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Exam 23: Performance Evaluation for Decentralized Operations

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Question 31

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Sales commissions expense for a department store is an example of a direct expense.

A) True
B) False

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Question 32

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Investment centers differ from profit centers in that they

A) are responsible for net income only.
B) are able to invest in assets.
C) have less responsibilities than cost centers and profit centers.
D) are only responsible for revenues.

E) None of the above
F) A) and D)

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Question 33

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ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: What is the service department charge rate for Graphics Production?

The Everest Company has income from operations of $80,000, invested assets of $500,000, and sales of $1,050,000. What is the profit margin?

Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit.

The Ukulele Company's radio division currently is purchasing transistors from the Xiang Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Ukulele Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The $4 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?

The manager of the furniture department of a leading retailer does not control the salaries of departmental personnel.

In evaluating the profit center manager, the income from operations should be compared:

Data for Divisions A, B, C, D, and E are as follows: Round percentage values to one decimal point.

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

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

The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Which of the following would be most effective in a small owner/manager-operated business?

The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department.

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

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from 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 would Jefferson's total income from operations increase?

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

What additional information is needed to find the rate of return on investment if income from operations is known?

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