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c. direct expenses
d. variable expenses
110. The balanced scorecard measures _____.
a. only financial information
b. only nonfinancial information
c. both financial and nonfinancial information
d. both external and internal information
111. 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. Operating income
112. Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000
of invested assets. If the management desires a minimum rate of return of 12% on the invested assets, Division A’s
residual income would be _____.
a. $85,000
b. $52,500
c. $81,500
d. $38,000
113. Blair Inc. had $725,000 in invested assets, sales of $1,100,000, operating income amounting to $72,000, and a
minimum acceptable rate of return of 14% on its invested assets. Blair’s investment turnover is _____.
a. 1.7
b. 1.3
c. 1.1
d. 1.5
114. Big Inc. had $275,000 invested in assets, sales of $302,500, operating income of $60,500, and a minimum acceptable
rate of return of 5% on its invested assets. The rate of return on investment for Big Inc. is _____.
a. 22%
b. 20%
c. 32%
d. 6.4%
115. Operating income for Division A is $520,000, total service department charges are $480,000, and operating expenses
are $3,200,000. What are the revenues for Division A?
a. $2,810,000
b. $1,000,000
c. $5,530,000
d. $4,200,000
116. Which of the following is true of the balanced scorecard?
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a. It ignores the financial performance of the company.
b. It has the ability to reveal the underlying nonfinancial drivers of financial performance.
c. It aims to improve the nonfinancial performance of the business.
d. It focuses primarily on the short term performance of the business.
117. 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
118. Division Y has generated sales revenue of $260,000 and achieved operating income of $18,500 using $20,000 of
invested assets. If management desires a minimum rate of return of 10%, the profit margin would be _____.
a. 19.5%
b. 14.4%
c. 10.2%
d. 7.1%
119. The following financial information was summarized from the accounting records of Globe Corporation for the
current year ended December 31:
Northern Southern Corporate
Division Division Total
Cost of goods sold $310,000 $175,000
Direct operating expenses 250,000 115,000
Net sales 600,000 410,000
Interest expense $12,000
General overhead 101,000
Income tax 26,700
The gross profit for the Southern Division is _____.
a. $150,000
b. $295,000
c. $235,000
d. $120,000
120. The following data are taken from the management accounting reports of Dancer Co.:
Div. A Div. B Div. C
Operating income $3,600,000 $3,700,000 $2,700,000
Total service department charges 3,400,000 2,100,000 2,200,000
If an incentive bonus is paid to the manager who achieved the highest operating income before service department
charges, _____.
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
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121. Division Z of Stark Inc. has a rate of return on investment of 17% and a profit margin of 9%. What is its investment
turnover?
a. 4.1
b. 2.3
c. 1.9
d. 3.5
122. Division R reported operating income of $800,000 and total service department charges of $275,000. Therefore its
_____.
a. net income was $1,075,000
b. gross profit margin was $525,000
c. operating income before service department charges was $1,075,000
d. consolidated non operating income was $420,000
123. The manager of a profit center has the responsibility for making decisions that affect the center’s _____.
a. costs, revenues, and investment in fixed assets
b. investment in fixed assets, but not costs
c. costs and revenues, but not investment in fixed assets
d. revenues and investment in fixed assets, but not costs
124. Materials used by Meeta-Products Inc. in producing Division A’s product are currently purchased from outside
suppliers at a cost of $12 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 $7 per unit. A transfer price of $9 per
unit is established, and 35,000 units of material are transferred with no reduction in Division B’s current sales.
How much would Division B’s operating income increase?
a. $75,000
b. $175,000
c. $105,000
d. $70,000
125. Materials used by Boone Company in producing Division C’s product are currently purchased from outside suppliers
at a cost of $20 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 $17 per unit. A transfer price of $19 per unit is
negotiated and 60,000 units of material are transferred, with no reduction in Division A’s current sales.
