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Exam 23: Evaluating Decentralized Operations

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Question 21

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

A) True
B) False

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Question 22

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Which of the following is not one of the common types of responsibility centers?

A) cost center
B) profit center
C) investment center
D) revenue center

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

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Question 23

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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?

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

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.

What additional information is needed to calculate the rate of return on investment if income from operations is known?

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

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the investment turnover is 5.

The three common types of responsibility centers are referred to as cost centers,profit centers,and investment centers.

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

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is

The profit center income statement should include only revenues and expenses that are controlled by the manager.

What will the income of the Macro Division be after all service department allocations?

The best measure of managerial efficiency in the use of investments in assets is

If income from operations for a division is $120,000,sales are $975,000,and invested assets are $750,000,the investment turnover is 1.3.

What is Clydesdale Company's rate of return on investment?

Office salaries expense for a department store is an indirect expense.

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

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

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%.