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Exam 24: Performance Evaluation for Decentralized Operations

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Question 101

True/False

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Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar.

A) True
B) False

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Question 102

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

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Question 103

Multiple Choice

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To calculate income from operations, total service department charges are:

Using the data from the Terrace Industries, determine the divisional income from operations for Districts 1 & 2. Allocate service department expenses proportional to the sales of each district.

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

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?

Developing and retaining quality managers is an advantage of decentralization.

Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the rate of return on investment for Division A?

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 responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

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

Which of the following is NOT a disadvantage of decentralized operation?

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 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.

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.

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

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 Super Division be after all service department allocations?

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