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Exam 9: Evaluating Decentralized Operations

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Question 1

True/False

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

A) True
B) False

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Question 2

Multiple Choice

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Central Division for Chemical Company has a rate of return on investment of 22% and an investment turnover of 1.4. What is the profit margin?

A) 20%
B) 15.7%
C) 14%
D) 6.36%

E) B) and C)
F) None of the above

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B

Question 3

Short Answer

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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.

Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are

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. What is the profit margin for Division A?

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

A centralized business organization is one in which all major planning and operating decisions are made by top management.

If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.

Which of the following is not a disadvantage of decentralized operation?

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

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The residual income for Mason is

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

The ratio of income from operations to sales, which is also a factor in the DuPont formula for determining the rate of return on investment, is called

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. What is the rate of return on investment for Division A?

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31: The income from operations for the Rails Division is

The ratio of sales to investment is termed the rate of return on investment.

Match each definition that follows with the term (a-e) it defines.

If income from operations for a division is $30,000, sales are $263,750, and invested assets are $187,500, the investment turnover is 1.3.