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Exam 14: Performance Evaluation for Decentralized Operations

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Question 31

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For higher levels of management, responsibility accounting reports:

A) are more detailed than for lower levels of management.
B) are more summarized than for lower levels of management.
C) contain almost the same level of detail as reports for lower levels of management.
D) are rarely provided or reviewed.

E) All of the above
F) C) and D)

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Question 32

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The balanced scorecard measures:

A) only financial information.
B) only nonfinancial information.
C) both financial and nonfinancial information.
D) both external and internal information.

E) All of the above
F) A) and B)

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Question 33

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Sales commissions expense for a department store is an example of a direct expense.

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

The ratio of sales to invested assets is termed the investment turnover, a component of the rate of return on investment.

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

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: $\begin{array} { l r r r } & \begin{array} { r } \text { Northern } \\\text { Division }\end{array} & \begin{array} { r } \text { Southern } \\\text { Division }\end{array} & \begin{array} { r } \text { Corporate } \\\text { Total }\end{array} \\\text { Cost of goods sold } & \$ 310,000 & \$ 175,000 & \\\text { Direct operating expenses } & 250,000 & 115,000 & \\\text { Net sales } & 600,000 & 410,000 & \\\text { Interest expense } & & & \$ 12,000 \\\text { General overhead } && & 101,000 \\\text { Income tax } & && 26,700\end{array}$ ? The operating income for the Southern Division is:

Some organizations use internal service departments to provide services to several divisions or departments within an organization.Which of the following would probably not lend itself as a service department?

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

Division X's profit margin is 17%, and its investment turnover is 4.2.What is the rate of return on investment for Division X?

The sales, operating income, and invested assets for each division of Salem Company are as follows: $\begin{array} { l r r r } & & \text { Operating } & \text { Invested } \\ & \underline { \text { Sales } } & \underline { \text { Income } } & \underline { \text { Assets } } \\\text { Division C } & \$ 4,000,000 & \$ 410,000 & \$ 3,500,000 \\\text { Division D } & 3,500,000 & 600,000 & 4,000,000 \\\text { Division E } & 2,250,000 & 780,000 & 7,000,000\end{array}$ ? Management has established a minimum rate of return for invested assets of 11%. ? (a)Determine the residual income for each division. (b)Based on residual income, which division is the most profitable?

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

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 following data are taken from the management accounting reports of Dancer Co.: $\begin{array} { l r r r } & \text { Div. A } & \text { Div. B } & \text { Div. C } \\\text { Operating income } & \$ 1,800,000 & \$ 1,350,000 & \$ 1,900,000 \\\text { Total service department charges } & 1,700,000 & 1,050,000 & 1,100,000\end{array}$ ? If an incentive bonus is paid to the manager who achieved the highest operating income before service department charges, it follows that

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

The excess of actual operating income over a minimum acceptable operating income is called:

Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets.If the management desires a minimum rate of return of 12% on the invested assets, Division A's residual income would be:

Which one of the following is not a measure that management can use in evaluating and controlling investment center performance?

The profit margin, a component of the rate of return on investment, focuses on the profitability by indicating the rate of profit earned on each sales dollar.

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment computed would be 16.5%.