To calculate income from operations, total service department charges are

1. If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2.

True

False

2 points

QUESTION 2

1. Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases.

True

False

2 points

QUESTION 3

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

True

False

2 points

QUESTION 4

1. The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

True

QUESTION 5

1. A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable return on assets set by upper management.

True

False

2 points

QUESTION 6

1. The profit center income statement should include only revenues and expenses that are controlled by the manager.

True

False

2 points

QUESTION 7

1. Responsibility accounting reports for profit centers are normally in the form of income statements.

True

False

2 points

QUESTION 8

1. Responsibility accounting reports that are given to lower-level managers are usually very detailed; in turn, higher-level managers will be given a summary report.

True

False

2 points

QUESTION 9

1. A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

True

False

2 points

QUESTION 10

1. Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.

True

False

2 points

QUESTION 11

1. In return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets.

True

False

2 points

QUESTION 12

1. The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

True

False

2 points

QUESTION 13

1. The rates at which centralized services are charged to each division are called service department charge rates.

True

False

2 points

QUESTION 14

1. Controllable expenses are those that can be influenced by the decisions of the profit center management.

True

False

2 points

QUESTION 15

1. 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%.

True

False

2 points

QUESTION 16

1. The excess of divisional income from operations over a minimum acceptable income from operations is termed the residual income.

True

False

2 points

QUESTION 17

1. The underlying principle of allocating direct operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.

True

False

2 points

QUESTION 18

1. By using the return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals that will increase the overall return for the company.

True

False

2 points

QUESTION 19

1. In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

True

False

2 points

QUESTION 20

1. A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

True

False

2 points

QUESTION 21

1. The manager of the Furniture Department of a leading retailer does not control the salaries of departmental personnel.

True

False

2 points

QUESTION 22

1. If divisional income from operations is $100,000, invested assets are $850,000, and the minimum return on invested assets is 8%, the residual income is $68,000.

True

False

2 points

QUESTION 23

1. The ratio of sales to investment is termed the return on investment.

True

False

QUESTION 24

1. The minimum accepted divisional income from operations is set by top management by establishing a maximum return considered acceptable for invested assets.

True

False

2 points

QUESTION 25

1. Property tax expense for a department store's store equipment is an example of a direct expense.

True

False

2 points

QUESTION 26

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

a.

investment turnover

b.

indirect margin

c.

profit margin

d.

cost ratio

2 points

QUESTION 27

1. Use this information for ABC Corporation to answer the questions that follow.

​

ABC Corporation has three service departments with the following costs and activity base:

​

Service Department

​

Cost

Activity Base for Allocation

Graphics Production

$200,000

number of copies made

Accounting

500,000

number of invoices processed

Personnel

400,000

number of employees

​

ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information is as follows:

Micro

Macro

Super

Direct revenues

$700,000

$850,000

$650,000

Direct operating expenses

$50,000

$70,000

$100,000

Number of copies made

20,000

30,000

50,000

Number of invoices processed

700

800

500

Number of employees

130

145

125

​

​

What will the income of the Macro Division be after all service department allocations?

a.

$575,000

b.

$375,000

c.

$435,000

d.

$780,000

2 points

QUESTION 28

1. Use this information for ABC Corporation to answer the questions that follow.

​

ABC Corporation has three service departments with the following costs and activity base:

​

Service Department

​

Cost

Activity Base for Allocation

Graphics Production

$200,000

number of copies made

Accounting

500,000

number of invoices processed

Personnel

400,000

number of employees

​

ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information is as follows:

Micro

Macro

Super

Direct revenues

$700,000

$850,000

$650,000

Direct operating expenses

$50,000

$70,000

$100,000

Number of copies made

20,000

30,000

50,000

Number of invoices processed

700

800

500

Number of employees

130

145

125

​

​

How much service department cost will be allocated to the Micro Division?

a.

$60,000

b.

$145,000

c.

$345,000

d.

$200,000

2 points

QUESTION 29

1. The transfer price approach that uses a variety of cost concepts is the

a.

negotiated price approach

b.

standard cost approach

c.

cost price approach

d.

market price approach

2 points

QUESTION 30

1. The investment turnover is the ratio of

a.

assets to liabilities

b.

income from operations to sales

c.

income from operations to invested assets

d.

sales to invested assets

QUESTION 31

1. Use this information for Jefferson Company to answer the questions that follow.

​

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available with Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.

​

How much will Division A's income from operations increase?

a.

$0

b.

$50,000

c.

$75,000

d.

$25,000

2 points

QUESTION 32

1. Use this information for ABC Corporation to answer the questions that follow.

​

ABC Corporation has three service departments with the following costs and activity base:

​

Service Department

​

Cost

Activity Base for Allocation

Graphics Production

$200,000

number of copies made

Accounting

500,000

number of invoices processed

Personnel

400,000

number of employees

​

ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information is as follows:

Micro

Macro

Super

Direct revenues

$700,000

$850,000

$650,000

Direct operating expenses

$50,000

$70,000

$100,000

Number of copies made

20,000

30,000

50,000

Number of invoices processed

700

800

500

Number of employees

130

145

125

​

​

What is the service department charge rate for Graphics Production?

a.

$0.50

b.

$10

c.

$6.66

d.

$2

2 points

QUESTION 33

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

a.

1.5%

b.

6.67%

c.

12.5%

d.

0.67%

2 points

QUESTION 34

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

a.

inventory turnover

b.

investment turnover

c.

income from operations

d.

return on stockholders' equity

2 points

QUESTION 35

1. Which of the following expenses incurred by a department store is an indirect expense?

a.

depreciation on store equipment

b.

insurance on merchandise inventory

c.

salary of vice president of finance

d.

sales salaries

2 points

QUESTION 36

1. Nelson Company's Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units. The $4.00 is made up of $3.25 in variable costs and $0.75 in allocated fixed costs. What should be the range of a possible transfer price ?

a.

$3.26 to $3.99

b.

$3.25 to $3.50

c.

$3.51 to $3.99

d.

$3.26 to $3.49

2 points

QUESTION 37

1. Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

a.

income from operations before service department charges was $1,650,000

b.

net income was $300,000

c.

consolidated net income was $300,000

d.

the gross profit margin was $300,000

2 points

QUESTION 38

1. Use this information for Chicks Corporation to answer the questions that follow.

​

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum return of 15%.

​

The residual income for Chicks is

a.

$191,500

b.

$302,500

c.

$137,500

d.

$165,000

2 points

QUESTION 39

1. Use this information for Train Corporation to answer the questions that follow.

​

The following financial information was summarized from the accounting records of Train Corporation for the current year ended December 31:

Rails Division

Locomotive Division

Corporate Total

Cost of goods sold

$ 47,200

$30,720

Direct operating expenses

27,200

20,040

Sales

108,000

78,000

Interest expense

$ 2,040

General overhead

18,160

Income tax

4,700

​

The income from operations for the Locomotive Division is

a.

$27,240

b.

$47,280

c.

$57,960

d.

$14,790

2 points

QUESTION 40

1. The Central Division of Nebraska Company has a return on investment of 28% and a profit margin of 14%. What is the investment turnover?

a.

5.0

b.

0.5

c.

0.2

d.

2.0

2 points

QUESTION 41

1. Use this information for Clydesdale Company to answer the questions that follow.

​

Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum return of 7%.

What is Clydesdale Company's investment turnover?

a.

1.25

b.

1.4

c.

1.80

d.

2.25

2 points

QUESTION 42

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

a.

gross profit

b.

profit margin

c.

return on investment

d.

residual income

2 points

QUESTION 43

1. Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $33,000, and a desired minimum return of 7.5%. The return on investment for Blaser Corporation is

a.

12%

b.

7.5%

c.

10%

d.

8.3%

2 points

QUESTION 44

1. Income from operations for Division H is $220,000, and income from operations before service department charges is $975,000. As a result,

a.

total service department charges are $755,000

b.

total manufacturing expenses are $565,000

c.

direct materials, direct labor, and factory overhead total $565,000

d.

total operating expenses are $565,000

2 points

QUESTION 45

1. What additional information is needed to calculate the return on investment if income from operations is known?

a.

sales

b.

invested assets

c.

residual income

d.

direct expenses

2 points

QUESTION 46

1. The profit margin is the ratio of

a.

sales to invested assets

b.

income from operations to invested assets

c.

assets to liabilities

d.

income from operations to sales

2 points

QUESTION 47

1. Use this information for Chicks Corporation to answer the questions that follow.

​

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum return of 15%.

​

The investment turnover for Chicks is

a.

1.3

b.

1.0

c.

1.5

d.

1.1

2 points

QUESTION 48

1. Use this information for Chacha Company to answer the questions that follow.

​

Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000.

What is the return on investment for Division A?

a.

4.6%

b.

74.6%

c.

99.3%

d.

9.3%

2 points

QUESTION 49

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

a.

$635,000

b.

$150,000

c.

$65,000

d.

$215,000

2 points

QUESTION 50

1. The balanced scorecard measures

a.

both financial and nonfinancial information

b.

only nonfinancial information

c.

external and internal information

d.

only financial information