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Exam 14: Performance Evaluation for Decentralized Operations

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Question 21

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Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

A) Invested Assets/Sales
B) Income From Operations/Invested Assets
C) Income From Operations/Sales
D) Sales/Invested Assets

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

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Question 22

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The minimum amount of desired divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.

A) True
B) False

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Question 23

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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 termed indirect expenses.

Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets. If management desires a minimum rate of return of 12%, the residual income would be:

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

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals that will increase the overall rate of return for the company.

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

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

Blancher Corporation had $495,000 invested in assets, sales of $660,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The rate of return on investment for Blancher is:

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%.

Income from operations of the Commercial Aviation Division is $2,500,000. If income from operations before service department charges is $3,250,000,:

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Two divisions of Crowson Company (Divisions X and Y) have the same profit margins. Division X's investment turnover is larger than that of Division Y (1.2 to 1.0) . Which of the following statements is true?

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

The financial performance of responsibility centers is evaluated in the balanced scorecard under the financial section of the scorecard.

Materials used by Beta-Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $15 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 $12 per unit. A transfer price of $13 per unit is established, and 50,000 units of material are transferred with no reduction in Division 6's current sales. How much would Division 6's income from operations increase?

The costs of services charged to a profit center based on the usage of the service are called:

How do the responsibilities of a manager in an investment center compare to the responsibilities of managers in a cost or profit center?

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin calculated would be 20%.

The profit center income statement should include only controllable revenues and expenses.