Question 1

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Accepted Answer

A) True 
 B)False

Question 2

The investment turnover is the ratio of

Accepted Answer

A)   income from operations to sales
B)   income from operations to invested assets
C)   assets to liabilities
D)   sales to invested assetsE) B) and D)
F) All of the above

Question 3

The residual income for Mason is

Accepted Answer

A)   $0
B)   $84,150
C)   $(6,000) 
D)   $1,500E) C) and D)
F) A) and D)

Question 4

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A) True 
 B)False

Question 5

Transfer prices may be used when decentralized units are organized as cost,profit,or investment centers.

Accepted Answer

A) True 
 B)False

Question 6

How much will Jefferson's total income from operations increase?

Accepted Answer

A)   $37,500
B)   $100,000
C)   $62,500
D)   $150,000E) All of the above
F) C) and D)

Question 7

All of the following are advantages of decentralization except

Accepted Answer

A)   Managers make better decisions when closer to the operations of the company.
B)   Expertise in all areas of the business is difficult; decentralization makes it better to delegate certain responsibilities.
C)   Each decentralized operation purchases its own assets and pays for operating costs.
D)   Decentralized managers can respond quickly to customer needs.E) B) and C)
F) A) and D)

Question 8

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the profit margin is 20%.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a disadvantage of decentralized operation?

Accepted Answer

A)   competition among managers
B)   duplication of operations
C)   price cutting by departments that are competing in the same product market
D)   top management freed from everyday tasks to do strategic planningE) All of the above
F) C) and D)

Question 10

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

Accepted Answer

A) True 
 B)False

Question 11

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

A)   1.5%
B)   12.5%
C)   0.67%
D)   6.67%E) A) and C)
F) B) and D)

Question 12

Which is the best example of a decentralized operation?

Accepted Answer

A)   one owner who prepares plans and makes decisions for the entire company
B)   each unit is responsible for their own operations and decision making
C)   in a major company,operating decisions are made by top management
D)   none of these,all are examples of a centralized operationE) C) and D)
F) B) and C)

Question 13

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

Accepted Answer

A)   profit margin
B)   residual income
C)   rate of return on investment
D)   gross profitE) A) and B)
F) A) and C)

Question 14

Developing and retaining quality managers are advantages of decentralization.

Accepted Answer

A) True 
 B)False

Question 15

The DuPont formula uses financial information to measure the performance of a business.

Accepted Answer

A) True 
 B)False

Question 16

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

A)   profit margin
B)   indirect margin
C)   investment turnover
D)   cost ratioE) B) and C)
F) A) and C)

Question 17

If income from operations for a division is $5,000,invested assets are $25,000,and sales are $30,000,the profit margin is 20%.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a disadvantage of decentralization?

Accepted Answer

A)   Decisions made by one manager may negatively affect the profitability of the entire company.
B)   Decentralization helps retain quality managers.
C)   Managers closest to the operations make decisions.
D)   Managers are able to acquire expertise in their areas of responsibility.E) A) and B)
F) None of the above

Question 19

Depreciation expense on store equipment for a department store is an indirect expense.

Accepted Answer

A) True 
 B)False

Question 20

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

A)   57.9%
B)   172.3%
C)   5.0%
D)   115.0%E) None of the above
F) A) and C)

Exam 23: Evaluating Decentralized Operations

Which of the following is a disadvantage of decentralization?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Transfer prices may be used when decentralized units are organized as cost,profit,or investment centers.

Correct AnswerverifiedShow Answer

Developing and retaining quality managers are advantages of decentralization.

Correct AnswerverifiedShow Answer

Which of the following is not a disadvantage of decentralized operation?

Correct AnswerverifiedShow Answer

The investment turnover is the ratio of

Correct AnswerverifiedShow Answer

The rate of return on investment may be computed by multiplying investment turnover by the profit margin.

Correct AnswerverifiedShow Answer

If income from operations for a division is $5,000,invested assets are $25,000,and sales are $30,000,the profit margin is 20%.

Correct AnswerverifiedShow Answer

If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the profit margin is 20%.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Depreciation expense on store equipment for a department store is an indirect expense.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

How much will Jefferson's total income from operations increase?

Correct AnswerverifiedShow Answer

All of the following are advantages of decentralization except

Correct AnswerverifiedShow Answer

Which is the best example of a decentralized operation?

Correct AnswerverifiedShow Answer

The residual income for Mason is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Correct AnswerverifiedShow Answer

The DuPont formula uses financial information to measure the performance of a business.

Correct AnswerverifiedShow Answer

The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified