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Exam 9: Evaluating Decentralized Operations

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Question 41

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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

E) B) and D)
F) B) and C)

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Question 42

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Miller's Quarter Horse Company has sales of $4,500,000. It also has invested assets of $2,500,000 and operating expenses of $3,800,000. The company has established a minimum rate of return of 7%. (a) What is Miller's profit margin? (b) What is the investment turnover? (c) What is the rate of return on investment? (d) What is Miller's residual income?

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(a)  $4,500,000 - $3,800,000 = $700,000 ...

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Question 43

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In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

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?

If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover is 1.3.

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. (a) If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase? (b) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division A increase? (c) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division B increase? (d) If the negotiated price approach is used, what would be the range of acceptable transfer prices?

ABC Corporation has three service departments with the following costs and activity base: What is the service department charge rate for the Personnel Department?

If Division Q's yearly income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.

The DuPont formula uses financial information to measure the performance of a business.

The profit center income statement should include only controllable revenues and expenses.

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

For higher levels of management, responsibility accounting reports

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?

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

If divisional income from operations is $75,000, invested assets are $737,500, and the minimum rate of return on invested assets is 6%, the residual income is $36,750.

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

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

Using the data below for the Coffee & Cocoa Company, (a) determine the divisional income from operations for the three regions by allocating the service department expenses proportional to the sales of the regions. (b) determine the increase or decrease in net income if C Region did not operate.

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 manager is responsible for costs only in a(n)