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Exam 24: Evaluating Decentralized Operations

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Question 101

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Operating income for Division H is $220,000, and operating income before support department allocations is $975,000. As a result,

A) total operating expenses are $565,000
B) total manufacturing expenses are $565,000
C) direct materials, direct labor, and factory overhead total $565,000
D) total support department allocations are $755,000

E) A) and B)
F) A) and C)

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Question 102

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The rates at which centralized services are charged to each division are called support department allocation rates.

A) True
B) False

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Question 103

Multiple Choice

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The investment turnover is the ratio of

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.​ -The investment turnover for Division A is

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.

Clydesdale Company's residual income is

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, operating income amounting to $302,500, and a desired minimum return on investment of 15%.​ -The residual income for Chicks Corporation is

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

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Developing and retaining quality managers are advantages of decentralization.

Operating income for Division L is $250,000, total support department allocations are $400,000, and operating expenses are $2,750,000. The revenues for Division L are

If divisional operating income is $100,000, invested assets are $850,000, and the minimum return on invested assets is 8%, the residual income is $68,000.

The profit margin is the

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum return on investment but also to the total magnitude of operating income earned by each division.

If Division Q's yearly operating income was $30,000 on invested assets of $200,000, the return on investment is 15%.

The major advantage of the return on investment over operating income as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called a(n) _____ center.

Which of the following transfer price approaches is used when the transfer price is set at the amount sold to outside buyers?

Which of the following is a measure of a cost center manager's performance?

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