Question 1

Division A of Mocha Company has sales of $155,000, 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) 19.3%
B) 48.0%
C) 18.7%
D) 5.47%

Accepted Answer

Profit margin is calculated as (Net Income/Sales) x 100%. 
Here, Net Income = Sales - Cost of goods sold - Operating expenses 
Net Income = $155,000 - $83,000 - $43,000 = $29,000 
Profit Margin = ($29,000/$155,000) x 100% = 18.7%. 
Therefore, the answer is C.

Question 2

Division A of Mocha Company has sales of $155,000, 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) 1.03
B) 1.0
C) 5.17
D) 5.34

Accepted Answer

The answer of Division A of Mocha Company has sales...

Question 3

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the profit margin?
A) 47.6%
B) 7.6%
C) 55.2%
D) 4.8%

Accepted Answer

Profit Margin= (Income from Operations/Sales) x 100
= (80,000/1,050,000) x 100
=7.6%

Question 4

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the investment turnover?
A) 1.8
B) 2.1
C) .48
D) 13.13

Accepted Answer

Investment turnover = Sales / Average Invested Assets
Average Invested Assets = (Beginning Invested Assets + Ending Invested Assets) / 2
Given, 
Income from operations = $80,000
Invested assets = $500,000
Sales = $1,050,000

To find Beginning Invested Assets, we need to subtract Income from operations from Invested assets.
Beginning Invested Assets = Invested assets - Income from operations = $500,000 - $80,000 = $420,000

To find Ending Invested Assets, we need to assume that there were no additional investments or divestitures during the period.
Ending Invested Assets = Beginning Invested Assets = $420,000

Average Invested Assets = (Beginning Invested Assets + Ending Invested Assets) / 2 = ($420,000 + $420,000) / 2 = $420,000

Investment turnover = Sales / Average Invested Assets = $1,050,000 / $420,000 = 2.5

Therefore, the closest answer is B (2.1).

Question 5

Division X of O'Blarney Company has sales of $300,000, 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 X?
A) 81.3%
B) 20.2%
C) 40.7%
D) 60%

Accepted Answer

The answer of Division X of O'Blarney Company has sales...

Question 6

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:
A) Cost price approach
B) Negotiated price approach
C) Revenue price approach
D) Market price approach

Accepted Answer

The market price approach is the most appropriate method for determining the transfer price as it is based on the actual market value of the product or service, and takes into consideration the prices at which similar products or services are sold to outside customers. This approach ensures that the transfer price is fair and reasonable for both the selling and buying divisions and avoids any potential conflicts between them.

Question 7

The balanced scorecard measures
A) only financial information
B) only nonfinancial information
C) both financial and nonfinancial information
D) external and internal information

Accepted Answer

The balanced scorecard measures both financial and nonfinancial information, providing a more comprehensive view of an organization's performance. It includes financial measures, such as revenue and profitability, as well as nonfinancial measures, such as customer satisfaction and employee engagement.

Question 8

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 not only generating profit but also managing assets (investments). This makes them different from profit centers that only focus on generating income.

Question 9

Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets?
A) 26.3%
B) 25.0%
C) 4.0%
D) 380.0%

Accepted Answer

The answer of Moon Shoe Factory is an investment center...

Question 10

The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. 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

Employees are actually included as a performance measurement in the balanced scorecard framework, specifically in the area of innovation and learning. The four areas measured by the balanced scorecard are financial, customer, internal processes, and innovation and learning.

Question 11

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 6's income from operations increase?
A) $8,000
B) $15,000
C) $80,000
D) $150,000

Accepted Answer

The answer of Materials used by Square Yard Products Inc....

Question 12

Which one 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 used in evaluating and controlling investment center performance. The other options listed, such as rate of return on investment, residual income, and income from operations, are commonly used measures in evaluating investment center performance.

Question 13

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 the responses

Accepted Answer

The rate of return on investment and residual income are both measures of financial performance commonly used in investment centers. Divisional income statements are also relevant for evaluating a manager's performance in terms of revenue generation and cost management. Therefore, all of the options provided are valid measures for evaluating a manager's performance in an investment center.

Question 14

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 3's income from operations increase?
A) $150,000
B) $50,000
C) $32,000
D) $72,000

Accepted Answer

Division 3's current cost of materials per unit is $5. By using materials from Division 6, they can reduce the cost to $3 per unit. The transfer price is $3.20 per unit, so Division 3 is saving $.80 per unit.

The total cost savings for 40,000 units is:

40,000 x $.80 = $32,000

This is the increase in Division 3's income from operations. Therefore, the correct answer is D.

Question 15

A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:
A) profit margin
B) indirect margin
C) investment turnover
D) cost ratio

Accepted Answer

Investment turnover is the ratio of sales to invested assets, which is a key factor in determining the rate of return on investment. Profit margin measures the profitability of each dollar of sales, indirect margin is not a commonly used term, and cost ratio is a measure of the cost of sales compared to revenue.

Question 16

Division X of O'Blarney Company has sales of $300,000, 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 X?
A) 9.15%
B) 81.3%
C) 40.7%
D) 200%

Accepted Answer

The answer of Division X of O'Blarney Company has sales...

Question 17

Division A of Mocha Company has sales of $155,000, 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) 19.3%
B) 48.0%
C) 18.7%
D) 5.47%

Accepted Answer

The answer of Division A of Mocha Company has sales...

Question 18

Which of the following is not a commonly used approach to setting transfer prices?
A) Market price approach
B) Revenue price approach
C) Negotiated price approach
D) Cost price approach

Accepted Answer

The Revenue price approach is not a commonly used approach to setting transfer prices. The market price approach, negotiated price approach, and cost price approach are commonly used. The market price approach involves using the market price of a good or service as the transfer price. The negotiated price approach involves negotiating a price between the selling and buying divisions. The cost price approach involves adding a markup to the cost of producing the good or service to arrive at a transfer price.

Question 19

The transfer price which uses a variety of cost concepts is the
A) Negotiated price approach
B) Standard cost approach
C) Cost price approach
D) Market price approach

Accepted Answer

The answer of The transfer price which uses a variety...

Question 20

ABC Corporation has three service departments with the following costs and activity base:  ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:
 What will the income of the Super Division be after all service department allocations?
A) $300,000
B) $325,000
C) $550,000
D) $200,000

Accepted Answer

The answer of ABC Corporation has three service departments with...

Quiz 8: Performance Evaluation for Decentralized Operations

Division A of Mocha Company has sales of $155,000, 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?

Division A of Mocha Company has sales of $155,000, 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?

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the profit margin?

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the investment turnover?

Division X of O'Blarney Company has sales of $300,000, 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 X?

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

The balanced scorecard measures

Investment centers differ from profit centers in that they

Moon Shoe Factory is an investment center and is responsible for all of their net income and the use of their assets. In 2012, the invested assets totaled $475,000 and net income was $125,000. What is the rate of return on assets?

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

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

The following is a measure of a manager's performance working in an investment center.

A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:

Division X of O'Blarney Company has sales of $300,000, 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 X?

Division A of Mocha Company has sales of $155,000, 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?

Which of the following is not a commonly used approach to setting transfer prices?

The transfer price which uses a variety of cost concepts is the

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What will the income of the Super Division be after all service department allocations?