Question 1

Griffin Corp.is evaluating its Piquette division, an investment center.The division has a $60,000 controllable margin and $400,000 of sales.How much will Griffin's average operating assets be when its return on investment is 10%?
A)$600,000
B)$660,000
C)$400,000
D)$340,000

Accepted Answer

The average operating assets will be $600,000 when the return on investment (ROI) is 10%. ROI is calculated as Controllable Margin / Average Operating Assets. Given a controllable margin of $60,000 and an ROI of 10%, we solve for Average Operating Assets: $60,000 / 0.10 = $600,000.

Question 2

Rhein Manufacturing recorded operating data for its auto accessories division for the year. $$\begin{array} { l r } 
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 150,000 \
\text { Total direct fixed costs } & 90,000 \
\text { Average total operating assets } & 400,000
\end{array}$$ How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?
A)45.0%
B)22.5%
C)15.0%
D)12.0%

Accepted Answer

The ROI is calculated as (Net Operating Income / Average Operating Assets). The improved contribution margin is $150,000 + $30,000 = $180,000. Net Operating Income is $180,000 - $90,000 = $90,000. ROI = $90,000 / $400,000 = 22.5%.

Question 3

The current controllable margin for Henry Division is $93,000.Its current operating assets are $300,000.The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000.If the equipment is purchased, what will happen to the return on investment for Henry Division?
A)An increase of 16.1%
B)A decrease of 13.3%
C)A decrease of 3.3%
D)A decrease of 7.2%

Accepted Answer

Return on Investment (ROI) is calculated as Controllable Margin divided by Operating Assets.

Current ROI for Henry Division = $93000 / $300000 = 0.31 or 31%

If the division purchases the equipment, the new Controllable Margin will be $93000 + $15000 = $108000. Operating Assets will increase by $90000 to $390000.

New ROI = $108000 / $390000 = 0.277 or 27.7%

Therefore, ROI will decrease by (31% - 27.7%) = 3.3%.

Hence, option C is the correct answer.

Question 4

Monte, Inc.recorded operating data for its Sandtrap division for the year.Monte requires its return to be 9%. $$\begin{array} { l r } 
\text { Sales } & \$ 1,000,000 \
\text { Controllable margin } & 180,000 \
\text { Total average assets } & 600,000 \
\text { Fixed costs } & 60,000
\end{array}$$ How much is ROI for the year?
A)10%
B)17%
C)20%
D)30%

Accepted Answer

The answer of Monte, Inc.recorded operating data for its Sandtrap...

Question 5

A distinguishing characteristic of an investment center is that
A)revenues are generated by selling and buying stocks and bonds.
B)interest revenue is the major source of revenues.
C)the profitability of the center is related to the funds invested in the center.
D)it is a responsibility center which only generates revenues.

Accepted Answer

An investment center is a responsibility center that is distinguished by the fact that its profitability is directly related to the funds invested in the center. It is responsible not only for generating revenues but also for managing the funds invested in it. Therefore, the profitability of an investment center depends on its ability to generate strong returns on its investments.

Question 6

Which statement is true?
A)An investment center is responsible for revenues and expenses, as well as earning a return on assets.
B)An investment center is only responsible for its investments.
C)An investment center is only responsible for revenues and expenses.
D)A profit center is evaluated using contribution margin, while an investment center is evaluated using ROI.

Accepted Answer

An investment center is responsible for generating both revenues and expenses, and is also held accountable for earning a return on the assets it has invested in. This makes A the true statement. Choice B is incorrect because an investment center is responsible for more than just its investments. Choice C is inaccurate because investment centers are responsible for generating both revenues and expenses. Finally, choice D is incorrect because profit centers and investment centers may be evaluated using different performance measures, but ROI is commonly used for evaluating the performance of investment centers.

Question 7

Return on investment is calculated by dividing
A)contribution margin by sales.
B)controllable margin by sales.
C)contribution margin by average operating assets.
D)controllable margin by average operating assets.

