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Exam 24: Performance Evaluation for Decentralized Operations

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Question 81

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A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:

A) profit margin
B) indirect margin
C) investment turnover
D) cost ratio

E) None of the above
F) B) and C)

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Question 82

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The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The net income for Train Corporation is:

A) $83,180
B) $35,940
C) $48,390
D) $60,840

E) None of the above
F) B) and C)

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Question 83

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Which of the following is not one of the common types of responsibility centers?

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

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?

Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the rate of return on investment for Division X?

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the investment turnover?

Separation of businesses into more manageable operating units is termed decentralization.

Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:

The ratio of income from operations to sales is termed the profit margin component of the rate of return on investment.

Responsibility accounting reports for profit centers are normally in the form of income statements.

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%. The residual income for Mason is:

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

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.

Hamlin Corporation had $220,000 in invested assets, sales of $242,000, income from operations amounting to $70,400, and a desired minimum rate of return of 3%. The rate of return on investment for Hamlin is:

Depreciation expense on store equipment for a department store is an indirect expense.

Budget performance reports prepared for the vice-president of production would generally contain less detail than reports prepared for the various plant managers.

The balanced scorecard measures

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.

The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department.