Chapter 23(8): Performance Evaluation for Decentralized Operations
120.
Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000,
and a
desired minimum rate of return of 3%. The rate of return on investment for Marshall is
a. 9.1%
b. 30%
c. 3.0%
d. 27.3%
121.
The profit margin for Chicks is
a. 25%
b. 22%
c. 15%
d. 27.5%
122.
The investment turnover for Chicks is
a. 1.3
b. 1.5
c. 1.0
d. 1.1
123.
The residual income for Chicks is
a. $165,000
b. $302,500
c. $137,500
d. $191,500
124.
What is Clydesdale Company’s profit margin?
a. 20%
b. 80%
c. 44.4%
d. 18%
125.
What is Clydesdale Company’s investment turnover?
a. 1.80
b. 2.25
c. 1.25
d. 1.4
126.
What is Clydesdale Company’s rate of return on investment?
a. 56%
b. 20%
c. 45%
d. 25%
127.
What is Clydesdale Company’s residual income?
a. $252,000
b. $900,000
c. $1,400,000
d. $760,000
128.
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
129.
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
130.
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.
costs, revenues, and assets invested in the center
131.
In an investment center, the manager has responsibility and authority for making decisions that affect
a.
costs only
b.
revenues only
c.
assets only
d.
costs, revenues, and assets
132.
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
133.
The investment turnover is the ratio of
a.
income from operations to sales
b.
income from operations to invested assets
c.
assets to liabilities
d.
sales to invested assets
134.
The formula for the rate of return on investment is
a.
Invested assets/Income from operations
b.
Sales/Invested assets
c.
Income from operations/Sales
d.
Income from operations/Invested assets
135.
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
136.
Which of the following formulas is 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
137.
The profit margin for Central Division is 20% and the investment turnover is 2.8. What is the rate of return
on
investment for Central Division?
a. 20%
b. 7.1%
c. 14%
d. 56%
138.
Central Division for Chemical Company has a rate of return on investment of 22% and an investment turnover of
1.4. What is the profit margin?
a. 20%
b. 15.7%
c. 14%
d. 6.36%
139.
The Central Division of the Nebraska Company has a rate of return on investment of 28% and a profit margin
of
14%. What is the investment turnover?
a. 0.2
b. 2.0
c. 5.0
d. 0.5
140.
What additional information is needed to calculate the rate of return on investment if income from operations
is
known?
a.
invested assets
b.
residual income
c.
direct expenses
d.
sales
141.
The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an
investment
turnover of 1.2. What is the profit margin?
a. 1.5%
b. 12.5%
c. 0.67%
d. 6.67%
142.
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
143.
Two divisions of Oregano Company (Divisions TX and OY) have the same profit margins. Division TX’s
investment turnover is larger than that of Division OY (1.2 to 1.0). Income from operations for Division TX is
$55,000, and income from operations for Division OY is $43,000. Division TX has a higher return on
investment
than Division OY 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
144.
The profit margin for Division C is 6% and the investment turnover is 1.2. What is the rate of return on
investment
for Division B?
a. 20%
b. 6.7%
c. 7.3%
d. 7.2%
145.
The excess of divisional income from operations over a minimum acceptable amount of divisional income
from
operations is
a.
profit margin
b.
residual income
c.
rate of return on investment
d.
gross profit
146.
Assume that divisional income from operations amounts to $215,000 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. $65,000
b. $215,000
c. $635,000
d. $150,000
147.
Which 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
148.
The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the
rate
of return on investment, is called
a.
profit margin
b.
indirect expenses
c.
investment turnover
d.
cost
149.
The ratio of sales to invested assets, which is also a factor in the DuPont formula for determing the rate of
return
on investment, is called
a.
profit margin
b.
indirect margin
c.
investment turnover
d.
cost ratio
150.
Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of
invested
assets. If management has set a minimum acceptable rate of return of 11%, the residual income is
a. $99,000
b. $691,000
c. $209,000
d. $11,000
Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000,
and invested assets of $150,000.
151.
What is the rate of return on investment for Division A?
a. 9.3%
b. 99.3%
c. 74.6%
d. 4.6%
152.
What is the profit margin for Division A?
a. 11.1%
b. 10.0%
c. 9.0%
d. 0.90%
153.
What is the investment turnover for Division A?
a. 0.93
b. 9.3
c. 1.07
d. 10.7
Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of
$58,000, and invested assets of $150,000.
154.
What is the rate of return on investment for Division D?
a. 153.3%
b. 114.7%
c. 87.2%
d. 233%
155.
What is the profit margin for Division D?
a. 42.9%
b. 83.4%
c. 49.1%
d. 65.7%
156.
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
157.
Tom’s Tool Factory is an investment center and is responsible for all of its net income and the use of its assets.
This
year, the invested assets totaled $475,000, and net income was $275,000. What is the rate of return on assets?
a. 57.9%
b. 172.3%
c. 5.0%
d. 115.0%
158.
The balanced scorecard measures four areas of financial and nonfinancial performance of a business. Identify
one
of the following that is not included as a performance measurement.
a.
internal process
b.
financial
c.
innovation and learning
d.
employees
159.
Which of 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 these
The International Boot Company has income from operations of $80,000, invested assets of $500,000, and sales of
$1,525,000.
160.
What is the profit margin?
a. 33.3%
b. 5.2%
c. 16.0%
d. 19.1%
161.
What is the investment turnover?
a. 16.0
b. 3.05
c. 0.33
d. 27.5
162.
The balanced scorecard measures
a.
only financial information
b.
only nonfinancial information
c.
both financial and nonfinancial information
d.
external and internal information
163.
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
164.
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
Chapter 23(8): Performance Evaluation for Decentralized Operations
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.
165.
How much will Division 3’s income from operations increase?
a. $150,000
b. $50,000
c. $32,000
d. $72,000
166.
How much will Division 6’s income from operations increase?
a. $8,000
b. $15,000
c. $80,000
d. $150,000
167.
How much will Square Yard Products total income from operations increase?
a. $32,000
b. $112,000
c. $80,000
d. $150,000
Chapter 23(8): Performance Evaluation for Decentralized Operations
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.
168.
How much will Division C’s income from operations increase?
a.
$0
b. $75,000
c. $12,500
d. $50,000
169.
How much will Division A’s income from operations increase?
a.
$0
b. $75,000
c. $25,000
d. $50,000
170.
How much will Jefferson’s total income from operations increase?
a. $37,500
b. $100,000
c. $62,500
d. $150,000
171.
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
172.
The transfer price approach that uses a variety of cost concepts is the
a.
negotiated price approach
b.
standard cost approach
c.
cost price approach
d.
market price approach
173.
The Nelson Company’s radio division currently is purchasing transistors from the Charlotte Co. for $3.50 each.
The
total number of transistors needed is 8,000 per month. Nelson 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. $3.26 to $3.49
b. $3.51 to $3.99
c. $3.26 to $3.99
d. $3.25 to $3.50
174.
The approach that required the transfer price to be less than the market price but greater than the supplying division’s
variable costs per unit is called the
a.
cost price approach
b.
negotiated cost approach
c.
standard cost approach
d.
market price approach
175.
Heart 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
$25. The manager of Division A has offered to purchase the units at $22 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. $22 to $30
b. $22 to $25
c. over $30
d. $25 to $30
176.
The budget for Department 6 of Cardinal 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 6 of Cardinal 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 6 of Cardinal
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?
(a)
Materials
Factory wages
Supervisory salaries
Depreciation of plant
Power and light
Insurance and property taxes
Maintenance