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Exam 9: Evaluating Decentralized Operations

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Question 71

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

A) True
B) False

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Question 72

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Which of the following is a measure of a manager's performance working in an investment center?

A) rate of return on investment
B) residual income
C) divisional income statements
D) all of these

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

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Question 73

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

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.

Division G of Elephant Preservation Inc. has sales of $895,000, cost of goods sold of $475,000, operating expenses of $79,500, and invested assets of $750,000. Calculate: (a) The rate of return on investment for Division G. (b) The profit margin for Division G. (c) The investment turnover for Division G.

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.

The sales, income from operations, invested assets, and residual income for each division of Marcus Company are as follows: Determine the minimum rate of return for invested assets.

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

Piano Company's costs were over budget by $47,000. The Piano Company is divided into two regions. The first region's costs were over budget by $5,000. Determine the amount that the second region's cost was over or under budget.

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The investment turnover for Mason is

Most manufacturing plants are considered cost centers because they have control over

All of the following are advantages of decentralization except

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the profit margin for Division D?

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

To calculate income from operations, total service department charges are

If income from operations for a division is $5,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000. The residual income for the division is

Which of the following would not be considered an internal centralized service department?

Service department charges are similar to the expenses of a profit center that purchased services from a source outside the company.

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.