Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

It is beneficial for two related companies to use the cost price approach for transfer pricing when both the companies operate as cost centers and are not concerned with the revenue.

Accepted Answer

A) True 
 B)False

Question 3

The profit margin for Division E is 28% and the investment turnover is 3.0.What is the rate of return on investment for Division E?

Accepted Answer

A)  84%
B)  28%
C)  14%
D)  9%E) B) and C)
F) A) and D)

Question 4

Assume that divisional income from operations amounts to $325,000 and top management has established 10% as the minimum rate of return on divisional assets totaling $1,250,000.The residual income for the division is:

Accepted Answer

A)  $200,000.
B)  $292,500.
C)  $125,000.
D)  $0.E) C) and D)
F) A) and C)

Question 5

Division M of Tenist Company has a rate of return on investment of 20% and a profit margin of 13%.What is the investment turnover?

Accepted Answer

A)  3.6
B)  1.5
C)  5.0
D)  .7E) All of the above
F) C) and D) B

Question 6

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 termed indirect expenses.

Accepted Answer

A) True 
 B)False

Question 7

The negotiated price approach allows the managers of decentralized units to agree among themselves on a transfer price.

Accepted Answer

A) True 
 B)False

Question 8

If income from operations for a division is $30,000,sales are $243,750,and invested assets are $187,500,the investment turnover would be 1.3.

Accepted Answer

A) True 
 B)False

Question 9

Income from operations for Division M is $150,000,and income from operations before service department charges is $975,000.Therefore,:

Accepted Answer

A)  total operating expenses are $825,000.
B)  total manufacturing expenses are $825,000.
C)  direct materials,direct labor,and factory overhead total $825,000.
D)  total service department charges are $825,000.E) B) and C)
F) None of the above D

Question 10

Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.Division X's investment turnover is larger than that of Division Y (1.2 to 1.0) .Which of the following statements is true?

Accepted Answer

A)  Division Y will have a higher return on investment as it is using its assets more efficiently in generating sales.
B)  Division X will have a higher return on investment as it is generating more income from its operations.
C)  Division X will have a higher return on investment as it is using its assets more efficiently in generating sales.
D)  Division Y will have a higher return on investment as it is generating more income from its operations.E) B) and C)
F) C) and D)

Question 11

Which of the following expenses incurred by a department store is an indirect expense?

Accepted Answer

A)  Insurance on merchandise inventory
B)  Sales salaries
C)  Depreciation on store equipment
D)  Salary of vice-president of financeE) A) and C)
F) B) and C) D

Question 12

The following data are taken from the management accounting reports of Dancer Co.:

Accepted Answer

A)  division A's manager is given the bonus.
B)  division B's manager is given the bonus.
C)  division C's manager is given the bonus.
D)  the managers of Divisions B and C divide the bonus.E) A) and B)
F) None of the above

Question 13

Espinosa Corporation had $220,000 invested in assets,sales of $242,000,income from operations amounting to $48,400,and a desired minimum rate of return of 3%.The rate of return on investment for Espinosa is:

Accepted Answer

A)  20%.
B)  22%.
C)  3%.
D)  6.4%.E) A) and B)
F) A) and C)

Question 14

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Accepted Answer

A) True 
 B)False

Question 15

If Division Q's income from operations was $60,000 and invested assets amounted to $400,000,the rate of return on investment calculated would be 15%.

Accepted Answer

A) True 
 B)False

Question 16

The ratio of sales to invested assets is termed investment turnover.

Accepted Answer

A) True 
 B)False

Question 17

Income from operations for Division X is $280,000,total service department charges are $570,000,and operating expenses are $2,530,000.What are the revenues for Division X?

Accepted Answer

A)  $2,810,000
B)  $2,240,000
C)  $2,530,000
D)  $3,380,000E) A) and B)
F) A) and C)

Question 18

The investment turnover is the ratio of:

Accepted Answer

A)  income from operations to sales.
B)  income from operations to invested assets.
C)  assets to liabilities.
D)  sales to invested assets.E) C) and D)
F) None of the above

Question 19

If income from operations for a division is $120,000,sales are $975,000,and invested assets are $750,000,the investment turnover would be 6.3.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

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

Correct AnswerverifiedShow Answer

It is beneficial for two related companies to use the cost price approach for transfer pricing when both the companies operate as cost centers and are not concerned with the revenue.

Correct AnswerverifiedShow Answer

The profit margin for Division E is 28% and the investment turnover is 3.0.What is the rate of return on investment for Division E?

Correct AnswerverifiedShow Answer

Assume that divisional income from operations amounts to $325,000 and top management has established 10% as the minimum rate of return on divisional assets totaling $1,250,000.The residual income for the division is:

Correct AnswerverifiedShow Answer

Division M of Tenist Company has a rate of return on investment of 20% and a profit margin of 13%.What is the investment turnover?

Correct AnswerverifiedB

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 termed indirect expenses.

Correct AnswerverifiedShow Answer

The negotiated price approach allows the managers of decentralized units to agree among themselves on a transfer price.

Correct AnswerverifiedShow Answer

If income from operations for a division is $30,000,sales are $243,750,and invested assets are $187,500,the investment turnover would be 1.3.

Correct AnswerverifiedShow Answer

Income from operations for Division M is $150,000,and income from operations before service department charges is $975,000.Therefore,:

Correct AnswerverifiedD

Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.Division X's investment turnover is larger than that of Division Y (1.2 to 1.0) .Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following expenses incurred by a department store is an indirect expense?

Correct AnswerverifiedD

The following data are taken from the management accounting reports of Dancer Co.:

Correct AnswerverifiedShow Answer

Espinosa Corporation had $220,000 invested in assets,sales of $242,000,income from operations amounting to $48,400,and a desired minimum rate of return of 3%.The rate of return on investment for Espinosa is:

Correct AnswerverifiedShow Answer

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Correct AnswerverifiedShow Answer

If Division Q's income from operations was $60,000 and invested assets amounted to $400,000,the rate of return on investment calculated would be 15%.

Correct AnswerverifiedShow Answer

The ratio of sales to invested assets is termed investment turnover.

Correct AnswerverifiedShow Answer

Income from operations for Division X is $280,000,total service department charges are $570,000,and operating expenses are $2,530,000.What are the revenues for Division X?

Correct AnswerverifiedShow Answer

The investment turnover is the ratio of:

Correct AnswerverifiedShow Answer

If income from operations for a division is $120,000,sales are $975,000,and invested assets are $750,000,the investment turnover would be 6.3.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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B

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D

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D

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