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Exam 8: Performance Evaluation for Decentralized Operations

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Question 101

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Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 6's income from operations increase?

A) $8,000
B) $15,000
C) $80,000
D) $150,000

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

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Question 102

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A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:

A) profit margin
B) indirect margin
C) investment turnover
D) cost ratio

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

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Question 103

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For higher levels of management, responsibility accounting reports:

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

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

The Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places.

Piano Company's costs were over budget by $47,000. The Piano Company is divided in two regions. The first region's costs were over budget by $5,000. Determine the amount that the second region's cost was over or under budget.

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%. The residual income for Chicks is:

Franklin Industries has several divisions. The Northern Division has $350,000 of invested assets, income from operations of $200,000, and residual income of $158,000. Determine the minimum acceptable rate of return on divisional assets.

Responsibility accounting reports for profit centers are normally in the form of income statements.

Avey Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Avey Corporation is:

Hamlin Corporation had $220,000 in invested assets, sales of $242,000, income from operations amounting to $70,400, and a desired minimum rate of return of 3%. The rate of return on investment for Hamlin is:

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

The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's rate of return on investment?

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?

The Creative Division of the Barry Company reported the following results for December 2012: Required: Based on this information, what were the sales?

Division X reported income from operations of $975,000 and total service department charges of $575,000. Therefore:

Which is the best example of a decentralized operation?

Developing and retaining quality managers is an advantage of decentralization.

The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement.