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Exam 23: Performance Evaluation for Decentralized Operations

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Question 51

Multiple Choice

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

A) cost price approach
B) negotiated price approach
C) revenue price approach
D) market price approach

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

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Question 52

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

A) True
B) False

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Question 53

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

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

What is Clydesdale Company's rate of return on investment?

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the year ended December 31, are as follows: a) Prepare condensed income statements for the past year for each division. b) Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division. Round the profit margin percentage to two decimal places and investment turnover to four decimal places.

Which is the best example of a decentralized operation?

The negotiated price approach allows the managers of decentralized units to agree on the transfer price.

Depreciation expense on store equipment for a department store is an indirect expense.

Office salaries expense for a department store is an indirect expense.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.

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

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.

Match each definition that follows with the term a-e) it defines. -Earned by profit centers

The profit margin for Division C is 6% and the investment turnover is 1.2. What is the rate of return on investment for Division B?

The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

The costs of services charged to a profit center on the basis of its use of those services are

A department store apportions payroll costs on the basis of the number of payroll checks issued. Accounting costs are apportioned on the basis of the number of reports. The payroll costs for the year were $231,000, and the accounting costs for the year totaled $75,500. The departments and the number of payroll checks and accounting reports for each are as follows: Determine the amount of a) payroll cost and b) accounting cost to be apportioned to each department.

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 miles