Accepted Answer

Return on investment (ROI) is calculated by dividing the controllable margin (or net operating income) by the average operating assets. This measures the efficiency with which a company uses its assets to generate earnings.

Question 8

If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?
A)15%
B)25%
C)45%
D)60%

Accepted Answer

The return on investment (ROI) is calculated by dividing the controllable margin by the average operating assets. Here, it's $150,000 / $1,000,000 = 0.15 or 15%.

Question 9

Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI.The current controllable margin for Pika Division is $46,000.Its current operating assets total $210,000.The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000.If the equipment is purchased, what will happen to the return on investment for the division?
A)An increase of 0.5%
B)A decrease of 0.5%
C)A decrease of 3.5%
D)It will remain unchanged.

Accepted Answer

The current ROI is calculated as $46,000 / $210,000 = 21.9%. After purchasing the equipment, the new controllable margin remains the same ($46,000 - $10,000 depreciation + $10,000 additional sales = $46,000), but the operating assets increase to $250,000 ($210,000 + $40,000). The new ROI is $46,000 / $250,000 = 18.4%. The change in ROI is a decrease of 3.5% (21.9% - 18.4%).

Question 10

Naples, Inc.recorded operating data for its shoe division for the year. $$\begin{array} { l r } 
\text { Sales } & \$ 750,000 \
\text { Contribution margin } & 135,000 \
\text { Total fixed costs } & 90,000 \
\text { Average total operating assets } & 300,000
\end{array}$$ How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?
A)25%
B)18%
C)45%
D)12%

Accepted Answer

The ROI is calculated as (Net Operating Income / Average Operating Assets). The improved contribution margin is $135,000 + $30,000 = $165,000. Net Operating Income = Contribution Margin - Fixed Costs = $165,000 - $90,000 = $75,000. ROI = $75,000 / $300,000 = 25%.

Question 11

An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000.The center's average operating assets were $800,000.How much is the return on investment?
A)25%
B)175%
C)50%
D)75%

Accepted Answer

The return on investment (ROI) is calculated as the net operating income divided by the average operating assets. Net operating income is the contribution margin minus fixed costs, which is $400,000 - $200,000 = $200,000. Therefore, ROI = ($200,000 / $800,000) * 100 = 25%.

Question 12

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000.What were the average operating assets?
A)$150,000
B)$750,000
C)$2,400,000
D)$12,000

Accepted Answer

ROI = Controllable Margin / Average Operating Assets

25% = 600,000 / Average Operating Assets

Average Operating Assets = 600,000 / 0.25

Average Operating Assets = 2,400,000

Question 13

Which one of the following will not increase return on investment?
A)Variable costs are increased
B)An increase in sales
C)Average operating assets are decreased
D)Variable costs are decreased

Accepted Answer

Increasing variable costs will decrease the return on investment, as it will decrease the net income earned on each unit sold. The other options will increase return on investment as follows:
B) Increasing sales will increase revenue and net income, thereby increasing return on investment.
C) Decreasing average operating assets means that the company is using its assets more efficiently, which will increase return on investment.
D) Decreasing variable costs will increase net income earned on each unit sold, thereby increasing return on investment.

Question 14

Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000.Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000.Dingo's required rate of return is 9%.Should Dingo accept this project?
A)Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.
B)No, the return is less than the required rate of 9%.
C)Yes, ROI still exceeds the cost of capital.
D)No, ROI will decrease to 7%.

Accepted Answer

To determine if the project should be accepted, we need to calculate the ROI of the project and compare it to Dingo's required rate of return of 9%.

Controllable Margin = Sales - Variable Expenses
Controllable Margin = $100,000 - $86,000
Controllable Margin = $14,000

ROI = Controllable Margin / Average Operating Assets

ROI = $14,000 / $200,000
ROI = 7%

Since the ROI of the project is less than Dingo's required rate of return of 9%, the project should not be accepted. Therefore, the answer is B.

