Question 1

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
A) using income from operations as a performance measure
B) comparing the profit margins
C) applying a negotiated price measure
D) using its assets more efficiently in generating sales

Accepted Answer

The higher return on investment of Division TX compared to Division OY can be attributed to its efficient use of assets in generating sales, as indicated by its larger investment turnover.

Question 2

The balanced scorecard measures four areas of financial and nonfinancial performance of a business. Identify one of the following that is not included as a performance measurement.
A) internal process
B) financial
C) innovation and learning
D) employees

Accepted Answer

The balanced scorecard includes measures of financial performance, customer satisfaction, internal processes, and innovation and learning. Employees, while crucial to achieving outcomes in these areas, are not a separate category in the traditional balanced scorecard framework.

Question 3

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.
What is the rate of return on investment for Division D?
A) 153.3%
B) 114.7%
C) 87.2%
D) 233%

Accepted Answer

To calculate the rate of return on investment, divide the operating income (which is sales minus cost of goods sold minus operating expenses) by the invested assets.

Operating Income = Sales - Cost of Goods Sold - Operating Expenses
Operating Income = $350,000 - $120,000 - $58,000
Operating Income = $172,000

Rate of Return on Investment = Operating Income / Invested Assets
Rate of Return on Investment = $172,000 / $150,000
Rate of Return on Investment = 1.147 or 114.7%

Therefore, the best choice is B with the explanation above.

Question 4

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determing the rate of return on investment, is called
A) profit margin
B) indirect margin
C) investment turnover
D) cost ratio

Accepted Answer

The ratio of sales to invested assets is called investment turnover. It is one of the three components of the DuPont formula for determining the rate of return on investment, together with profit margin and asset turnover. Investment turnover measures how efficiently a company is using its assets to generate revenue.

Question 5

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

Accepted Answer

Profit Margin = (Sales - Cost of Goods Sold - Operating Expenses) / Sales
= (140,000 - 83,000 - 43,000) / 140,000
= 14,000 / 140,000
= 0.1 or 10.0%

Question 6

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

Accepted Answer

Investment centers are responsible for net income and are also able to invest in assets, which is a characteristic that separates them from profit centers. This means that investment centers have the ability to directly impact the company's long-term financial success by making strategic investment decisions.

Question 7

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
A) profit margin
B) indirect expenses
C) investment turnover
D) cost

Accepted Answer

The ratio of income from operations to sales is known as profit margin. This ratio measures the percentage of sales revenue that is available to cover non-operating costs such as interest expenses and taxes, as well as to provide a return on investment for the business owners. It is an important factor in calculating the rate of return on investment using the DuPont formula, as it shows how efficiently a company is operating and generating profits from its sales.

Question 8

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. What is the rate of return on assets?
A) 57.9%
B) 172.3%
C) 5.0%
D) 115.0%

Accepted Answer

The rate of return on assets is calculated by dividing the net income by the total invested assets and then multiplying by 100 to get a percentage. So, $275,000 / $475,000 * 100 = 57.9%.

Question 9

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?
A) 9.3%
B) 99.3%
C) 74.6%
D) 4.6%

Accepted Answer

The rate of return on investment (ROI) is calculated as (Net Income / Invested Assets) * 100. Net Income = Sales - Cost of Goods Sold - Operating Expenses = $140,000 - $83,000 - $43,000 = $14,000. ROI = ($14,000 / $150,000) * 100 = 9.3%.

Question 10

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?
A) 1.5%
B) 12.5%
C) 0.67%
D) 6.67%

Accepted Answer

The profit margin can be calculated using the formula: Profit Margin = Rate of Return on Investment / Investment Turnover. Plugging in the given values: Profit Margin = 15% / 1.2 = 12.5%.

Question 11

Which of the following is not a measure that management can use in evaluating and controlling investment center performance?
A) rate of return on investment
B) negotiated price
C) residual income
D) income from operations

Accepted Answer

Negotiated price is not a measure of investment center performance since it relates to the initial acquisition cost of an asset or product, rather than the ongoing performance of the center. The other options (rate of return on investment, residual income, and income from operations) are all measures that management can use to evaluate and control investment center performance.

Question 12

Which of the following is a measure of a manager's performance working in an investment center?
A) rate of return on investment
B) residual income
C) divisional income statements
D) all of these

Accepted Answer

Rate of return on investment, residual income, and divisional income statements are all measures of a manager's performance in an investment center. Rate of return on investment measures the profitability of the center's investments, residual income measures the amount of income generated above the required minimum level of return, and divisional income statements track the center's revenues, expenses, and profits. Therefore, all of these options are appropriate choices.

Question 13

The profit margin for Division C is 6% and the investment turnover is 1.2. What is the rate of return on investment for Division B?
A) 20%
B) 6.7%
C) 7.3%
D) 7.2%

Accepted Answer

The rate of return on investment (ROI) is calculated by multiplying the profit margin by the investment turnover. For Division C, with a profit margin of 6% and an investment turnover of 1.2, the ROI is 0.06 * 1.2 = 0.072, or 7.2%.

Question 14

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000.
What is the profit margin for Division D?
A) 42.9%
B) 83.4%
C) 49.1%
D) 65.7%

Accepted Answer

Profit Margin = Net Income / Sales
Net Income = Sales - Cost of Goods Sold - Operating Expenses
Net Income = $350,000 - $120,000 - $58,000 = $172,000
Profit Margin = $172,000 / $350,000 = 0.491 or 49.1%

Question 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
A) $65,000
B) $215,000
C) $635,000
D) $150,000

Accepted Answer

Residual income is calculated by subtracting the minimum required return on investment (in this case, 15% of $1,000,000 = $150,000) from the division's income from operations ($215,000). 
Residual income = $215,000 - $150,000 = $65,000. Therefore, the correct choice is A.

Question 16

The best measure of managerial efficiency in the use of investments in assets is
A) rate of return on stockholders' equity
B) investment turnover
C) income from operations
D) inventory turnover

Accepted Answer

Investment turnover is the best measure of managerial efficiency in the use of investments in assets because it indicates how efficiently the company is using its assets to generate revenue. A high investment turnover ratio indicates that the company is generating a significant amount of revenue from its investments, while a low ratio could indicate that the company is not using its assets efficiently. Rate of return on stockholders' equity, income from operations, and inventory turnover are important financial ratios, but they do not specifically measure managerial efficiency in the use of investments in assets.

Question 17

The International Boot Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,525,000.
What is the profit margin?
A) 33.3%
B) 5.2%
C) 16.0%
D) 19.1%

Accepted Answer

Profit margin is calculated as (Income from Operations / Sales) * 100. Here, it is ($80,000 / $1,525,000) * 100 = 5.2%.

Question 18

The excess of divisional income from operations over a minimum acceptable amount of divisional income from operations is
A) profit margin
B) residual income
C) rate of return on investment
D) gross profit

Accepted Answer

Residual income is the excess of divisional income from operations over a minimum acceptable amount of divisional income from operations. Option A (profit margin) refers to the ratio of net income to sales, option C (rate of return on investment) refers to the earnings generated from the investment, and option D (gross profit) refers to the difference between sales revenue and cost of goods sold.

Question 19

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 investment turnover for Division A?
A) 0.93
B) 9.3
C) 1.07
D) 10.7

Accepted Answer

Investment turnover = Sales / Invested assets = $140,000 / $150,000 = 0.93

Question 20

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets. If management  has set a minimum acceptable rate of return of 11%, the residual income is
A) $99,000
B) $691,000
C) $209,000
D) $11,000

Accepted Answer

Residual income is calculated as the actual income minus the product of the minimum acceptable rate of return and the invested assets. Here, it is $110,000 - (11% of $900,000) = $110,000 - $99,000 = $11,000.

Quiz 9: Evaluating Decentralized Operations

The balanced scorecard measures four areas of financial and nonfinancial performance of a business. Identify one of the following that is not included as a performance measurement.

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the rate of return on investment for Division D?

The ratio of sales to invested assets, which is also a factor in the DuPont formula for determing 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 profit margin for Division A?

Investment centers differ from profit centers in that they

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

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets. This year, the invested assets totaled $475,000, and net income was $275,000. What is the rate of return on assets?

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 Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?

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

Which of the following is a measure of a manager's performance working in an investment center?

The profit margin for Division C is 6% and the investment turnover is 1.2. What is the rate of return on investment for Division B?

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the profit margin for Division D?

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

The International Boot Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,525,000. What is the profit margin?

The excess of divisional income from operations over a minimum acceptable amount of divisional income from operations is

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 investment turnover for Division A?

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets. If management has set a minimum acceptable rate of return of 11%, the residual income is