Question 1

Which of the following is true of decentralization?

Accepted Answer

Decentralization is typically achieved by creating divisions or units within a company, allowing lower-level managers to make decisions and respond to local conditions.

Question 2

If the operating asset turnover increased by 50% and the margin increased by 50%, the ROI would increase by

Accepted Answer

SUPPORTING CALCULATIONS: 1.50 × 1.50 = 2.25 or 125% increase

Question 3

​Which of the following formulas measures turnover?

Accepted Answer

Turnover is a measure of how efficiently a company uses its assets to generate revenue. The formula that measures turnover is Sales / Average Operating Assets. Choice D matches this formula, making it the correct answer. The other formula options do not measure turnover.

Question 4

Which of the following is a disadvantage of a focus on return on investment?

Accepted Answer

A focus on return on investment can create a narrow focus on divisional profitability, leading managers to prioritize short-term profits for their division rather than the long-term profitability of the entire firm. This can result in sacrificing investments in areas that may not produce immediate returns but are important for long-term success, such as research and development or employee training. Options A, C, and D can also be disadvantages but are not as directly related to a focus on return on investment as option B. Therefore, option B is the best choice.

Question 5

Which of the following ratios is equal to margin?

Accepted Answer

Margin is typically calculated as Operating Income divided by Sales, which measures how much out of every dollar of sales a company actually keeps in earnings.

Question 6

Alpha Division had the following information: If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be? (Note: Round answer to two decimal places.)

Accepted Answer

SUPPORTING CALCULATIONS:
 Alpha's ROI = Operating income in Alpha Division / (Asset base in Alpha division - Decrease in asset base in Alpha Division) = $60,000 / ($500,000 - $120,000) = 15.79%

Question 7

Which of the following is not an advantage of ROI?

Accepted Answer

The statement is not true. In fact, ROI encourages managers to invest in projects with high ROI regardless of the department they belong to. Having a high ROI project can still benefit the overall performance of the company, even if it is not in the same department with the highest ROI.

Question 8

A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on

Accepted Answer

ROI requires managers to consider the relationship among sales, expenses, and investment, as well as focus on cost efficiency, operating asset efficiency, and the efficient use of resources in generating income. Therefore, all of these options are encouraged by the use of ROI.

Question 9

Which of the following is not a disadvantage of the ROI performance measure?

Accepted Answer

A is not a disadvantage but rather an advantage of the ROI performance measure, as it encourages managers to focus on the long run rather than short-term gains. B and C are both disadvantages of the ROI measure, as it can lead to a focus on divisional performance rather than overall company profitability and can encourage short-term thinking. D is incorrect as only two out of the three options listed are actual disadvantages.

Question 10

The decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility is

Accepted Answer

Decentralization is the decision-making approach that allows managers at lower levels of an organization to make and implement key decisions pertaining to their areas of responsibility. This approach gives more autonomy to lower-level managers and allows for quicker decision-making as compared to a centralized approach where all decisions are made by top-level managers. Responsibility accounting and controllable accounting are related to performance measurement and do not necessarily determine decision-making authority, while optimal strategic accounting is not a widely recognized term in the field.

Question 11

Division A had ROI of 15% last year.The manager of Division A is considering an additional investment for the coming year.What step will the manager likely choose to take?

Accepted Answer

The manager of Division A should only accept the investment if it returns a ROI of at least 15% (i.e., greater than or equal to the ROI of the previous year). Therefore, the manager should reject the investment if it returns less than 15% ROI. Option D is the correct choice as it aligns with this strategy. Option A and B are too lenient as they accept investments even if they generate low ROI, and option E is too strict as it rejects any investment that provides a ROI of 15%. Option C is not recommended as it may lead to missed opportunities for good investments.

Question 12

The manager of a division is displeased with the ROI of the division.One step that would increase ROI (holding everything else constant) is

Accepted Answer

Increasing sales would increase the revenue of the division, which would increase the ROI if the costs remain constant. Increasing investment (A) would increase the denominator of the ROI equation, decreasing ROI if returns don't increase proportionately. Increasing costs (C) would decrease ROI by decreasing operating income. Decreasing operating income (D) would decrease ROI. Therefore, the best choice would be to increase sales.

Question 13

If the operating asset turnover ratio increased by 30% and the margin increased by 20%, the divisional ROI

Accepted Answer

SUPPORTING CALCULATIONS:
1.30 × 1.20 = 1.56 or a 56% increase

Question 14

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI)? (Note: Round answer to two decimal places.)

Accepted Answer

SUPPORTING CALCULATIONS:
ROI = Margin × Turnover = 0.15 × 4.50= 0.675 or 67.50%

Question 15

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

Accepted Answer

SUPPORTING CALCULATIONS:
[(0.30 × 5.5*) - 1.5**] / 1.5 = 10% increase
 
*5.00 × 1.1
**0.30 × 5.00

Question 16

A segment of Mega Inc., manufactures and sells blankets.The various models of blankets are produced in a single factory using stable technology.They are sold by the sales department, also located in the factory.The segment is most probably accounted for as a(n)

Accepted Answer

Since the segment both generates revenue through blanket sales and incurs costs through production, it can be considered both a revenue and cost center. However, as it is able to generate profits through its operations, it is most likely accounted for as a profit center. An investment center, on the other hand, would have the authority to make investment decisions and would be responsible for achieving a certain level of return on investment.

Question 17

Forward Company had operating income of $75,000, sales of $220,000, and a turnover ratio of 0.55.What is Forward's return on investment (ROI)? (Note: Round answer to two decimal places.)

Accepted Answer

ROI = Margin ×Turnover = (Operating Income / Sales) × Turnover= ($75,000 / $220,000) × 0.55 = 0.1875 or 18.75%

Question 18

Planet Company had operating income of $12,000, average operating assets of $125,000, and sales of $45,000.What is Planet's return on investment (ROI)? (Note: Round answer to two decimal places.)

Accepted Answer

Return on Investment (ROI) = Operating Income/Average Operating Assets = $12,000 / $125,000 = 0.096 or 9.60%

Question 19

JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division.The manager of the Western Division had wanted to purchase replacement airplanes for the division.However, he decided against it because, although revenues would increase and the new planes would be less expensive to operate, the initial cost of the planes was quite large.The Western Division is most probably accounted for as a(n)

Accepted Answer

The manager's consideration of the initial cost of the planes and the potential increase in revenues indicate that the Western Division is an investment center, where managers are responsible for making investment decisions that affect the division's profitability. Cost centers are responsible only for controlling costs, profit centers are responsible for generating profits, and revenue centers are responsible for generating revenues.

Question 20

Which of the following formulas calculates the return on investment (ROI)?

Accepted Answer

Operating Income / Average Operating Assets is the formula for calculating ROI.

Quiz 11: Performance Evaluation and Decentralization

Which of the following is true of decentralization?

If the operating asset turnover increased by 50% and the margin increased by 50%, the ROI would increase by

Which of the following formulas measures turnover?

Which of the following is a disadvantage of a focus on return on investment?

Which of the following ratios is equal to margin?

Alpha Division had the following information: If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be? (Note: Round answer to two decimal places.)

Which of the following is not an advantage of ROI?

A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on

Which of the following is not a disadvantage of the ROI performance measure?

The decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility is

Division A had ROI of 15% last year.The manager of Division A is considering an additional investment for the coming year.What step will the manager likely choose to take?

The manager of a division is displeased with the ROI of the division.One step that would increase ROI (holding everything else constant) is

If the operating asset turnover ratio increased by 30% and the margin increased by 20%, the divisional ROI

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI) ? (Note: Round answer to two decimal places.)

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

A segment of Mega Inc., manufactures and sells blankets.The various models of blankets are produced in a single factory using stable technology.They are sold by the sales department, also located in the factory.The segment is most probably accounted for as a(n)

Forward Company had operating income of $75,000, sales of $220,000, and a turnover ratio of 0.55.What is Forward's return on investment (ROI) ? (Note: Round answer to two decimal places.)

Planet Company had operating income of $12,000, average operating assets of $125,000, and sales of $45,000.What is Planet's return on investment (ROI) ? (Note: Round answer to two decimal places.)

Which of the following formulas calculates the return on investment (ROI) ?

Quiz 11: Performance Evaluation and Decentralization

Which of the following is true of decentralization?

If the operating asset turnover increased by 50% and the margin increased by 50%, the ROI would increase by

​Which of the following formulas measures turnover?

Which of the following is a disadvantage of a focus on return on investment?

Which of the following ratios is equal to margin?

Alpha Division had the following information: If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be? (Note: Round answer to two decimal places.)

Which of the following is not an advantage of ROI?

A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on

Which of the following is not a disadvantage of the ROI performance measure?

The decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility is

Division A had ROI of 15% last year.The manager of Division A is considering an additional investment for the coming year.What step will the manager likely choose to take?

The manager of a division is displeased with the ROI of the division.One step that would increase ROI (holding everything else constant) is

If the operating asset turnover ratio increased by 30% and the margin increased by 20%, the divisional ROI

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI) ? (Note: Round answer to two decimal places.)

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

A segment of Mega Inc., manufactures and sells blankets.The various models of blankets are produced in a single factory using stable technology.They are sold by the sales department, also located in the factory.The segment is most probably accounted for as a(n)

Forward Company had operating income of $75,000, sales of $220,000, and a turnover ratio of 0.55.What is Forward's return on investment (ROI) ? (Note: Round answer to two decimal places.)

Planet Company had operating income of $12,000, average operating assets of $125,000, and sales of $45,000.What is Planet's return on investment (ROI) ? (Note: Round answer to two decimal places.)

Which of the following formulas calculates the return on investment (ROI) ?

Which of the following formulas measures turnover?