Question 1

On a segmented income statement, common fixed expenses will have an effect on a company's:

Accepted Answer

The answer of On a segmented income statement, common fixed...

Question 2

Kattan Inc. reported a sales margin of 11%, a capital turnover of 5, and investment capital in the amount of $30,000,000. On the basis of this information, the company's sales revenue is:

Accepted Answer

Sales revenue is calculated by multiplying the capital turnover by the investment capital: 5 * $30,000,000 = $150,000,000.

Question 3

Capital turnover shows:

Accepted Answer

Capital turnover measures how effectively a company is utilizing its capital investment to generate sales revenue. It is calculated by dividing the net sales of the company by its average capital investment. Therefore, it shows the number of sales dollars generated by each dollar of capital investment.

Question 4

Webb Brothers Inc. had sales revenue and operating expenses of $6,000,000 and $5,400,000, respectively, for the year just ended. If invested capital amounted to $8,000,000, the firm's ROI was:

Accepted Answer

ROI (Return on Investment) is calculated as (Net Income / Invested Capital) * 100. The Net Income is Sales Revenue minus Operating Expenses, which is $6,000,000 - $5,400,000 = $600,000. Therefore, ROI = ($600,000 / $8,000,000) * 100 = 7.5%.

Question 5

The ROI calculation will indicate:

Accepted Answer

ROI stands for Return on Investment, which is a ratio that measures how effectively a company used its invested capital to generate income. It is calculated by dividing net income by the average invested capital. The ROI calculation indicates the effectiveness of a company's investment decisions and the overall efficiency of its operations. Thus, option C is the correct answer. Option A refers to the asset turnover ratio, while option B refers to the gross profit margin ratio. Option D is not a commonly used ratio. Option E refers to the earnings quality ratio.

Question 6

A segment contribution margin would reflect the impact of:

Accepted Answer

The answer of A segment contribution margin would reflect the...

Question 7

Sassy Scents operates two retail outlets in Vaughan Mills and Yorkville. The following information relates to the Yorkville location: $\begin{array} { l r } 
\text { Sales Revenue } & \$ 800,000 \
\text { Variable operating expenses } & 300,000 \
\text { Fixed expenses: } & \
\text { Traceable to Yorkville and controllable by Yorkville } & 175,000 \
\text { Traceable to Yorkville and controllable by others } & 100,000
\end{array}$ Yorkville's segment profit margin is:

Accepted Answer

Yorkville's segment profit margin is calculated as Sales Revenue minus Variable Operating Expenses and all Fixed Expenses. So, $800,000 - $300,000 - $175,000 - $100,000 = $225,000.

Question 8

The Tooling Division of Lakes Costmetics reported a profit of $4.6 million. Divisional capital was $10.5 million and the imputed interest rate is 13%. Residual income must be:

Accepted Answer

Residual income = Profit - (Capital * Imputed interest rate)= $4.6 million - ($10.5 million * 13%)= $4.6 million - $1.365 million= $3,235,000

Question 9

Alexandra Corp. uses an imputed interest rate of 14% in the calculation of residual income. The modeling division, which is part of Alexandra, had invested capital of $1,300,000 and an ROI of 16%. On the basis of this information, the modeling division's residual income was:

Accepted Answer

Residual income is calculated as the net operating income minus the product of the invested capital and the imputed interest rate. Here, the net operating income is $1,300,000 * 16% = $208,000. The imputed interest is $1,300,000 * 14% = $182,000. Therefore, the residual income is $208,000 - $182,000 = $26,000.

Question 10

Century Limited is preparing a segmented income statement, subdivided into departments (billing, purchasing, and telemarketing). Which of the following choices correctly describes the accounting treatment of the firm's compensation cost for key executives (president and vice-presidents)?

Accepted Answer

The compensation cost for key executives is typically considered a corporate-level expense and is neither easily traceable nor controllable at the departmental level.

Question 11

Which of the following would be the best measure on which to base a segment manager's performance evaluation for purposes of granting a bonus?

Accepted Answer

Profit margin controllable by the segment manager is the best measure to base a segment manager's performance evaluation for purposes of granting a bonus because it takes into account the manager's ability to control costs and make efficient use of resources, which are essential skills for a successful manager. Segment sales revenue, contribution margin, profit margin, and net income are also important measures, but they may not reflect the manager's effectiveness in controlling costs and maximizing profits.

Question 12

Which of the following measures would reflect the variable costs incurred by a business segment? $\begin{array} { | l | c | c | c | c | } 
\hline & \begin{array} { c } 
\text { Segment } \
\text { Contribution } \
\text { Margin }
\end{array} &  { \begin{array} { c } 
\text { Profit Margin } \
\text { Controllable by Segment } \
\text { Manager }
\end{array} } & \begin{array} { c } 
\text { Segment } \
\text { Profit Margin }
\end{array} \
\hline 1 & \text { Yes } & \text { No } & \text { No } \
\hline 2 & \text { Yes } & \text { No } &  \text { Yes } \
\hline 3 & \text { Yes } & \text { Yes } &  \text { No } \
\hline 4 & \text { Yes } & \text { Yes } &  \text { Yes } \
\hline 5 & \text { No } & \text { Yes } &  \text { Yes } \
\hline
\end{array}$

Accepted Answer

The answer of Which of the following measures would reflect...