How much would Division C’s operating income increase?
a. $0
b. $180,000
c. $60,000
d. $120,000
126. Identify the formula for the rate of return on investment.
a. Invested assets/Operating income
b. Sales/Invested assets
c. Operating income/Sales
d. Operating income/Invested assets
127. The profit margin is calculated as the ratio of operating income to _____.
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a. invested assets
b. investment turnover
c. sales
d. residual income
128. Abe Inc’s Division A has a rate of return on investment of 18% and an investment turnover of 1.1. What is the
division’s profit margin?
a. 9.4%
b. 14.2%
c. 11.7%
d. 16.4%
129. Materials used by Boone Company in producing Division C’s product are currently purchased from outside suppliers
at a cost of $20 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 $17 per unit. A transfer price of $19 per unit is
negotiated, and 60,000 units of material are transferred, with no reduction in Division A’s current sales.
How much would Boone’s total operating income increase?
a. $180,000
b. $240,000
c. $120,000
d. $300,000
130. Rooney Inc. had $375,000 in invested assets, sales of $735,000, operating income amounting to $105,000, and a
minimum acceptable rate of return of 12% on its invested assets. The residual income for Rooney is _____.
a. $42,500
b. $20,500
c. $60,000
d. $37,500
131. The sales, operating income, and invested assets for each division of Garner Company are as follows:
Operating Invested
Sales Income Assets
Division E $3,000,000 $470,000 $2,500,000
Division F 3,600,000 430,000 2,400,000
Division G 6,000,000 560,000 3,000,000
(a) Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment
for each division. Round to one decimal place.
(b) Which division is (are) the most profitable as per dollar invested?
132. Materials used by Ford 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 Ford Company’s total operating income increase?
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(b) How much would the operating income of Division A increase?
(c) How much would the operating income of Division B increase?
(d) If the negotiated price approach is used, what would be the range of acceptable transfer prices?
133. PDT Co. has two divisions, East and West. Invested assets and condensed income statement data for each division
for the past year ended December 31 20Y8 are as follows:
East Division West Division
Revenues $1,200,000 $800,000
Operating expenses 950,000 640,000
Service department charges 145,000 72,000
Invested assets 800,000 500,000
(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. Round to one decimal place.
134. A department store apportions payroll costs to the various departments on the basis of the number of payroll checks
issued by each department. Accounting costs are apportioned on the basis of the number of reports generated for each
department. The payroll costs for the year were $150,000, and the accounting costs for the year totaled $70,000. The
number of payroll checks issued and the number of reports generated for each department are as follows:
Number of Number
Payroll Checks of Reports
Department A 396 60
Department B 1,278 90
Department C 126 150
Determine the amount of (a) payroll cost and (b) accounting cost to be apportioned to each department.
135. A portion of the divisional income statement for the year just ended is presented in the following condensed form.
Department F
Net sales $93,800
Cost of goods sold 72,400
Gross profit $21,400
Operating expenses 28,900
Loss from operations $(7,500)
The operating expenses of Department F include $16,000 for direct expenses.
It is estimated that the discontinuance of Department F 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 the amount) on the operating income of the business if Department F had been discontinued.
136. The budget for Department 5 of Plant M for the current month ending March 31 20Y8 is as follows:
Materials $206,000
Factory wages 265,000
Supervisory salaries 67,800
Depreciation of plant and equipment 35,000
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Power and light 22,500
Insurance and property taxes 15,500
Maintenance 9,700
During March, the costs incurred in Department 5 of Plant M 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 5 of Plant M for the month of March.
(b) Are there any significant variances (greater than 5%) of the budgeted amounts that should be examined by the
supervisor?
137. The sales, operating income, and invested assets for each division of Salem Company are as follows:
Operating Invested
Sales Income Assets
Division C $4,000,000 $410,000 $3,500,000
Division D 3,500,000 600,000 4,000,000
Division E 2,250,000 780,000 7,000,000
Management has established a minimum rate of return for invested assets of 11%.
(a) Determine the residual income for each division.
(b) Based on residual income, which division is the most profitable?
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Answer Key
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