Question 15

A measure frequently used to evaluate the performance of the manager of an investment center is
A)the amount of profit generated.
B)the rate of return on funds invested in the center.
C)the percentage increase in profit over the previous year.
D)departmental gross profit.

Accepted Answer

The rate of return on funds invested in the center is the most appropriate measure to evaluate the performance of the manager of an investment center since it considers the profitability generated by the center, as well as the level of investment made in the center, which allows comparing the performance of different centers with different investment levels. Other measures such as the amount of profit generated or the percentage increase in profit may not provide an accurate picture of the manager's performance, as they do not take into account the investment made in the center. Departmental gross profit may also be misleading as it could be affected by factors outside the manager's control, such as changes in market conditions or pricing policies.

Question 16

Grown Industries reported the following items for 2013: $$\begin{array} { l r } 
\text { Income tax expense } & \$ 60,000 \
\text { Contribution margin } & 200,000 \
\text { Controllable fixed costs } & 80,000 \
\text { Interest expense } & 40,000 \
\text { Total operating assets } & 650,000
\end{array}$$ How much is controllable margin?
A)$200,000
B)$120,000
C)$60,000
D)$20,000

Accepted Answer

Controllable margin is calculated by subtracting controllable fixed costs from the contribution margin: $200,000 - $80,000 = $120,000.

Question 17

Bogey Co.recorded operating data for its Cheap division for the year.Bogey requires its return to be 10%. $\begin{array}{lr}
\text { Sales } & \$ 1,400,000 \
\text { Controllable margin } & 160,000 \
\text { Total average assets } & 4,000,000 \
\text { Fixed costs } & 100,000
\end{array}$ What is the ROI for the year?
A)4%
B)35%
C)6%
D)1.5%

Accepted Answer

The answer of Bogey Co.recorded operating data for its Cheap...

Question 18

The denominator in the formula for return on investment calculation is
A)investment center controllable margin.
B)dependent on the specific type of profit center.
C)investment center average operating assets.
D)sales for the period.

Accepted Answer

The denominator in the ROI formula is the investment center average operating assets. This includes assets such as plant, property, and equipment, as well as working capital such as inventory and accounts receivable. The numerator is typically the investment center's controllable margin, which is the operating income generated by the center minus any controllable expenses such as materials and labor. The ROI formula is a commonly used performance measurement tool for investment centers within an organization.

Question 19

In the formula for ROI, idle plant assets are
A)included in the calculation of controllable margin.
B)included in the calculation of operating assets.
C)excluded in the calculation of operating assets.
D)excluded from total assets.

Accepted Answer

Idle plant assets are not generating any income or contribution to the operating assets, so they should be excluded in the calculation of operating assets. Including idle plant assets would give an inflated sense of the investment made in operating assets and the return on that investment.

Question 20

Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000.The Benet Division's ROI is 25%.Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000.Should management accept this new project?
A)No, since ROI will be lowered.
B)Yes, since ROI will increase.
C)Yes, since additional sales always mean more customers.
D)No, since a loss will be incurred.

Accepted Answer

The ROI of the Benet Division will decrease if the new project is accepted because the project has a lower ROI than the division's current ROI of 25%. As a result, accepting the project would lead to a decrease in the division's overall profitability.

Quiz 10: Reporting and Analyzing Liabilities

Griffin Corp.is evaluating its Piquette division, an investment center.The division has a $60,000 controllable margin and $400,000 of sales.How much will Griffin's average operating assets be when its return on investment is 10%?

A distinguishing characteristic of an investment center is that

Which statement is true?

Return on investment is calculated by dividing

If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?

An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000.The center's average operating assets were $800,000.How much is the return on investment?

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000.What were the average operating assets?

Which one of the following will not increase return on investment?

A measure frequently used to evaluate the performance of the manager of an investment center is

The denominator in the formula for return on investment calculation is

In the formula for ROI, idle plant assets are