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Exam 8: Performance Evaluation for Decentralized Operations

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Question 51

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The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units. By how much will each division's income increase as a result of this transfer?

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Question 52

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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 investment turnover?

A) 1.80
B) 2.25
C) 1.25
D) 1.4

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

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Question 53

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The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

In evaluating the profit center manager, the income from operations should be compared:

The investment turnover is the:

The following is a measure of a manager's performance working in a profit center.

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

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.

Three measures of investment center performance are income from operations, rate of return on investment, and residual income.

The budget for Department 10 of Treble Company for the current month ending March 31 is as follows:

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

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 transfer price which uses a variety of cost concepts is the

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

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?

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses.

Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases.

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 responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n) :

Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.