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Chapter 23(8): Performance Evaluation for Decentralized Operations
64.
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.
a.
True
b.
False
65.
Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.
a.
True
b.
False
66.
Under the cost price approach, the transfer price is the price at which the product or service transferred could be
sold to outside buyers.
a.
True
b.
False
67.
Under the negotiated price approach, the transfer price is the price at which the product or service
transferred
could be sold to outside buyers.
a.
True
b.
False
68.
The negotiated price approach allows the managers of decentralized units to agree on the transfer price.
a.
True
b.
False
69.
It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has
unused
capacity in its plant.
a.
True
b.
False
70.
The cost price approach for transfer pricing is most often used between responsibility centers organized as
cost
centers that are not concerned with the revenue.
a.
True
b.
False
71.
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
72.
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
73.
Which of the following is not a disadvantage of decentralized operation?
a.
competition among managers
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
74.
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 these, all are examples of a centralized operation
75.
All of the following are advantages of decentralization except
a.
Managers make better decisions when closer to the operations 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 its own assets and pays for operating costs.
d.
Decentralized managers can respond quickly to customer needs.
76.
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
77.
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.
Decentralization helps retain quality managers.
c.
Managers closest to the operations make decisions.
d.
Managers are able to acquire expertise in their areas of responsibility.
78.
A manager is responsible for costs only in a(n)
a.
profit center
b.
investment center
c.
volume center
d.
cost center
79.
In a cost center, the manager has responsibility and authority for making decisions that affect
a.
revenues
b.
investments in assets
c.
both costs and revenues
d.
costs
80.
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
81.
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
82.
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
83.
Which of the following is a measure of a cost center manager’s performance?
a.
budget performance report
b.
rate of return and residual income measures
c.
divisional income statements
d.
balance sheet
84.
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
85.
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
86.
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
87.
In a profit center, the manager has responsibility and authority for making decisions that affect
a.
long-term liabilities
b.
assets
c.
investments
d.
costs
88.
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
a.
miscellaneous administrative expenses
b.
direct operating expenses
c.
indirect expenses
d.
fixed expenses
89.
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
90.
Income from operations of the Pierce Automobile 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
91.
The costs of services charged to a profit center on the basis of its use of those services are
a.
operating expenses
b.
noncontrollable charges
c.
service department charges
d.
activity charges
92.
Division A reported income from operations of $975,000 and total service department charges of $675,000. As
a
result,
a.
net income was $300,000
b.
the gross profit margin was $300,000
c.
income from operations before service department charges was $1,650,000
d.
consolidated net income was $300,000
93.
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
94.
Income from operations for Division L is $250,000, total service department charges are $400,000 and
operating
expenses are $2,750,000. What are the revenues for Division L?
a. $650,000
b. $3,000,000
c. $3,400,000
d. $2,750,000
95.
Income from operations for Division H is $220,000, and income from operations before service department
charges
is $975,000. As a result,
a.
total operating expenses are $565,000
b.
total manufacturing expenses are $565,000
c.
direct materials, direct labor, and factory overhead total $565,000
d.
total service department charges are $755,000
96.
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.
Divisions B and C's managers divide the bonus
97.
The term used to describe expenses that are incurred by a specific department is
a.
indirect expenses
b.
margin expenses
c.
departmental expenses
d.
direct expenses
Chapter 23(8): Performance Evaluation for Decentralized Operations
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
Sales
108,000
78,000
Interest expense
$ 2,040
General overhead
18,160
Income tax
4,700
98.
The income from operations for the Rails Division is
a. $60,800
b. $33,600
c. $8,700
d. $21,150
99.
The gross profit for the Rails Division is
a. $60,800
b. $33,600
c. $8,700
d. $21,150
100.
The gross profit for the Locomotive Division is
a. $57,960
b. $14,790
c. $27,240
d. $47,280
101.
The income from operations for the Locomotive Division is
a. $57,960
b. $14,790
c. $27,240
d. $47,280
102.
The net income for Train Corporation is
a. $83,180
b. $35,940
c. $48,390
d. $60,840
103.
Responsibility accounting reports for profit centers will include
a.
costs only
b.
revenues only
c.
expenses and fixed assets
d.
revenues, expenses, net income or loss from operations
104.
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
105.
Which of the following is a measure of a manager’s performance working in a profit center?
a.
a balance sheet
b.
the rate of return and residual income measures
c.
a budget performance report
d.
the divisional income statements
106.
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
ABC Corporation has three service departments with the following costs and activity base:
Service Department
Cost
Activity Base for
Allocation
Graphics Production
$200,000
number of copies
Accounting
500,000
number of invoices
processed
Personnel Department
400,000
number 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
Number of copies made
20,000
30,000
50,000
Number of invoices processed
700
800
500
Number of employees
130
145
125
107.
What is the service department charge rate for Graphics Production?
a. $2.00
b. $10.00
c. $6.66
d. $0.50
108.
What is the service department charge rate for the Accounting Department?
a. $714
b. $250
c. $625
d. $0.004
109.
What is the service department charge rate for the Personnel Department?
a. $2,758
b. $3,200
c. $3,077
d. $1,000
110.
How much service department cost will be allocated to the Micro Division?
a. $200,000
b. $145,000
c. $60,000
d. $345,000
111.
How much service department cost would be allocated to the Macro Division?
a. $405,000
b. $175,000
c. $130,000
d. $305,000
112.
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
113.
How much service department cost would be allocated to the Super Division?
a. $350,000
b. $100,000
c. $125,000
d. $550,000
114.
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
115.
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
116.
Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to
$33,000 and a desired minimum rate of return of 7.5%. The rate of return on investment for Blaser Corporation
is
a. 8.3%
b. 10%
c. 12%
d. 7.5%
Chapter 23(8): Performance Evaluation for Decentralized Operations
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%.
117.
The profit margin for Mason is
a. 7.1%
b. 20%
c. 15.2%
d. 14.1%
118.
The investment turnover for Mason is
a. 1.08
b. 0.93
c. 6.57
d. 7.07
119.
The residual income for Mason is
a.
$0
b. $84,150
c. $(6,000)
d. $1,500
