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Exam 8: Performance Evaluation for Decentralized Operations

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Question 101

Multiple Choice

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The net income for Train Corporation is

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

E) C) and D)
F) All of the above

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Question 102

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The ratio of sales to investment is termed the rate of return on investment.

A) True
B) False

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Question 103

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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 the total magnitude of income from operations earned by each division.

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

Which of the following is a measure of a manager's performance working in a profit center?

Most manufacturing plants are considered cost centers because they have control over

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%.

In an investment center, the manager has responsibility and authority for making decisions that affect

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.

An activity base is used to charge service department expenses.Match each of the following activity bases with the appropriate department a-h. -Number of payroll checks

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

Match each of the following phrases as describing a an advantage, b a disadvantage, or c neither of decentralization. -Responsibilities delegated to unit managers

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.

The investment turnover is the ratio of

Match each of the following phrases as describing a an advantage, b a disadvantage, or c neither of decentralization. -Separate sales forces

What is the profit margin?

The investment turnover for Mason is

The sales, income from operations, and invested assets for each division of Wren Company are as follows: Management has established a minimum rate of return for invested assets of 8%. a Determine the residual income for each division. b Based on residual income, which of the divisions is the most profitable?

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