Question 1

Leete Inc.reported the following results from last year's operations:  Last year's margin was closest to:
A)79.0%
B)31.0%
C)20.0%
D)10.0%

Accepted Answer

Margin = Net operating income ÷ Sales = $1,400,000 ÷ $14,000,000 = 10.0%

Question 2

Which of the following measures of performance encourages continued expansion by an investment center so long as it is able to earn a return in excess of the minimum required return on average operating assets?
A)return on investment
B)transfer pricing
C)the contribution approach
D)residual income

Accepted Answer

Residual income is the only measure of performance that encourages continued expansion by an investment center as long as it is able to earn a return in excess of the minimum required return on average operating assets. The other measures (return on investment, transfer pricing, and the contribution approach) do not take into consideration the opportunity cost of using resources to expand and may incentivize managers to reject profitable investment opportunities that do not meet arbitrary performance thresholds.

Question 3

Nasser Inc.reported the following results from last year's operations:  Last year's return on investment (ROI)was closest to:
A)9.0%
B)47.6%
C)18.9%
D)80.7%

Accepted Answer

To calculate ROI, we need to divide the net income (operating income - taxes) by the average invested capital. The average invested capital is calculated by adding the beginning and ending invested capital and dividing by two.

ROI = (Operating Income - Taxes) / Average Invested Capital

Using the numbers given in the table:

Average Invested Capital = (200,000 + 100,000) / 2 = 150,000 
Net Income = Operating Income - Taxes = 28,000 - 6,000 = 22,000

ROI = 22,000 / 150,000 = 0.147 = 14.7%

The closest answer choice to 14.7% is C) 18.9%. ROI = Net operating income ÷ Average operating assets = $1,134,000 ÷ $6,000,000 = 18.9%

Question 4

Which of the following would be considered an operating asset in return on investment computations?
A)Land being held for plant expansion.
B)Treasury stock.
C)Accounts receivable.
D)Common stock.

Accepted Answer

Operating assets are those assets that are used in the day-to-day operations of a business to generate revenue. Accounts receivable is an operating asset as it represents the amount of money owed to the company from its customers for the sale of goods or services. Land being held for plant expansion is a long-term investment and not an operating asset. Treasury stock and common stock are both types of equity investments and not operating assets.

Question 5

Anguiano Inc.reported the following results from last year's operations:  The company's average operating assets were $5,000,000.

Last year's return on investment (ROI)was closest to:
A)7.0%
B)14.7%
C)45.8%
D)47.6%

Accepted Answer

ROI = Net Operating Income / Average Operating Assets

From the information given: 
Net Operating Income = $735,000 
Average Operating Assets = $5,000,000

Therefore, ROI = $735,000 / $5,000,000 = 0.147 or 14.7%

The closest option is B, 14.7%. ROI = Net operating income ÷ Average operating assets = $735,000 ÷ $5,000,000 = 14.7%

Question 6

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment?

Accepted Answer

The answer of Which of the following segment performance measures...

Question 7

Othman Inc.has a $800,000 investment opportunity with the following characteristics:  The margin for this investment opportunity is closest to:
A)50.0%
B)45.0%
C)5.0%
D)55.0%

Accepted Answer

11ea7998_5c84_37da_911b_6bd021beaab3_TB2627_00_TB2627_00 Margin = Net operating income ÷ Sales = $112,000 ÷ $2,240,000 = 5.0%

Question 8

Runyon Inc.reported the following results from last year's operations:  The company's average operating assets were $7,000,000.

Last year's turnover was closest to:
A)0.42
B)14.29
C)0.07
D)2.40

Accepted Answer

Turnover = Sales ÷ Average operating assets = $16,800,000 ÷ $7,000,000 = 2.40

Question 9

All other things equal, which of the following would increase a division's residual income?
A)Increase in expenses.
B)Decrease in average operating assets.
C)Increase in minimum required return.
D)Decrease in net operating income.

Accepted Answer

Residual income is calculated by subtracting the minimum required return from the division's net operating income, divided by the average operating assets. Therefore, if the average operating assets decrease, residual income will increase. The other options would decrease residual income.

Question 10

BR Company has a contribution margin of 40%.Sales are $312,500, net operating income is $25,000, and average operating assets are $200,000.What is the company's return on investment (ROI)?
A)12.5%
B)62.5%
C)8.0%
D)64.0%

Accepted Answer

ROI = Net operating income ÷ Average operating assets
= $25,000 ÷ $200,000 = 12.5%

Question 11

Which of the following will increase a company's manufacturing cycle efficiency (MCE)?

Accepted Answer

The answer of Which of the following will increase a...

Question 12

Youns Inc.reported the following results from last year's operations:  The company's average operating assets were $5,000,000.

At the beginning of this year, the company has a $1,400,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $616,000, and a contribution margin ratio of 30% of sales.

If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:
A)9.50
B)1.64
C)2.66
D)2.08

Accepted Answer

Sales = $10,500,000 + $2,800,000 = $13,300,000
Average operating assets = $5,000,000 + $1,400,000 = $6,400,000
Turnover = Sales ÷ Average operating assets = $13,300,000 ÷ $6,400,000 = 2.08

Question 13

Selma Inc.reported the following results from last year's operations:  Last year's margin was closest to:
A)78.1%
B)6.0%
C)13.8%
D)27.9%

Accepted Answer

Margin = Net operating income ÷ Sales = $828,000 ÷ $13,800,000 = 6.0%

Question 14

Which of the following performance measures will increase if inventory decreases and all else remains the same?

Accepted Answer

The answer of Which of the following performance measures will...

Question 15

Tennill Inc.has a $1,400,000 investment opportunity with the following characteristics:  The ROI for this year's investment opportunity considered alone is closest to:
A)8.1%
B)128.0%
C)3.0%
D)9.6%

Accepted Answer

11ea7998_5c84_85fd_911b_4d7cf63a532b_TB2627_00_TB2627_00 ROI = Net operating income ÷ Average operating assets = $134,400 ÷ $1,400,000 = 9.6%

Question 16

A segment of a business responsible for both revenues and expenses would be called:
A)a cost center.
B)an investment center.
C)a profit center.
D)residual income.

Accepted Answer

A profit center is responsible for generating revenues and also has control over its expenses, as opposed to a cost center which is responsible only for controlling expenses, and an investment center which is responsible for generating profits from invested capital. Residual income is a measure of the profits earned above a required minimum return on investment, but it does not refer to a specific business segment.

Question 17

Chiodini Inc.has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales.The ROI for this year's investment opportunity considered alone is closest to:
A)16.3%
B)18.9%
C)7.0%
D)135.0%

Accepted Answer

11ea7998_5c85_6f61_911b_374b4f0ec5a1_TB2627_00_TB2627_00 ROI = Net operating income ÷ Average operating assets = $170,100 ÷ $900,000 = 18.9%

Question 18

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:
A)return on investment.
B)residual income.
C)contribution margin.
D)segment margin.

Accepted Answer

A manager who is evaluated on the basis of return on investment may reject an investment opportunity that benefits the entire company if it does not meet their specific ROI targets or criteria. This narrow focus can result in the manager missing out on potentially profitable investments that would benefit the company as a whole.

Question 19

Given the following data:  Return on investment (ROI)is:
A)30%
B)5%
C)20%
D)12%

Accepted Answer

ROI = Net operating income ÷ Average operating assets
= $15,000 ÷ $125,000 = 12%

Question 20

Cirone Inc.reported the following results from last year's operations:  At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics:  If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:
A)3.1%
B)8.4%
C)6.3%
D)12.1%

Accepted Answer

11ea7998_5c86_32b6_911b_4168ff0e8a92_TB2627_00_TB2627_00 Net operating income = $864,000 + $294,000 = $1,158,000
Sales = $9,600,000 + $4,200,000 = $13,800,000
Margin = Net operating income ÷ Sales = $1,158,000 ÷ $13,800,000 = 8.4%

Quiz 10: Performance Measurement in Decentralized Organizations

Leete Inc.reported the following results from last year's operations: Last year's margin was closest to:

Which of the following measures of performance encourages continued expansion by an investment center so long as it is able to earn a return in excess of the minimum required return on average operating assets?

Nasser Inc.reported the following results from last year's operations: Last year's return on investment (ROI) was closest to:

Which of the following would be considered an operating asset in return on investment computations?

Anguiano Inc.reported the following results from last year's operations: The company's average operating assets were $5,000,000. Last year's return on investment (ROI) was closest to:

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment?

Othman Inc.has a $800,000 investment opportunity with the following characteristics: The margin for this investment opportunity is closest to:

Runyon Inc.reported the following results from last year's operations: The company's average operating assets were $7,000,000. Last year's turnover was closest to:

All other things equal, which of the following would increase a division's residual income?

BR Company has a contribution margin of 40%.Sales are $312,500, net operating income is $25,000, and average operating assets are $200,000.What is the company's return on investment (ROI) ?

Which of the following will increase a company's manufacturing cycle efficiency (MCE)?

Selma Inc.reported the following results from last year's operations: Last year's margin was closest to:

Which of the following performance measures will increase if inventory decreases and all else remains the same?

Tennill Inc.has a $1,400,000 investment opportunity with the following characteristics: The ROI for this year's investment opportunity considered alone is closest to:

A segment of a business responsible for both revenues and expenses would be called:

Chiodini Inc.has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales.The ROI for this year's investment opportunity considered alone is closest to:

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

Given the following data: Return on investment (ROI) is: