Chapter 13—Decentralization and Performance Evaluation Key
1. A decentralized organization is one in which:
2. A local chain department store grants each of its store managers the authority to make buying decisions for
their stores. Granting managers this kind of authority is found in which type of organization?
3. A local chain electronics store does not allow its store or district managers to make important decisions about
their stores. The main role of store managers is to supervise employees and make sure day-to-day transactions
run smoothly while district managers supervise store managers and report profitability data back to top-level
management. Not allowing store or district managers decision-making authority is most likely to be found in
4. When a few individuals at the top of an organization retain decision-making authority, the organization is
referred to as a(n):
5. Which of the following statements regarding the structure of organizations is false?
6. Which of the following is an advantage of decentralization?
7. Which of the following is not an advantage of decentralization?
8. Which of the following is often not a disadvantage of decentralization?
9. Which of the following is a disadvantage of decentralization?
10. “Responsibility accounting” is the concept that says:
11. Which of the following statements about responsibility accounting is true?
12. Which of the following reports provides key financial and nonfinancial measures of performance?
13. A manager of a cost center would most likely be held responsible for which of the following variances?
14. The manager of a cost center has control over:
15. The manager of a revenue center has control over:
16. The manager of a profit center should not be responsible for which of the following types of decisions?
17. Which type of manager would be allowed to decide whether or not new manufacturing equipment should be
purchased?
18. Which type of manager would most likely be held responsible for the return on investment (ROI) of his
segment?
19. Hillary Todd, a manager for BEO Inc., has been told that her bonus this year will be based on the segment
margin of her department. Hillary is most likely a:
20. Which of the following would be the best measure of performance for a profit center?
21. The term “strategic business unit” is often used to describe a(n):
22. Which of the following statements is true regarding a company’s segment margin?
23. In the decision-making process, which of the following situations would be best addressed by managers
using a segmented income statement rather than a contribution margin format income statement?
24. Which of the following items is often most difficult to allocate to a particular segment?
25. Costs that can not be traced or reasonably allocated to a particular segment are called:
26. Which of the following items is not part of the calculation for segment margin?
27. Which of the following statements is true regarding the allocation of a company’s indirect fixed costs?
28. Finley Company has its company headquarters based in Raleigh, North Carolina, and has six individual
retail stores spread throughout North Carolina and Virginia. Which of the following costs would most likely be
treated as a common cost for segmented reporting purposes?
29. Pennington Products
Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the
product lines are as follows:
R-100
R-200
Selling price per unit
$45
$60
Variable costs per unit
15
24
Traceable fixed expenses
$250,000
$360,000
Pennington has common fixed expenses of $250,000 per year. Last year, the company produced and sold 30,000 units of R-100 and 20,000 units of
R-200.
Refer to the Pennington Products information above. What is the segment margin of the R-100 product line?
30. Pennington Products
Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the
product lines are as follows:
R-100
R-200
Selling price per unit
$45
$60
Variable costs per unit
15
24
Traceable fixed expenses
$250,000
$360,000
Pennington has common fixed expenses of $250,000 per year. Last year, the company produced and sold 30,000 units of R-100 and 20,000 units of
R-200.
Refer to the Pennington Products information above. What is the segment margin ratio of the R-200 product line?
31. Pennington Products
Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the
product lines are as follows:
R-100
R-200
Selling price per unit
$45
$60
Variable costs per unit
15
24
Traceable fixed expenses
$250,000
$360,000
Pennington has common fixed expenses of $250,000 per year. Last year, the company produced and sold 30,000 units of R-100 and 20,000 units of
R-200.
Refer to the Pennington Products information above. What is the company’s overall net income?
32. Fun-Town Amusement Center
Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three
separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each
of these divisions for the year just ended:
Miniature
Golf
Arcade
Laser Tag
$225,000
$500,000
$300,000
50,000
100,000
75,000
30,000
40,000
35,000
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin for the miniature golf division is:
33. Fun-Town Amusement Center
Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three
separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each
of these divisions for the year just ended:
Miniature
Golf
Arcade
Laser Tag
$225,000
$500,000
$300,000
50,000
100,000
75,000
30,000
40,000
35,000
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin for the arcade division is:
34. Fun-Town Amusement Center
Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three
separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each
of these divisions for the year just ended:
Miniature
Golf
Arcade
Laser Tag
$225,000
$500,000
$300,000
50,000
100,000
75,000
30,000
40,000
35,000
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin ratio for the laser tag division is:
35. WSR Inc.
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income
statements for these two products are as follows:
Sodas
Chips
Sales
$800,000
$900,000
Variable expenses
200,000
315,000
Contribution margin
600,000
585,000
Traceable fixed expense
120,000
160,000
Segment margin
$480,000
$425,000
WSR’s management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected
to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by
$200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. What will be the overall net effect on the company’s total profits if the advertising focuses on sodas?
36. WSR Inc.
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income
statements for these two products are as follows:
Sodas
Chips
Sales
$800,000
$900,000
Variable expenses
200,000
315,000
Contribution margin
600,000
585,000
Traceable fixed expense
120,000
160,000
Segment margin
$480,000
$425,000
WSR’s management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected
to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by
$200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. What will be the overall net effect on the company’s total profits if the advertising focuses on chips?
37. WSR Inc.
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income
statements for these two products are as follows:
Sodas
Chips
Sales
$800,000
$900,000
Variable expenses
200,000
315,000
Contribution margin
600,000
585,000
Traceable fixed expense
120,000
160,000
Segment margin
$480,000
$425,000
WSR’s management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected
to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by
$200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. Which of the following statements is true regarding which product the advertising campaign should
feature?
38. The rate of return generated by an investment center’s assets is called:
39. Return on investment (ROI) is calculated by:
40. A company has computed that their “margin” is .18. Which of the following statements is the best
interpretation of these results?
41. A company has computed that their “asset turnover” is 3. Which of the following statements is the best
interpretation of these results?
42. When defining net operating income for return on investment (ROI) purposes, which of the following items
should not be included?
43. Hardcastle Ltd. had sales of $3,000,000 and net operating income of $800,000. Operating assets during the
year averaged $1,500,000. The manager of Hardcastle is considering the purchase of a new machine which is
expected to increase average operating assets by 5%. If the new machine is purchased, the company’s new
return on investment (ROI) would be:
44. Bryan Manufacturing had sales of $4,000,000 and net operating income of $700,000. Operating assets
during the year averaged $600,000. The manager of Hardcastle is considering the purchase of a new machine
which is expected to increase average operating assets by 8%. If the new machine is purchased, the company’s
new return on investment (ROI) would be:
45. For the current year, Winston Inc. reported sales of $800,000 and an asset turnover of 2. The rate of return
on average invested assets was 20%. The company’s margin for the year was:
46. Carson Inc.
Carson Inc. had the following information available at the end of its current year:
Sales
$2,000,000
Net operating income
500,000
Average operating assets
1,200,000
Refer to the Carson Inc. information above. What was Carson’s return on investment (ROI) for the year?
47. Carson Inc.
Carson Inc. had the following information available at the end of its current year:
Sales
$2,000,000
Net operating income
500,000
Average operating assets
1,200,000
Refer to the Carson Inc. information above. What was Carson’s margin for the year?
48. Carson Inc.
Carson Inc. had the following information available at the end of its current year:
Sales
$2,000,000
Net operating income
500,000
Average operating assets
1,200,000
Refer to the Carson Inc. information above. What was Carson’s asset turnover for the year?
49. Astin Ltd. requires all of its divisions to maintain a return on investment (ROI) of at least 25%. Over the
past several years, one of Astin’s divisions has consistently had the following information:
Sales
$2,000,000
Net operating income
500,000
In order to achieve the company’s ROI goals, this division should do which of the following?
50. All else being equal, which of the following items would increase a company’s return on investment (ROI)?
51. Which of the following statements regarding ROI computations is true?
52. Residual income:
53. Residual income:
54. Which of the following statements comparing ROI and residual income is correct?
55. Which of the following is the correct formula to compute residual income?
56. Duncan Ltd. has the following information available for one its divisions in the current year:
Sales revenue
$6,000,000
Operating expenses
3,800,000
Average operating assets
2,000,000
Duncan requires each of its divisions to generate a minimum return of 25%. What is this division’s residual income?
57. Shannon Pharmaceuticals has the following information available for one of its divisions in the current year:
Sales revenue
$10,000,000
Operating expenses
4,500,000
Average operating assets
4,000,000
The company requires each of its divisions to generate a minimum return of 30%. What is this division’s residual income?
58. ABC Inc. has the following information available for one of its divisions:
Average operating assets
$5,000,000
Return on investment (ROI)
40%
Sales
$8,000,000
If ABC requires a minimum return on its investments of 25%, what is their residual income?
59. Economic value added (EVA):
60. Economic value added is equal to:
61. When calculating economic value added (EVA), which of the following statements is true regarding the
weighted-average cost of capital?
62. Roanoke Products Inc. has been asked by its shareholders to calculate the economic value added (EVA) for
the current year. Roanoke’s controller has the following information available:
Before-tax profit
$1,200,000
Total assets
4,000,000
Current liabilities
600,000
Average interest rate on debt
8%
Average tax rate
28%
The company’s EVA is:
63. Portia Products Inc. has been asked by its shareholders to calculate the economic value added (EVA) for the
current year. Portia’s controller has the following information available:
Before-tax profit
$6,000,000
Total assets
10,000,000
Current liabilities
2,000,000
Average interest rate on debt
10%
Average tax rate
40%
The company’s EVA is:
64. Donnelly Inc. has been asked by its shareholders to calculate the economic value added (EVA) for the
current year. Donnelly’s controller has the following information available:
Before-tax profit
$5,000,000
Current assets
2,000,000
Long-term assets
4,000,000
Current liabilities
900,000
Long-term liabilities
3,500,000
Average interest rate on debt
10%
Average tax rate
40%
The company’s EVA is: