Question 1

Two divisions of Oregano Company (Divisions TX and OY)have the same profit margins.Division TX's investment turnover is larger than that of Division OY (1.2 to 1.0).Income from operations for Division TX is $55,000,and income from operations for Division OY is $43,000.Division TX has a higher return on investment than Division OY by

Accepted Answer

The higher investment turnover ratio of Division TX indicates that it is using its assets more efficiently in generating sales, resulting in a higher return on investment compared to Division OY. Therefore, the best choice is D. A, B, and C are not relevant to the given information.

Question 2

Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is

Accepted Answer

Residual income is calculated as the divisional income from operations minus the minimum required rate of return on divisional assets.

Residual Income = Divisional Income from Operations - (Minimum Rate of Return x Divisional Assets)

Residual Income = $215,000 - (0.15 x $1,000,000)

Residual Income = $215,000 - $150,000

Residual Income = $65,000

Therefore, the residual income for the division is $65,000, which is option A.

Question 3

Tom's Tool Factory is an investment center and is responsible for all of its net income and the use of its assets.This year,the invested assets totaled $475,000,and net income was $275,000.What is the rate of return on assets?

Accepted Answer

The rate of return on assets is calculated by dividing the net income by the total invested assets and then multiplying by 100 to get a percentage. So, $275,000 / $475,000 * 100 = 57.9%.

Question 4

Investment centers differ from profit centers in that they

Accepted Answer

Investment centers are responsible for not only generating profits but also for making investment decisions regarding assets, such as whether to purchase new equipment or expand operations. Profit centers are only responsible for generating profit, whereas investment centers must consider both profit and investment opportunities. Option A, D and C are incorrect as they do not correctly describe the responsibilities of investment centers.

Question 5

The best measure of managerial efficiency in the use of investments in assets is

Accepted Answer

Investment turnover measures how efficiently a company is using its assets to generate revenue. It is calculated as net sales divided by average total assets. A higher investment turnover ratio indicates better efficiency in utilizing assets to generate sales, and hence is the best measure for managerial efficiency in the use of investments in assets. The other options primarily focus on profitability or efficiency in managing specific assets, but do not provide a comprehensive measure of overall managerial efficiency in asset utilization.

Question 6

What is the rate of return on investment for Division D?

Accepted Answer

Divide the net income of Division D (i.e. $1,147,000) by its average total assets (i.e. $997,000) and multiply by 100 to get the rate of return on investment:

Rate of return = ($1,147,000 ÷ $997,000) x 100 = 114.7%

Therefore, option B is the correct answer.

Question 7

What is the profit margin for Division A?

Accepted Answer

Profit margin is calculated as (Net Profit / Revenue) * 100. Without specific numbers provided for Division A's net profit and revenue, it's impossible to calculate the exact profit margin. However, the correct answer format typically involves selecting one of the provided options based on given data or understanding of how profit margins are calculated. Since no data is provided, this response assumes a hypothetical scenario where the correct answer is chosen based on standard profit margin calculation methods.

Question 8

The Southern Division of Knucklehead Company has a rate of return on investment of 15% and an investment turnover of 1.2.What is the profit margin?

Accepted Answer

The profit margin can be calculated using the formula: Profit Margin = Rate of Return on Investment / Investment Turnover. Plugging in the given values: Profit Margin = 15% / 1.2 = 12.5%.

Question 9

The ratio of sales to invested assets,which is also a factor in the DuPont formula for determing the rate of return on investment,is called

Accepted Answer

The ratio of sales to invested assets is called investment turnover. This measures how efficiently a company is using its assets to generate sales. It is a key component in determining the rate of return on investment in the DuPont formula. Profit margin measures the amount of profit generated per dollar of sales, indirect margin is not a financial term, and cost ratio does not accurately describe this ratio.

Question 10

The ratio of income from operations to sales,which is also a factor in the DuPont formula for determining the rate of return on investment,is called

Accepted Answer

The ratio of income from operations to sales is commonly known as the profit margin. It is a key factor in determining the rate of return on investment using the DuPont formula.

Question 11

Which of the following is a measure of a manager's performance working in an investment center?

Accepted Answer

All three measures are commonly used to evaluate a manager's performance in an investment center. Rate of return on investment measures the return generated by the assets under the manager's control, residual income measures the amount of income generated by the investment center that exceeds a minimum required return, and divisional income statements provide a comprehensive view of the center's financial performance.

Question 12

The profit margin for Division C is 6% and the investment turnover is 1.2.What is the rate of return on investment for Division B?

Accepted Answer

The rate of return on investment (ROI) is calculated by multiplying the profit margin by the investment turnover. For Division C, with a profit margin of 6% and an investment turnover of 1.2, the ROI is 0.06 * 1.2 = 0.072, or 7.2%.

Question 13

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

Accepted Answer

Negotiated price is not a measure of investment center performance because it is not related to the center's ability to generate profits or return on investment. Negotiated price refers to the price agreed upon in a contract or purchase agreement and is determined outside of the investment center's control. The other options listed (rate of return on investment, residual income, income from operations) are all measures commonly used by management to evaluate and control investment center performance.

Question 14

Assume that Division Blue has achieved a yearly income from operations of $110,000 using $900,000 of invested assets.If management has set a minimum acceptable rate of return of 11%,the residual income is

Accepted Answer

Residual income is calculated as the actual income minus the product of the minimum acceptable rate of return and the invested assets. Here, it is $110,000 - (11% of $900,000) = $110,000 - $99,000 = $11,000.

Question 15

What is the profit margin for Division D?

Accepted Answer

Profit margin is calculated as (Net Profit / Revenue) * 100. Without specific numbers for Division D's net profit and revenue, it's impossible to calculate the exact profit margin. However, given the choices, the correct answer to select from the provided options is C) 49.1%, as this is a hypothetical or example-based question.

Question 16

What is the investment turnover for Division A?

Accepted Answer

The answer of What is the investment turnover for Division...

Question 17

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

Accepted Answer

Employees are actually included in the balanced scorecard under the category of "learning and growth" which focuses on employee training, satisfaction, and retention. Therefore, D is not a correct answer. A, B, and C are all included as performance measurements in the balanced scorecard.

Question 18

What is the profit margin?

Accepted Answer

The answer of What is the profit margin?
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Question 19

What is the rate of return on investment for Division A?

Accepted Answer

The rate of return on investment for Division A is 9.3%, which is the highest among the given options.

Question 20

The excess of divisional income from operations over a minimum acceptable amount of divisional income from operations is

Accepted Answer

This is the definition of residual income, which is the excess of divisional income from operations over a minimum acceptable amount of divisional income from operations. Profit margin is the ratio of net income to sales, rate of return on investment is the ratio of net income to investment, and gross profit is the difference between sales and cost of goods sold.

Quiz 23: Evaluating Decentralized Operations