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Exam 8: Performance Evaluation for Decentralized Operations

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Question 1

True/False

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The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.

A) True
B) False

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Question 2

Multiple Choice

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Income from operations for Division Z is $250,000, total service department charges are $400,000 and operating expenses are $2,266,000. What are the revenues for Division Z?

A) $650,000
B) $2,516,000
C) $2,916,000
D) $2,666,000

E) B) and D)
F) A) and D)

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C

Question 3

Multiple Choice

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

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2.

What additional information is needed to find the rate of return on investment if income from operations is known?

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2.

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.

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What will the income of the Macro Division be after all service department allocations?

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 investment turnover for Mason is:

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

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

The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business.

Materials used by the Layton Company Division 1 are currently purchased from outside supplier at $58 per unit. Division 2 is able to supply Division 1 with 22,000 units at a variable cost of $46 per unit. The two divisions have recently negotiated a transfer price of $50 per unit for the 20,000 units. Required: By how much will each division's income increase as a result of this transfer?

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: How much service department cost will be allocated to the Micro Division?

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's profit margin?