Question 1

When computing ROI, it is may be appropriate to use average total assets as the denominator.

Accepted Answer

Using average total assets as the denominator in the ROI (Return on Investment) calculation is appropriate because it accounts for any changes in asset levels over the period being analyzed, providing a more accurate measure of investment efficiency.

Question 2

The primary purpose of Responsibility Accounting is to access blame for suboptimal results.

Accepted Answer

Responsibility Accounting is primarily aimed at assigning responsibility to different segments or managers within an organization to monitor and evaluate their performance, rather than to assign blame for suboptimal results. It focuses on planning, accountability, and performance evaluation.

Question 3

In order to properly calculate the Residual Income for an investment center, it is necessary to know the imputed interest rate.

Accepted Answer

The Residual Income (RI) calculation requires the imputed interest rate to determine the cost of capital for the investment, which is then subtracted from the center's earnings to calculate RI.

Question 4

When computing Residual Income, it is not correct to eliminate non-productive assets in the calculation.

Accepted Answer

Residual Income is calculated to assess the net operating income earned above the minimum required return on its operating assets. Non-productive assets, which do not contribute to operating income, are typically excluded from the calculation to provide a more accurate measure of the profitability and efficiency of the productive assets.

Question 5

Because the accounting department provides information necessary to improve profitability, it is an example of a profit center.

Accepted Answer

The accounting department is typically considered a cost center because it does not directly generate revenue but incurs costs while providing essential services to support the business operations.

Question 6

A department that has responsibility for both sales and expense is an example of a cost center.

Accepted Answer

A department responsible for both sales and expenses is typically considered a profit center, not a cost center, because it focuses on generating revenue as well as managing costs, thereby contributing to the company's profit.

Question 7

All other things remaining equal, increasing the imputed interest will increase residual income.

Accepted Answer

Residual income is calculated by subtracting the imputed interest charge on invested capital from the operating income. Increasing the imputed interest reduces the residual income, as it increases the charge against the operating income.

Question 8

What is the return on investment if the division manager only utilizes the productive assets? Bollwerk Company's records for Department Q provided the following information for last year:

Accepted Answer

The answer of What is the return on investment if...

Question 9

Use the following to answer questions:
McGowan Inc. has two divisions that operate as investment centers. The data for each follows:
 
-What is the return on investment for the Trim Line Division?

Accepted Answer

The return on investment (ROI) is calculated by dividing the net profit by the total assets invested in the division. Without specific numbers provided for the Trim Line Division's net profit or total assets, it's impossible to calculate the exact ROI. However, given the options, if the correct answer is known to be 22.00%, it suggests that this information was provided or calculated based on data given in a previous part of the question or scenario not included here.

Question 10

Use the following to answer questions:
McGowan Inc. has two divisions that operate as investment centers. The data for each follows:
 
-What is the capital turnover for the Regular Division?

Accepted Answer

Capital turnover is calculated by dividing the division's sales by its total assets. Without specific numbers for the Regular Division's sales and assets, it's impossible to calculate or confirm the correct capital turnover from the options provided. The answer provided (B) is based on an assumption without data.

Question 11

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

Accepted Answer

Increasing long-term liabilities does not directly increase the return on investment (ROI). ROI is typically calculated by dividing net profit by total invested capital. Increasing long-term liabilities may increase the capital available for investment or operations, but it does not inherently increase net profit or decrease the capital invested in a way that would improve ROI. Actions like increasing sales and decreasing costs directly improve net profit, while decreasing invested capital directly increases ROI by reducing the denominator in the ROI calculation.

Question 12

The Cherry Division of the Jolly Fruit Candies had profits of $618,000 last year while the Pineapple Division had $176,000. Using this information, which division had the better return on investment.

Accepted Answer

To determine which division had a better return on investment (ROI), we need to know the amount of investment in each division, not just the profits. Since that information is not provided, we cannot compare their ROI.

Question 13

Use the following to answer questions:
The records of the Barnholtz Division of Silberman Corporation showed the following for last year:
 
-What is the sales margin for the Barnholtz Division?

Accepted Answer

Sales margin = (Sales - Cost of goods sold) / Sales= (100,000 - 94,000) / 100,000= 6%

Question 14

Use the following to answer questions:
The records of the Barnholtz Division of Silberman Corporation showed the following for last year:
 
-What is the capital turnover for the Barnholtz Division?

Accepted Answer

Capital turnover is calculated by dividing sales by average operating assets. Without specific figures for sales and operating assets, we assume the correct choice is based on provided options.

Question 15

Use the following to answer questions:
The records of the Barnholtz Division of Silberman Corporation showed the following for last year:
 
-What is the return on investment for the Barnholtz Division?

Accepted Answer

The return on investment (ROI) is calculated by dividing the net profit by the cost of the investment. Without specific figures, we assume the correct choice based on typical ROI percentages provided.

Question 16

The _______is more likely to promote goal congruence when used as a performance measure.

Accepted Answer

Residual income is more likely to promote goal congruence because it encourages managers to make decisions that are in the best interest of the entire company, rather than focusing on metrics that might only improve their department's performance but not necessarily align with the company's overall objectives.

Question 17

Use the following to answer questions:
Daniels Co. uses long-term debt and equity capital as primary sources of funds. The long-term debt has a market value and book value of $8.5 million and was issued at a 9 percent interest rate. The equity capital has a book value of $3 million and a market value of $7.5 million. Daniels has 3 major centers located around the country with the following operating income, total assets and current liabilities:
  
The cost of equity capital is 12 percent, with a 40 percent tax rate.
-What is the EVA for the Midwest Division?

Accepted Answer

The answer of Use the following to answer questions:
Daniels Co....

Question 18

Use the following to answer questions:
Daniels Co. uses long-term debt and equity capital as primary sources of funds. The long-term debt has a market value and book value of $8.5 million and was issued at a 9 percent interest rate. The equity capital has a book value of $3 million and a market value of $7.5 million. Daniels has 3 major centers located around the country with the following operating income, total assets and current liabilities:
  
The cost of equity capital is 12 percent, with a 40 percent tax rate.
-What is the EVA for the West Division?

Accepted Answer

EVA (Economic Value Added) is calculated as Net Operating Profit After Taxes (NOPAT) minus the capital charge (the product of the capital invested and the cost of capital). The negative value suggests that the West Division's capital charge exceeds its NOPAT.

Question 19

Activity-based responsibility accounting attempts to

Accepted Answer

Activity-based responsibility accounting aims to improve the efficiency of necessary activities, identify and eliminate unnecessary activities, and add new activities that will increase value, encompassing all the options provided.

Question 20

Use the following to answer questions:
Belsky Bay Inc. has two divisions. The company, in trying to develop performance measures has noted that different accounting methods and inflation rates exist for the assets of the divisions. Because of the difference, the company is considering the use of multiple performance measures. The following information for the divisions for last year is below:
  
The company's required rate of return is 12 percent.
-What are Division A and B's ROIs based on net book values, respectively (round to two decimals)?

Accepted Answer

Division A's ROI based on net book value is calculated by dividing its net income by its net book value. Similarly, Division B's ROI is calculated the same way. The correct ROIs for Division A and B, respectively, are 64.65% and 23.23%, as per the given options.

Quiz 18: Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance