Question 1

In the rate of return on investment analysis,the investment turnover component focuses on the efficiency in the use of assets and indicates the number of sales dollar generated for each dollar of invested assets.

Accepted Answer

A) True 
 B)False

Question 2

A decentralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A) True 
 B)False

Question 3

The major shortcoming of using income from operations as an investment center performance measure is that,it ignores the amount of assets invested in each center.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

Accepted Answer

A)  Rate of return on investment
B)  Negotiated price
C)  Residual income
D)  Income from operationsE) B) and D)
F) A) and D)

Question 5

The excess of divisional income from operations over a minimum acceptable divisional income from operations is termed:

Accepted Answer

A)  profit margin.
B)  residual income.
C)  rate of return on investment.
D)  gross profit.E) A) and B)
F) C) and D)

Question 6

Income from operations of the Commercial Aviation Division is $3,300,000.If income from operations before service department charges is $3,900,000:

Accepted Answer

A)  operating expenses are $600,000.
B)  total service department charges are $600,000.
C)  noncontrollable charges are $7,200,000.
D)  direct manufacturing charges are $3,900,000.E) A) and D)
F) A) and C)

Question 7

The rates at which services are charged to each division are called service department charge rates.

Accepted Answer

A) True 
 B)False

Question 8

The excess of divisional income from operations over a minimum amount of desired income from operations is termed residual income.

Accepted Answer

A) True 
 B)False

Question 9

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Accepted Answer

A) True 
 B)False

Question 10

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets.If management desires a minimum rate of return of 12%,the profit margin would be:

Accepted Answer

A)  59.5%.
B)  13.4%.
C)  12%.
D)  8%.E) All of the above
F) A) and B)

Question 11

Which type of organization would be most effective for a small owner/manager-operated business?

Accepted Answer

A)  Decentralized
B)  Centralized
C)  Matrix
D)  SegmentedE) A) and C)
F) B) and C)

Question 12

By using the rate of return on investment as a divisional performance measure,divisional managers will always be motivated to invest in proposals that will increase the overall rate of return for the company.

Accepted Answer

A) True 
 B)False

Question 13

In large businesses,decentralization is often advantageous because:

Accepted Answer

A)  it allows top management to make all decisions,thus ensuring that overall operational goals are met.
B)  it prevents decisions from one unit to negatively affect the profitability of the entire company.
C)  it allows departmental managers to focus on acquiring expertise in their areas of responsibility.
D)  it prevents duplication of assets and expense.E) A) and B)
F) A) and C)

Question 14

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also to the total magnitude of income from operations earned by each division.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

Accepted Answer

A)  Invested Assets/Sales
B)  Income From Operations/Invested Assets
C)  Income From Operations/Sales
D)  Sales/Invested AssetsE) B) and D)
F) None of the above

Question 16

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the investment turnover would be 5.0.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a disadvantage of decentralized operation?

Accepted Answer

A)  It does not allow managers to become experts in their area of operation.
B)  Top management has less time to devote to long range strategic planning.
C)  It does not allow managers closest to the operations to make decisions.
D)  It may result in duplicate assets and expenses.E) A) and B)
F) C) and D)

Question 18

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Accepted Answer

A) True 
 B)False

Question 19

In a profit center,the department manager has responsibility for and the authority to make decisions that affect:

Accepted Answer

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.E) All of the above
F) B) and C)

Question 20

The objective of transfer pricing is to encourage each division's manager to transfer goods and services in such a manner that will increase the overall company income.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Evaluation for Decentralized Operations

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Correct AnswerverifiedShow Answer

The objective of transfer pricing is to encourage each division's manager to transfer goods and services in such a manner that will increase the overall company income.

Correct AnswerverifiedShow Answer

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Correct AnswerverifiedShow Answer

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the investment turnover would be 5.0.

Correct AnswerverifiedShow Answer

Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

Correct AnswerverifiedShow Answer

In the rate of return on investment analysis,the investment turnover component focuses on the efficiency in the use of assets and indicates the number of sales dollar generated for each dollar of invested assets.

Correct AnswerverifiedShow Answer

A decentralized business organization is one in which all major planning and operating decisions are made by top management.

Correct AnswerverifiedShow Answer

Income from operations of the Commercial Aviation Division is $3,300,000.If income from operations before service department charges is $3,900,000:

Correct AnswerverifiedShow Answer

The rates at which services are charged to each division are called service department charge rates.

Correct AnswerverifiedShow Answer

Which of the following is a disadvantage of decentralized operation?

Correct AnswerverifiedShow Answer

In a profit center,the department manager has responsibility for and the authority to make decisions that affect:

Correct AnswerverifiedShow Answer

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets.If management desires a minimum rate of return of 12%,the profit margin would be:

Correct AnswerverifiedShow Answer

The major shortcoming of using income from operations as an investment center performance measure is that,it ignores the amount of assets invested in each center.

Correct AnswerverifiedShow Answer

The excess of divisional income from operations over a minimum acceptable divisional income from operations is termed:

Correct AnswerverifiedShow Answer

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

Correct AnswerverifiedShow Answer

By using the rate of return on investment as a divisional performance measure,divisional managers will always be motivated to invest in proposals that will increase the overall rate of return for the company.

Correct AnswerverifiedShow Answer

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also to the total magnitude of income from operations earned by each division.

Correct AnswerverifiedShow Answer

Which type of organization would be most effective for a small owner/manager-operated business?

Correct AnswerverifiedShow Answer

In large businesses,decentralization is often advantageous because:

Correct AnswerverifiedShow Answer

The excess of divisional income from operations over a minimum amount of desired income from operations is termed residual income.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified