Chapter 24--Performance Evaluation for Decentralized Operations - $14.49   Add to cart

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Chapter 24--Performance Evaluation for Decentralized Operations

Student: ___________________________________________________________________________ 1. Separation of businesses into more manageable operating units is termed decentralization. True False 2. The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting. True False 3. A decentralized business organization is one in which all major planning and operating decisions are made by top management. True False 4. A centralized business organization is one in which all major planning and operating decisions are made by top management. True False 5. The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer. True False 6. The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers. True False 7. One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions. True False 8. Developing and retaining quality managers is an advantage of decentralization. True False 9. A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center. True False 10. Budget performance reports prepared for the vice-president of production would generally contain less detail than reports prepared for the various plant managers. True False 11. The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed. True False 12. The primary accounting tool for controlling and reporting for cost centers is a budget. True False 13. Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report. True False 14. A manager in a cost center also has responsibility and authority over the revenues and the costs. True False 15. The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants. True False 16. A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center. True False 17. 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 direct expenses. True False 18. Sales commissions expense for a department store is an example of a direct expense. True False 19. 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. True False 20. Office salaries expense for a department store is an indirect expense. True False 21. The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department. True False 22. Property tax expense for a department store's store equipment is an example of a direct expense. True False 23. Depreciation expense on store equipment for a department store is an indirect expense. True False 24. Responsibility accounting reports for profit centers are normally in the form of income statements. True False 25. The manager of a profit center does not make decisions concerning the fixed assets invested in the center. True False 26. The profit center income statement should include only revenues and expenses that are controlled by the manager. True False 27. The manager of the furniture department of a leading retailer does not control the salaries of departmental personnel. True False 28. Service department charges are similar to the expenses of a profit center that purchased services from a source outside the company. True False 29. Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases. True False 30. The rates at which services are charged to each division are called service department charge rates. True False 31. The service department will determine its service department charge rate and charge the company’s divisions or departments according to their use of that particular service department. True False 32. The profit center income statement should include only controllable revenues and expenses. True False 33. Controllable expenses are those that can be influenced by the decisions of the profit center management. True False 34. 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. True False 35. Three measures of investment center performance are income from operations, rate of return on investment, and residual income. True False 36. The major shortcoming of income from operations as an investment center performance measure is that it ignores the amount of revenues earned by the center. True False 37. If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%. True False 38. The rate of return on investment may be computed by multiplying investment turnover by the profit margin. True False 39. If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%. True False 40. If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%. True False 41. Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar. True False 42. The ratio of sales to investment is termed the rate of return on investment. True False 43. 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. True False 44. 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. True False 45. The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income. True False 46. The minimum amount of desired divisional income from operations is set by top management by establishing a maximum rate of return considered acceptable for invested assets. True False 47. 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. True False 48. The ratio of income from operations to sales is termed the profit margin component of the rate of return on investment. True False 49. The ratio of sales to invested assets is termed the investment turnover component of the rate of return on investment. True False 50. 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%. True False 51. If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%. True False 52. If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2. True False 53. If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5. True False 54. If income from operations for a division is $30,000, sales are $263,750, and invested assets are $187,500, the investment turnover is 1.3. True False 55. If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover is 1.3. True False 56. If divisional income from operations is $75,000, invested assets are $737,500, and the minimum rate of return on invested assets is 6%, the residual income is $36,750. True False 57. 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. True False 58. 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. True False 59. In rate of return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets. True False 60. 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. True False 61. A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management. True False 62. The DuPont formula uses financial information to measure the performance of a business. True False 63. The DuPont formula uses financial and nonfinancial information to measure the performance of a business. True False 64. The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business. True False 65. 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. True False 66. Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers. True False 67. Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers. True False 68. Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers. True False 69. The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price. True False 70. It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant. True False 71. It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue. True False 72. An activity base is used to charge service department expenses. Match each of the following questions with an activity base. 1. Equally amongst divisions Maintenance ____ 2. Number of work orders Human Resources ____ 3. Number of computers in department Payroll Accounting ____ 4. Number of advertising campaigns Purchasing ____ 5. Number of payroll checks President’s office ____ 6. Number of employees Marketing ____ 7. Number of miles Transportation ____ 8. Number of purchase requisitions Information Systems ____ 73. Match the following terms with the best definition given below. 1. Ratio of income from operations to sales Residual income ____ 2. Income from operations minus minimum acceptable income from operations Rate of return on investments ____ 3. Income from operations divided by invested assets Profit margin ____ 4. Earned by profit centers. Controllable revenues ____ 5. Ratio of sales to invested assets Investment turnover ____ 74. Which of the following would be most effective in a small owner/manager-operated business? A. Profit centers B. Centralization C. Investment centers D. Cost centers 75. Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be: A. decentralized B. consolidated C. diversified D. centralized 76. Which of the following is NOT a disadvantage of decentralized operation? A. Competition among managers decreases profits B. Duplication of operations C. Price cutting by departments that are competing in the same product market D. Top management freed from everyday tasks to do strategic planning 77. Which is the best example of a decentralized operation? A. One owner who prepares plans and makes decisions for the entire company. B. Each unit is responsible for their own operations and decision making. C. In a major company, operating decisions are made by top management. D. None of the above. All are examples of a centralized management. 78. All of the following are advantages of decentralization except: A. Managers make better decisions when closer to the operation of the company. B. Expertise in all areas of the business is difficult, decentralization makes it better to delegate certain responsibilities. C. Each decentralized operation purchases their own assets and pays for operating costs. D. Decentralized managers can respond quickly to customer satisfaction and quality service. 79. Which of the following is not one of the common types of responsibility centers? A. Cost Center B. Profit Center C. Investment Center D. Revenue Center 80. Which of the following is a disadvantage of decentralization? A. Decisions made by one manager may negatively affect the profitability of the entire company. B. Helps retain quality managers. C. Decision making by managers closest to the operations. D. Managers are able to acquire expertise in their areas of responsibility. 81. A manager is responsible for costs only in a(n): A. profit center B. investment center C. volume center D. cost center 82. In a cost center, the manager has responsibility and authority for making decisions that affect: A. revenues B. assets C. both costs and revenues D. costs 83. For higher levels of management, responsibility accounting reports: A. are more detailed than for lower levels of management B. are more summarized than for lower levels of management C. contain about the same level of detail as reports for lower levels of management D. are rarely provided or reviewed 84. Most manufacturing plants are considered cost centers because they have control over A. sales and costs. B. fixed assets and costs. C. costs only. D. fixed assets and sales. 85. The following is a measure of a manager’s performance working in a cost center. A. budget performance report B. rate of return and residual income measures C. divisional income statements D. balance sheet 86. A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n): A. profit center B. investment center C. volume center D. cost center 87. 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 88. Which of the following expenses incurred by the sporting goods department of a department store is a direct expense? A. Depreciation expense--office equipment B. Insurance on inventory of sporting goods C. Uncollectible accounts expense D. Office salaries 89. Which of the following expenses incurred by a department store is an indirect expense? A. Insurance on merchandise inventory B. Sales salaries C. Depreciation on store equipment D. Salary of vice-president of finance 90. In a profit center, the manager has responsibility and authority for making decisions that affect: A. liabilities B. assets C. investments D. costs 91. 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: A. miscellaneous administrative expenses B. direct expenses C. indirect expenses D. fixed expenses 92. In evaluating the profit center manager, the income from operations should be compared: A. across profit centers B. to historical performance or budget C. to the competitor's net income D. to the total company earnings per share 93. Income from operations of the Commercial Aviation Division is $2,225,000. If income from operations before service department charges is $3,250,000: A. operating expenses are $1,025,000 B. total service department charges are $1,025,000 C. noncontrollable charges are $1,025,000 D. direct manufacturing charges are $1,025,000 94. The costs of services charged to a profit center on the basis of its use of those services are called: A. operating expenses B. noncontrollable charges C. service department charges D. activity charges 95. Division X reported income from operations of $975,000 and total service department charges of $575,000. Therefore: A. net income was $400,000 B. the gross profit margin was $400,000 C. income from operations before service department charges was $1,550,000 D. consolidated net income was $400,000 96. To calculate income from operations, total service department charges are: A. added to income from operations before service department charges B. subtracted from operating expenses C. subtracted from income from operations before service department charges D. subtracted from gross profit margin 97. Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z? A. $650,000 B. $2,516,000 C. $2,916,000 D. $2,666,000 98. Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore: A. total operating expenses are $755,000 B. total manufacturing expenses are $755,000 C. direct materials, direct labor, and factory overhead total $755,000 D. total service department charges are $755,000 99. The following data are taken from the management accounting reports of Dulcimer Co.: Div. A Div. B Div. C Income from operations $1,900,000 $1,450,000 $1,450,000 Total service department charges 1,700,000 1,050,000 1,100,000 If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges, it follows that: 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 100. What is the term used to describe expenses that are incurred for the benefit of a specific department? A. Indirect expenses B. Margin expenses C. Departmental expenses D. Direct expenses 101. The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: Rails Division Locomotive Division Corporate Total Cost of goods sold $47,200 $30,720 Direct operating expenses 27,200 20,040 Net sales 108,000 78,000 Interest expense $ 2,040 General overhead 18,160 Income tax 4,700 The gross profit for the Rails Division is: A. $60,800 B. $33,600 C. $8,700 D. $21,150 102. The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: Rails Division Locomotive Division Corporate Total Cost of goods sold $47,200 $30,720 Direct operating expenses 27,200 20,040 Net sales 108,000 78,000 Interest expense $ 2,040 General overhead 18,160 Income tax 4,700 The income from operations for the Rails Division is: A. $60,800 B. $33,600 C. $8,700 D. $21,150 103. The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: Rails Division Locomotive Division Corporate Total Cost of goods sold $47,200 $30,720 Direct operating expenses 27,200 20,040 Net sales 108,000 78,000 Interest expense $ 2,040 General overhead 18,160 Income tax 4,700 The gross profit for the Locomotive Division is: A. $57,960 B. $14,790 C. $27,240 D. $47,280 104. The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: Rails Division Locomotive Division Corporate Total Cost of goods sold $47,200 $30,720 Direct operating expenses 27,200 20,040 Net sales 108,000 78,000 Interest expense $ 2,040 General overhead 18,160 Income tax 4,700 The income from operations for the Locomotive Division is: A. $57,960 B. $14,790 C. $27,240 D. $47,280 105. The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: Rails Division Locomotive Division Corporate Total Cost of goods sold $47,200 $30,720 Direct operating expenses 27,200 20,040 Net sales 108,000 78,000 Interest expense $ 2,040 General overhead 18,160 Income tax 4,700 The net income for Train Corporation is: A. $83,180 B. $35,940 C. $48,390 D. $60,840 106. Responsibility accounting reports for profit centers will include A. costs. B. revenues. C. expenses and fixed assets. D. revenues, expenses, net income or loss from operations. 107. Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department? A. Inventory Control B. Payroll Accounting C. Information Systems D. Human Resources 108. The following is a measure of a manager’s performance working in a profit center. A. balance sheet B. rate of return and residual income measures C. budget performance report D. divisional income statements 109. Which of the following would not be considered an internal centralized service department? A. Payroll accounting department B. Manufacturing department C. Information systems department D. Purchasing department 110. Avey Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Avey Corporation is: A. 8% B. 10% C. 18% D. 7.5% 111. 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 profit margin for Mason is: A. 7.1% B. 20% C. 15.2% D. 14.1% 112. 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: A. 1.08 B. .93 C. 6.57 D. 7.07 113. 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 residual income for Mason is: A. $0 B. $84,150 C. ($6,000) D. $1,500 114. Hamlin Corporation had $220,000 in invested assets, sales of $242,000, income from operations amounting to $70,400, and a desired minimum rate of return of 3%. The rate of return on investment for Hamlin is: A. 7% B. 32% C. 3% D. 29% 115. Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The profit margin for Chicks is: A. 25% B. 22% C. 15% D. 27.5% 116. Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The investment turnover for Chicks is: A. 1.3 B. 1.5 C. 1.0 D. 1.1 117. Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The residual income for Chicks is: A. $165,000 B. $302,500 C. $137,500 D. $191,500 118. The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's profit margin? A. 20% B. 80% C. 44.4% D. 18% 119. The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's investment turnover? A. 1.80 B. 2.25 C. 1.25 D. 1.4 120. The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's rate of return on investment? A. 56% B. 20% C. 45% D. 25% 121. The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's residual income? A. $252,000 B. $900,000 C. $1,400,000 D. $760,000 122. 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 123. A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called: A. a cost center B. a profit center C. an operating center D. an investment center 124. In an investment center, the manager has the responsibility for and the authority to make decisions that affect: A. the assets invested in the center, but not costs and revenues B. costs and assets invested in the center, but not revenues C. both costs and revenues for the department or division D. not only costs and revenues, but also assets invested in the center 125. In an investment center, the manager has responsibility and authority for making decisions that affect: A. costs B. revenues C. assets D. costs, revenues, and assets 126. The profit margin is the: A. ratio of income from operations to sales B. ratio of income from operations to invested assets C. ratio of assets to liabilities D. ratio of sales to invested assets 127. The investment turnover is the: A. ratio of income from operations to sales B. ratio of income from operations to invested assets C. ratio of assets to liabilities D. ratio of sales to invested assets 128. Identify the formula for the rate of return on investment. A. Invested Assets/Income From Operations B. Sales/Invested Assets C. Income From Operations/Sales D. Income From Operations/Invested Assets 129. Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment? A. Sales/Income From Operations B. Income From Operations/Sales C. Invested Assets/Sales D. Sales/Invested Assets 130. Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment? A. Invested Assets/Sales B. Income From Operations/Invested Assets C. Income From Operations/Sales D. Sales/Invested Assets 131. The profit margin for Atlantic Division is 28% and the investment turnover is 2.8. What is the rate of return on investment for Atlantic Division? A. 20% B. 28% C. 14% D. 78.4% 132. Pacific Division for Bean Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit margin? A. 28% B. 20% C. 14% D. 39.2% 133. The Eastern Division of Kentucky Company has a rate of return on investment of 28% and a profit margin of 20%. What is the investment turnover? A. 3.6 B. 1.4 C. 5.0 D. .7 134. What additional information is needed to find the rate of return on investment if income from operations is known? A. Invested assets B. Residual income C. Direct expenses D. Sales 135. The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin? A. 10% B. 12.5% C. 9% D. 6% 136. The best measure of managerial efficiency in the use of investments in assets is: A. rate of return on stockholders' equity B. investment turnover C. income from operations D. inventory turnover 137. Two divisions of Central 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). Income from operations for Division X is $55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment than Division Y by: A. using income from operations as a performance measure B. comparing the profit margins C. applying a negotiated price measure D. using its assets more efficiently in generating sales 138. The profit margin for Division B is 8% and the investment turnover is 1.20. What is the rate of return on investment for Division B? A. 8% B. 6.7% C. 7.3% D. 9.6% 139. The excess of divisional income from operations over a minimum amount of divisional income from operations is termed: A. profit margin B. residual income C. rate of return on investment D. gross profit 140. Assume that divisional income from operations amounts to $192,000 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: A. $42,000 B. $28,800 C. $92,000 D. $0 141. Which one of the following is NOT a measure that management can use in evaluating and controlling investment center performance? A. Rate of return on investment B. Negotiated price C. Residual income D. Income from operations 142. A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called: A. profit margin B. indirect expenses C. investment turnover D. cost 143. A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called: A. profit margin B. indirect margin C. investment turnover D. cost ratio 144. Assume that Division J has achieved income from operations of $165,000 using $900,000 of invested assets. If management desires a minimum rate of return of 11%, the residual income is: A. $99,000 B. $18,150 C. $264,000 D. $66,000 145. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the rate of return on investment for Division A? A. 19.3% B. 48.0% C. 18.7% D. 5.47% 146. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the profit margin for Division A? A. 19.3% B. 48.0% C. 18.7% D. 5.47% 147. Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the investment turnover for Division A? A. 1.03 B. 1.0 C. 5.17 D. 5.34 148. Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the rate of return on investment for Division X? A. 9.15% B. 81.3% C. 40.7% D. 200% 149. Division X of O'Blarney Company has sales of $300,000, 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 X? A. 81.3% B. 20.2% C. 40.7% D. 60% 150. Investment centers differ from profit centers in that they A. are responsible for net income only. B. are able to invest in assets. C. have less responsibilities than cost centers and profit centers. D. are only responsible for revenues. 151. Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets? A. 26.3% B. 25.0% C. 4.0% D. 380.0% 152. The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement. A. Internal Process B. Financial C. Innovation and Learning D. Employees 153. 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 the responses 154. The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the profit margin? A. 47.6% B. 7.6% C. 55.2% D. 4.8% 155. The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the investment turnover? A. 1.8 B. 2.1 C. .48 D. 13.13 156. The balanced scorecard measures A. only financial information B. only nonfinancial information C. both financial and nonfinancial information D. external and internal information 157. Which of the following is not a commonly used approach to setting transfer prices? A. Market price approach B. Revenue price approach C. Negotiated price approach D. Cost price approach 158. Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the: A. Cost price approach B. Negotiated price approach C. Revenue price approach D. Market price approach 159. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 3's income from operations increase? A. $150,000 B. $50,000 C. $32,000 D. $72,000 160. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 6's income from operations increase? A. $8,000 B. $15,000 C. $80,000 D. $150,000 161. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Square Yard Products total income from operations increase? A. $32,000 B. $112,000 C. $80,000 D. $150,000 162. Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division C's income from operations increase? A. $0 B. $75,000 C. $12,500 D. $50,000 163. Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division A's income from operations increase? A. $0 B. $75,000 C. $25,000 D. $50,000 164. Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much would Jefferson's total income from operations increase? A. $37,500 B. $100,000 C. $62,500 D. $150,000 165. The Ukulele Company's radio division currently is purchasing transistors from the Xiang Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Ukulele Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. What should be the range of a possible transfer price? A. No transfer should take place. B. $3.51 to $3.99 C. $3.26 to $3.99 D. $3.26 to $3.49 166. Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers? A. Market Price B. Cost Price C. Negotiated Price D. Variable Price 167. The transfer price which uses a variety of cost concepts is the A. Negotiated price approach B. Standard cost approach C. Cost price approach D. Market price approach 168. The transfer price that must be less than the market price but greater than the supplying division’s variable costs per unit is called A. the cost price approach B. the negotiated cost approach C. the standard cost approach D. the market price approach 169. Mandolin Company has two divisions. Division A is interested in purchasing 10,000 units from Division B. Capacity is available for Division B to produce these units. The per unit market price is $30 per unit, with a variable cost of $17. The manager of Division A has offered to purchase the units at $15 per unit. In an effort to make this transfer price beneficial for the company as a whole, what is the range of prices that should be used during negotiations between the two divisions? A. $15 to $30 B. $15 to $17 C. over $30 D. $17 to $30 170. