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Exam 10: Decentralized Performance Evaluation

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Question 1

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Which of the following responsibility centers will use a segmented income statement as an evaluation tool?

A) The cost center
B) The revenue center
C) The profit center
D) The administrative center

E) None of the above
F) All of the above

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Question 2

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Investment turnover is defined as:

A) the ratio of sales revenue to average invested assets.
B) the ratio of net operating income to average invested assets.
C) the ratio of net operating income to sales revenue.
D) the ratio of profit margin to return on investment.

E) A) and D)
F) A) and C)

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Question 3

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Spring Corp. has two divisions, Daffodil and Tulip. Daffodil produces a gadget that Tulip could use in its production. Tulip currently purchases 100,000 gadgets for $12.50 on the open market. Daffodil's variable costs are $6 per widget while the full cost is $9.35. Daffodil sells gadgets for $13 each. If Daffodil is operating at less than full capacity, what would be the minimum transfer price Daffodil would accept for an internal transfer?

Profit margin is defined as the ratio of sales revenue to operating income

Investment turnover is defined as:

A legal services department would be an example of a cost center

Return on investment can be calculated as:

Which of the following statements contrasting residual income with return on investment is correct?

Which of the following is considered a disadvantage of decentralization?

If the ROI of a project is greater than the hurdle rate, the residual income will be:

Dickens Company has two divisions, Bloom and Heath. Bloom produces an item that Heath could use in its production. Heath currently is purchasing 5,000 units from an outside supplier for $44 per unit. Bloom has sufficient capacity and has variable costs of $35 per unit. The full cost to manufacture the unit is $41. Bloom currently sells 450,000 units at a selling price of $48 per unit. a. What will be the effect on Dickens Company's operating profit if the transfer is made internally? b. What will be the change in profits for Bloom if the transfer price is $41 per unit? c. What will be the change in profits for Heath if the transfer price is $41 per unit?

Palm Inc. has a profit margin of 15% and an investment turnover of 2. Sales revenue is $800,000. What is the operating income?

Which of the following is not a perspective used by the balanced scorecard?

The most common method of evaluating a profit center manager is the:

Reef Corp. has revenues of $500,000 resulting in an operating income of $54,000. Invested assets total $600,000, and the cost of capital is 6%. Calculate the increase in residual income if sales increase by 10% and the profit margin and invested assets remain the same.

Which of the following balanced scorecard perspectives measures an organization's ability to change?

Holiday Corp. has two divisions, Quail and Marlin. Quail produces a widget that Marlin could use in its production. Quail's variable costs are $4 per widget while the full cost is $7. Widgets sell on the open market for $12 each. If Quail is operating at capacity, what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Residual income can mitigate the problems of goal incongruence

Holiday Corp. has two divisions, Quail and Marlin. Quail produces a widget that Marlin could use in its production. Quail's variable costs are $4 per widget while the full cost is $7. Widgets sell on the open market for $12 each. If Quail is operating at capacity, what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Tint Company has two divisions, Blue and Green. Blue produces an item that Green could use in its production. Green currently is purchasing 150,000 units from an outside supplier for $23 per unit. Blue is currently operating at full capacity of 1,600,000 units and has variable costs of $14 per unit. The full cost to manufacture the unit is $18. Blue currently sells 1,600,000 units at a selling price of $25 per unit. a. What will be the effect on Tint Company's operating profit if the transfer is made internally? b. What is the minimum transfer price from Blue's perspective? c. What is the maximum transfer price from Green's perspective?