Question 13

Kanata Division reported a residual income of $100,000 for the year just ended. The division had $6,000,000 of invested capital and $500,000 of income. On the basis of this information, the imputed interest rate was:

Accepted Answer

Residual income is calculated as the division's income minus the product of the invested capital and the imputed interest rate. Given that the residual income is $100,000, the income is $500,000, and the invested capital is $6,000,000, we can set up the equation: $500,000 - ($6,000,000 * r) = $100,000. Solving for r gives an imputed interest rate of 6.67%.

Question 14

Which of the following is used in the calculation of both return on investment and residual income?

Accepted Answer

Invested capital refers to the total amount of capital invested by both the company's shareholders and lenders. It is used in the calculation of both return on investment (ROI) and residual income. ROI calculates the return earned by the company on its invested capital, while residual income measures the profitability of the company's operations after deducting the cost of the capital used to fund these operations. Therefore, invested capital is a crucial component in both of these financial metrics.

Note: The cost of capital is also used in the calculation of both ROI and residual income, but it is not included in the answer because it was not given as an option in the question.

Question 15

Sunrise Corporation has a return on investment of 15%. Recently, the Bottling Division reported the following: $\begin{array} { | l | r | } 
\hline \text { ROI } & 13 \% \
\hline \text { Residual Income } & 750,000 \
\hline
\end{array}$ The Bottling Division is contemplating a massive new investment that will (1) reduce divisional ROI and (2) produce $120,000 of residual income. If Sunrise Corporation wants to strive for goal congruence, the investment:

Accepted Answer

When making decisions that affect a division's ROI and residual income, it is important to consider the impact on the company as a whole. In this case, the massive new investment will reduce the Bottling Division's ROI. However, it will also produce $120,000 of residual income, which is a positive contribution to the division's profitability. As long as the investment generates a return that exceeds the cost of capital, it will add value to the company as a whole, even if it reduces the divisional ROI. Therefore, option D is the best choice because it takes into account the positive impact on residual income.

Question 16

Department No. 8 of Brockville Corporation reported a segment contribution margin of $600,000. If the profit margin controllable by the segment manager and the segment profit margin were $210,000 and $175,000, respectively, fixed expenses controllable by segment manager are:

Accepted Answer

The answer of Department No. 8 of Brockville Corporation reported...

Question 17

Badger Limited had a sales margin of 7%, sales of $8,000,000, and invested capital of $4,000,000. The company's ROI was:

Accepted Answer

ROI (Return on Investment) can be calculated using the formula: net income / invested capital. We are given the sales margin, which is net income / sales, so we can calculate the net income as $560,000 (7% of $8,000,000). Substituting these values into the formula, we get ROI = $560,000 / $4,000,000 = 0.14, or 14%. Therefore, the correct answer is D.

Question 18

Simon Corporation reported a return on investment of 15%, a capital turnover of 10, and income of $200,000. On the basis of this information, the company's invested capital was:

Accepted Answer

Return on Investment = Profit / Invested Capital
15% = Income / Invested Capital
Invested Capital = Income / Return on Investment
Invested Capital = $200,000 / 0.15
Invested Capital = $1,333,333

Question 19

The difference between the profit margin controllable by a segment manager and the segment profit margin is caused by:

Accepted Answer

The difference arises because the segment profit margin includes all costs traceable to the segment, including fixed expenses traceable to the segment but controllable by others, which the segment manager cannot control.

Question 20

The Magellan Division of Global Corporation, which has income of $250,000 and an asset investment of $1,562,500, is studying an investment opportunity that will cost $450,000 and yield a profit of $67,500. Assuming that Global uses an imputed interest charge of 14%, would the investment be attractive to: 1-Divisional management if ROI is used to evaluate divisional performance?
2-Divisional management if RI is used to evaluate divisional performance?
3-The management of Global Corporation? $\begin{array} { | l | c | c | c | } 
\hline & \text { Attractive to Magellan: ROI } & \text { Attractive to Magellan: RI } & \text { Attractive to Global } \
\hline 1 & \text { Yes } & \text { Yes } & \text { Yes } \
\hline 2 & \text { Yes } & \text { No } & \text { No } \
\hline 3 & \text { Yes } & \text { No } & \text { Yes } \
\hline 4 & \text { No } & \text { Yes } & \text { Yes } \
\hline 5 & \text { No } & \text { Yes } & \text { No }\
\hline
\end{array}$

Accepted Answer

The investment increases ROI (from 16% to 16.4%) and increases RI (from $31,250 to $36,250), making it attractive to both divisional management and Global Corporation.

Quiz 11: Responsibility Accounting, Investment Centres, and Transfer Pricing