfer pricing is most often used between responsibility centers organized as cost centers that are not concerned with the revenue.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 23: Performance Evaluation for Decentralized Operations

The cost price approach for transfer pricing is most often used between responsibility centers organized as cost centers that are not concerned with the revenue.

Correct AnswerverifiedShow Answer

Some items are omitted from each of the following condensed divisional income statements of Demi Inc. a) Determine the amount of the missing items, identifying them by letter a-f). b) Based on income from operations, which division is the most profitable?

Correct Answerverifieda)a)$710,000b)$135,000c)$300...View AnswerShow Answer

Paduka Industries has several divisions. The Eastern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $151,000. Determine the minimum acceptable rate of return on divisional assets.

Correct Answerverified$200,000 -...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

The term used to describe expenses that are incurred by a specific department is

Correct AnswerverifiedShow Answer

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

What is Clydesdale Company's profit margin?

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What is the investment turnover for Division A?

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

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How much will Division A's income from operations increase?

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How much will Division 3's income from operations increase?

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

Correct AnswerverifiedShow Answer

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

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

The minimum acceptable divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

Correct AnswerverifiedShow Answer

Which of the following formulas is the investment turnover factor as used in determining the rate of return on investment?

Correct AnswerverifiedShow Answer

The approach that required the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the

Correct AnswerverifiedShow Answer

The investment turnover for Mason is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 purchase requisitions

Correct AnswerverifiedShow Answer

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a)a)$710,000
b)$135,000
c)$300...
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$200,000 -...
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