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Chapter 14
81. 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.
82. 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
Chapter 14
83. Operating income for Division M is $150,000, and operating income before service department charges is $975,000.
Therefore,:
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.
84. Responsibility accounting reports for profit centers will include:
a.
only costs.
b.
only revenues.
c.
both expenses and fixed assets.
d.
revenues, expenses, and net income or loss from operations.
Chapter 14
85. Some organizations use internal service departments to provide 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
86. Which of the following statements is used to measure the performance of a profit center's manager?
a.
A divisional statement of cash flows
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b.
A divisional bank reconciliation statement
c.
A divisional balance sheet
d.
A divisional income statement
87. Which of the following would not be considered as an internal centralized service department?
a.
Payroll accounting department
b.
Manufacturing department
c.
Information systems department
d.
Purchasing department
Chapter 14
88. 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, 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.
89. The following data are taken from the management accounting reports of Dancer Co.:
Div. A
Div. B
Div. C
Operating income
$1,800,000
$1,350,000
$1,900,000
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 operating income 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.
Chapter 14
90. 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.
Chapter 14
91. 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 operating income for the Southern Division is:
a.
$150,000.
b.
$120,000.
c.
$295,000.
d.
$154,400.
92. 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
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Interest expense
$12,000
General overhead
101,000
Income tax
26,700
The net income for Globe Corporation is:
a.
$59,000.
b.
$160,000.
c.
$19,400.
d.
$47,000.
93. How do the responsibilities of a manager in an investment center compare to the responsibilities of managers in a cost
or profit center?
a.
Investment center managers have more authority and responsibility than managers of a cost or profit center.
b.
Investment center managers have more authority and responsibility than managers of a cost center but less
than managers of a profit center.
c.
Investment center managers have about the same authority and responsibility as managers of a cost or profit
center.
d.
Investment center managers have more authority and responsibility than managers of a profit center but less
than managers of a cost center.
Chapter 14
94. Zygot Inc. had $650,000 invested in assets, sales of $1,250,000, operating income amounting to $140,000, and a
minimum acceptable rate of return of 12% on its invested assets. The rate of return on investment for Zygot is:
a.
16.2%.
b.
21.5%.
c.
14.5%.
d.
25.0%.
95. Zync Inc. had $1,150,000 in invested assets, sales of $1,300,000, operating income amounting to $185,000, and a
minimum acceptable rate of return of 15% on its invested assets. Zync's profit margin is:
a.
26.0%.
b.
18.8%.
c.
16.5%.
d.
14.2%.
Chapter 14
96. 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
97. 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.
Chapter 14
98. 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.
99. 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%.
Chapter 14
b.
20%.
c.
32%.
d.
6.4%.
100. Division X's profit margin is 17%, and its investment turnover is 4.2. What is the rate of return on investment for
Division X?
a.
4.0%
b.
71.4%
c.
26.8%
d.
38.2%
Chapter 14
101. Division M for Movism Company has a rate of return on investment of 20% and an investment turnover of 1.5. What
is the profit margin?
a.
20%
b.
13%
c.
15%
d.
30%
102. 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%
Chapter 14
103. In an investment center, the manager has responsibility and authority for making decisions that affect:
a.
only costs.
b.
both costs and revenues.
c.
only assets.
d.
costs, revenues, and assets.
104. Division B's profit margin is 16%, and the investment turnover is 1.80. What is Division B's rate of return on
investment?
a.
15.7%
b.
28.8%
c.
17.0%
d.
10.6%
Chapter 14
105. The profit margin is calculated as the ratio of operating income to:
a.
invested assets.
b.
investment turnover.
c.
sales.
d.
residual income.
106. The investment turnover is calculated as the ratio of sales to:
a.
operating income.
b.
invested assets.
c.
marketable investments.
d.
profit margin.
Chapter 14
107. 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
108. Identify the formula used to calculate profit margin.
a.
Profit margin = Sales ÷ Operating income
b.
Profit margin = Operating income ÷ Invested assets
c.
Profit margin = Invested assets ÷ Operating income
d.
Profit margin = Operating income ÷ Sales
Chapter 14
109. 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.
Operating Income/Invested Assets
c.
Operating Income/Sales
d.
Sales/Invested Assets
110. 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
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c.
1.9
d.
3.5
111. What additional information is needed to find the rate of return on investment if operating income is known?
a.
Invested assets
b.
Residual income
c.
Direct expenses
d.
Sales