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What is the service department charge rate for Graphics Production? A. $2.00 B. $10.00 C. $6.66 D. $.50 171. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What is the service department charge rate for the Personnel Department? A. $2,758 B. $3,200 C. $3,077 D. $1,000 172. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What is the service department charge rate for the Accounting Department? A. $714 B. $250 C. $625 D. $.004 173. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 How much service department cost will be allocated to the Micro Division? A. $200,000 B. $145,000 C. $60,000 D. $345,000 174. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 How much service department cost would be allocated to the Macro Division? A. $405,000 B. $175,000 C. $130,000 D. $305,000 175. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 How much service department cost would be allocated to the Super Division? A. $350,000 B. $100,000 C. $125,000 D. $550,000 176. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What will the income of the Micro Division be after all service department allocations? A. $305,000 B. $650,000 C. $345,000 D. $610,000 177. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What will the income of the Macro Division be after all service department allocations? A. $780,000 B. $375,000 C. $575,000 D. $435,000 178. ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 # of copies Accounting $500,000 # of invoices processed Personnel Department $400,000 # of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct Revenues $700,000 $850,000 $650,000 Direct Operating Expenses $50,000 $70,000 $100,000 # of copies made 20,000 30,000 50,000 # invoices processed 700 800 500 # of employees 130 145 125 What will the income of the Super Division be after all service department allocations? A. $300,000 B. $325,000 C. $550,000 D. $200,000 179. Piano Company’s costs were over budget by $47,000. The Piano Company is divided in 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. 180. Using the data from the Ace Guitar Company, determine the divisional income from operations for the A and B regions. A Region B Region Sales $500,000 $900,000 Cost of goods sold 200,000 300,000 Selling expenses 150,000 275,000 Service department expenses Purchasing $90,000 Payroll accounting 30,000 Allocate service department expenses proportional to the sales of each region. Round percentage of sales allocation to one decimal place. 181. The Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places. 182. The Magnolia Company Division A has income from operations of $80,000 and assets of $400,000. The minimum acceptable rate of return on assets is 12%. What is the residual income for the division? 183. The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units. By how much will each division’s income increase as a result of this transfer? 184. The materials used by the Holly Company Division A are currently purchased from outside supplier. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The normal price that Division B normally sells its units is $53 per unit. What is the range of transfer prices that the two division managers should negotiate? 185. Xang Company’s costs were over budget by $46,000. The Xang Company is divided in two regions. The first region’s costs were over budget by $7,000. Required: Determine the amount that the second region’s cost was over or under budget. 186. Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000. Required: Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places. 187. Materials used by the Layton Company Division 1 are currently purchased from outside supplier at $58 per unit. Division 2 is able to supply Division 1 with 22,000 units at a variable cost of $46 per unit. The two divisions have recently negotiated a transfer price of $50 per unit for the 20,000 units. Required: By how much will each division’s income increase as a result of this transfer? 188. Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2. District 1 District 2 Sales $300,000 $600,000 Cost of goods sold 120,000 150,000 Selling expenses 55,000 75,000 Service department expenses Purchasing $70,000 Payroll accounting 80,000 Allocate service department expenses proportional to the sales of each district. 189. Franklin Industries has several divisions. The Northern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $158,000. Determine the minimum acceptable rate of return on divisional assets. 190. The Creative Division of the Barry Company reported the following results for December 2012: Invested Assets $1,200,000 Profit Margin 25% Return on Investment 30% Required: Based on this information, what were the sales? 191. The budget for Department 10 of Treble Company for the current month ending March 31 is as follows: Materials $208,000 Factory wages 265,000 Supervisory salaries 67,800 Depreciation of plant and equipment 35,000 Power and light 22,500 Insurance and property taxes 15,500 Maintenance 9,700 During March, the costs incurred in Department 10 of Treble Company were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456. (a) Prepare a budget performance report for the supervisor of Department 10 of Treble Company for the month of March. (b) Are there any significant variances (5% or greater) of the budgeted amounts that should be examined by the supervisor? 