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Exam 23: Performance Evaluation for Decentralized Operations

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Question 41

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Investment centers differ from profit centers in that they

A) are responsible for net income only
B) are able to invest in assets
C) have less responsibilities than cost centers and profit centers
D) are only responsible for revenues

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

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Question 42

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What is the profit margin for Division A?

A) 11.1%
B) 10.0%
C) 9.0%
D) 0.90%

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

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Question 43

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A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Income from operations for Division L is $250,000, total service department charges are $400,000 and operating expenses are $2,750,000. What are the revenues for Division L?

The manager of the furniture department of a leading retailer does not control the salaries of departmental personnel.

In a profit center, the manager has responsibility and authority for making decisions that affect

Two divisions of Oregano Company Divisions TX and OY) have the same profit margins. Division TX's investment turnover is larger than that of Division OY 1.2 to 1.0) . Income from operations for Division TX is $55,000, and income from operations for Division OY is $43,000. Division TX has a higher return on investment than Division OY by

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

Budget performance reports prepared for the vice president of production would generally contain less detail than reports prepared for the various plant managers.

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: $\begin{array} { | l | l | l | l | } \hline & \text { Micro } & \text { Macro } & \text { Super } \\\hline \text { Direct revenues } & \$ 700,000 & \$ 850,000 & \$ 650,000 \\\hline \text { Direct operating expenses } & 50,000 & 70,000 & 100,000 \\\hline \text { Number of copies made } & 20,000 & 30,000 & 50,000 \\\hline \text { Number of invoices processed } & 700 & 800 & 500 \\\hline \text { Number of employees } & 130 & 145 & 125 \\\hline\end{array}$ -How much service department cost will be allocated to the Micro Division?

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: -The gross profit for the Locomotive Division is

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 the profit margin percentage to two decimal places and the investment turnover to three decimal places.

The balanced scorecard measures

The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be

All of the following are advantages of decentralization except

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.

The Nelson Company's radio division currently is purchasing transistors from the Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. What should be the range of a possible transfer price?

A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

Three measures of investment center performance are income from operations, rate of return on investment, and residual income.