Question 1

Developing and retaining quality managers are advantages of decentralization.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following transfer price approaches is used when the transfer price is set at the amount sold to outside buyers?

Accepted Answer

A)  market price
B)  cost price
C)  negotiated price
D)  variable priceE) C) and D)
F) B) and D)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Accepted Answer

A) True 
 B)False

Question 5

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, operating income amounting to $302,500, and a desired minimum return on investment of 15%.​
-The residual income for Chicks Corporation is

Accepted Answer

A)  $165,000
B)  $302,500
C)  $137,500
D)  $191,500E) A) and B)
F) B) and C)

Question 6

Operating income for Division L is $250,000, total support department allocations are $400,000, and operating expenses are $2,750,000. The revenues for Division L are

Accepted Answer

A)  $650,000
B)  $3,000,000
C)  $3,400,000
D)  $2,750,000E) B) and C)
F) A) and B)

Question 7

The rates at which centralized services are charged to each division are called support department allocation rates.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The profit margin is the

Accepted Answer

A)  ratio of operating income to sales
B)  ratio of operating income to invested assets
C)  ratio of assets to liabilities
D)  ratio of sales to invested assetsE) B) and C)
F) A) and D)

Question 10

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​
-The investment turnover for Division A is

Accepted Answer

A)  0.93
B)  9.3
C)  1.07
D)  10.7E) B) and D)
F) B) and C)

Question 11

The major advantage of the return on investment over operating income 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 12

If divisional operating income is $100,000, invested assets are $850,000, and the minimum return on invested assets is 8%, the residual income is $68,000.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called a(n)  _____ center.

Accepted Answer

A)  cost
B)  profit
C)  operating
D)  investmentE) None of the above
F) A) and B)

Question 15

Investment turnover (as used in determining the return on investment) focuses on the rate of profit earned on each sales dollar.

Accepted Answer

A) True 
 B)False

Question 16

Operating income for Division H is $220,000, and operating income before support department allocations is $975,000. As a result,

Accepted Answer

A)  total operating expenses are $565,000
B)  total manufacturing expenses are $565,000
C)  direct materials, direct labor, and factory overhead total $565,000
D)  total support department allocations are $755,000E) B) and D)
F) B) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Clydesdale Company's residual income is

Accepted Answer

A)  $252,000
B)  $900,000
C)  $1,400,000
D)  $760,000E) C) and D)
F) B) and D)

Question 19

The investment turnover is the ratio of

Accepted Answer

A)  operating income to sales
B)  operating income to invested assets
C)  assets to liabilities
D)  sales to invested assetsE) B) and D)
F) A) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 24: Evaluating Decentralized Operations

The rates at which centralized services are charged to each division are called support department allocation rates.

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 operating income is $100,000, invested assets are $850,000, and the minimum return on invested assets is 8%, the residual income is $68,000.

Correct AnswerverifiedShow Answer

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, operating income amounting to $302,500, and a desired minimum return on investment of 15%.​ -The residual income for Chicks Corporation is

Correct AnswerverifiedShow Answer

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called a(n) _____ center.

Correct AnswerverifiedShow Answer

Investment turnover (as used in determining the return on investment) focuses on the rate of profit earned on each sales dollar.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The investment turnover is the ratio of

Correct AnswerverifiedShow Answer

Operating income for Division L is $250,000, total support department allocations are $400,000, and operating expenses are $2,750,000. The revenues for Division L are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The profit margin is the

Correct AnswerverifiedShow Answer

The major advantage of the return on investment over operating income as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

Correct AnswerverifiedShow Answer

Clydesdale Company's residual income is

Correct AnswerverifiedShow Answer

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Developing and retaining quality managers are advantages of decentralization.

Correct AnswerverifiedShow Answer

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​ -The investment turnover for Division A is

Correct AnswerverifiedShow Answer

Which of the following transfer price approaches is used when the transfer price is set at the amount sold to outside buyers?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Operating income for Division H is $220,000, and operating income before support department allocations is $975,000. As a result,

Correct AnswerverifiedShow Answer

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Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, operating income amounting to $302,500, and a desired minimum return on investment of 15%. -The residual income for Chicks Corporation is

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Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. -The investment turnover for Division A is

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