192. A department store apportions payroll costs on the basis of the number of payroll checks issued. Accounting costs are apportioned on the basis of the number of reports. The payroll costs for the year were $231,000 and the accounting costs for the year totaled $75,500. The departments and the number of payroll checks and accounting reports for each are as follows: Number of Payroll Checks Number of Reports Department R 483 70 Department S 1,470 85 Department T 147 345 Determine the amount of (a) payroll cost and (b) accounting cost to be apportioned to each department. 193. A portion of the divisional income statement for the year just ended is presented below in condensed form. Department B Net sales $ 250,000 Cost of goods sold 190,000 Gross profit $ 60,000 Operating expenses 90,000 Loss from operations $ (30,000) The operating expenses of Department B include $50,000 for direct expenses. It is estimated that the discontinuance of Department B would not have affected the sales of the other departments nor have reduced the indirect expenses of the business. Assuming the accuracy of these estimates, determine the effect (increase or decrease and amount) on the income from operations of the business if Department B had been discontinued. 194. Some items are omitted from each of the following condensed divisional income statements of Demi Inc. Eastern Division Western Division Central Division Sales $ (1) $420,000 $580,000 Cost of goods sold 480,000 120,000 $ (5) Gross profit $230,000 $ (3) $200,000 Operating expenses 95,000 160,000 $ (6) Income from operations $ (2) $ (4) $ 75,000 (a) Determine the amount of the missing items, identifying them by number. (b) Based on income from operations, which division is the most profitable? 195. Using the data from the Coffee & Cocoa Company, (a) determine the divisional income from operations for the three regions by allocating the service department expenses proportional to the sales of the regions. (b) determine the increase or decrease in net income if C Region did not operate. A Region B Region C Region Sales $600,000 $900,000 $300,000 Cost of goods sold 200,000 350,000 190,000 Selling expenses 150,000 275,000 100,000 Service department expenses Purchasing 120,000 Payroll accounting 80,000 196. Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows: Division A Division B Revenues $190,000 $125,500 Operating expenses 112,500 92,750 Service department charges 29,500 12,625 Invested assets 225,000 99,000 (a) Prepare condensed income statements for the past year for each division. (b) Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division. 197. Data for Divisions A, B, C, D, and E are as follows: Div. Sales Income from Operations Inv. Assets Rate of Return on Inv. Profit Margin Invest. Turnover A (1) $35,000 $200,000 (2) (3) 1.6 B $455,000 (4) $284,375 16% (5) (6) C $525,000 $73,500 (7) (8) (9) 1.2 D $800,000 (10) (11) (12) 13.0% 2.5 E (13) (14) $250,000 (15) 16.0% 2.0 (a) Determine the missing items, identifying each by number. (b) Which division is most profitable in terms of income from operations? (c) Which division is most profitable in terms of rate of return on investment? Round percentage values to one decimal point. 198. Several items are missing from the following table of rate of return on investment and residual income. Determine the missing items, identifying each item by the appropriate letter. Invested Assets Income from Oper. Rate of Return on Inv. Min. Rate of Return Min. Amt. of Income from Oper. Residual Income (a) (b) (c) 16% $128,000 $10,000 $850,000 $153,000 (d) 12% (e) (f) $825,000 (g) 20% (h) (i) $24,000 (j) $129,000 24% (k) $ 60,000 (l) Round percentage values to one decimal point. 199. The sales, income from operations, and invested assets for each division of Grosbeak Company are as follows: Sales Income from Operations Invested Assets Division E $5,000,000 $550,000 $2,400,000 Division F 4,800,000 860,000 2,500,000 Division G 7,000,000 860,000 2,900,000 (a) Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division. Round profit margin percentage to two decimal places, investment turnover to four decimal places, and rate of return on investment to one decimal place. (b) Which division is the most profitable per dollar invested? 200. The sales, income from operations, and invested assets for each division of Wren Company are as follows: Sales Income from Operations Invested Assets Division C $5,000,000 $630,000 $4,000,000 Division D 6,800,000 760,000 3,900,000 Division E 3,750,000 750,000 7,500,000 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? 201. Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. (a) If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase? (b) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division A increase? (c) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division B increase? (d) If the negotiated price approach is used, what would be the range of acceptable transfer prices? 202. The sales, income from operations, and invested assets for each division of Marcus Company are as follows: Sales Income from Operations Invested Assets Residual Income Division X $5,000,000 $645,000 $4,100,000 $235,000 Division Y 6,800,000 777,000 4,000,000 377,000 Division Z 3,750,000 760,000 7,600,000 0 Determine the minimum rate of return for invested assets.

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