Question 1

Profit centers can exist only in a decentralized organization.

Accepted Answer

A) True 
 B)False

Question 2

The following information is available for Des Plaines Company:   Invested capital is defined as total assets less current liabilities.The after-tax operating income is $150,000.The after-tax cost of capital is 20%.The before-tax operating income is $200,000.What is the residual income?

Accepted Answer

A) $90,000 
B) $120,000 
C) $125,000 
D) $175,000 
A) $90,000 
B) $120,000 
C) $125,000 
D) $175,000

Question 3

A transfer price exists when two segments of the same organization sell ________.

Accepted Answer

A) a product to the same customer 
B) a product to each other 
C) a product in a foreign country 
D) the same service to customers 
A) a product to the same customer 
B) a product to each other 
C) a product in a foreign country 
D) the same service to customers

Question 4

Return on sales can be increased by increasing expenses.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is NOT a benefit of decentralization?

Accepted Answer

A) Lower-level managers are able to make faster and better decisions on local decisions than higher-level managers. 
B) By delegating decision-making authority to local managers,higher-level managers free up time to deal with larger issues and fundamental strategy. 
C) Local managers who are given more authority often have greater motivation and job satisfaction. 
D) Managers in decentralized units may spend time negotiating transfer prices for goods transferred between units. 
A) Lower-level managers are able to make faster and better decisions on local decisions than higher-level managers. 
B) By delegating decision-making authority to local managers,higher-level managers free up time to deal with larger issues and fundamental strategy. 
C) Local managers who are given more authority often have greater motivation and job satisfaction. 
D) Managers in decentralized units may spend time negotiating transfer prices for goods transferred between units.

Question 6

The following information is available for Bono Company:   Invested capital is defined as total assets less current liabilities.What is invested capital?

Accepted Answer

A) $350,000 
B) $550,000 
C) $600,000 
D) $650,000 
A) $350,000 
B) $550,000 
C) $600,000 
D) $650,000

Question 7

The asset section of the January 1,20X9,balance sheet of Big Valley Company includes a machine which was acquired on January 1,20X5.The machine's original cost was $500,000,and the estimated life was 10 years.On January 1,20X5,the estimated residual value was zero and the straight-line method of depreciation was used.On January 1,20X9,the book value of the machine is ________.

Accepted Answer

A) $250,000 
B) $300,000 
C) $450,000 
D) $500,000 
A) $250,000 
B) $300,000 
C) $450,000 
D) $500,000

Question 8

The variable cost of Part X is $50 per unit and the full cost of the part is $80 per unit.The part is produced in Country Z and transferred to a plant in Country B.Country Z has a 30% income tax rate.Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item.Part X can be transferred at full cost or variable cost.Assume Part X is transferred at full cost.By using full cost instead of variable cost for the transfer price,the income tax effect per unit in Country B is ________.

Accepted Answer

A) a decrease in tax by $9 per unit 
B) an increase in tax by $9 per unit 
C) a decrease in tax by $15 per unit 
D) an increase in tax by $15 per unit 
A) a decrease in tax by $9 per unit 
B) an increase in tax by $9 per unit 
C) a decrease in tax by $15 per unit 
D) an increase in tax by $15 per unit

Question 9

The following information is available for Gable Company:   Invested capital is defined as total assets.Net operating income is $60,000.What is ROI?

Accepted Answer

A) 20% 
B) 30% 
C) 50% 
D) 120% 
A) 20% 
B) 30% 
C) 50% 
D) 120%

Question 10

The use of net book value promotes a more conservative approach to asset replacement when compared to gross book value.

Accepted Answer

A) True 
 B)False

Question 11

If actual costs are used for transfer pricing by a selling division,the division has little incentive to control costs.

Accepted Answer

A) True 
 B)False

Question 12

The following information is available for the Jaeger Company:
   Required: 
A)Compute capital turnover.
B)Compute operating income.
C)Compute return on sales.

Accepted Answer

A)4.0 = $2

Question 13

Possible definitions of invested capital include total assets and total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 14

According to agency theory,employment contracts will balance three factors that include ________.

Accepted Answer

A) cost-benefit,risk and uncontrollable factors 
B) goal congruence,incentive and risk 
C) cost of measuring performance,cost-benefit and risk 
D) incentive,risk and cost of measuring performance 
A) cost-benefit,risk and uncontrollable factors 
B) goal congruence,incentive and risk 
C) cost of measuring performance,cost-benefit and risk 
D) incentive,risk and cost of measuring performance

Question 15

Return on investment can be computed as ________ times ________.

Accepted Answer

A) residual income; capital turnover 
B) cost of capital; EVA 
C) return on sales; capital turnover 
D) net income; cost of capital 
A) residual income; capital turnover 
B) cost of capital; EVA 
C) return on sales; capital turnover 
D) net income; cost of capital

Question 16

The most popular systems for transfer pricing in practice are ________.

Accepted Answer

A) market-based transfer prices 
B) cost-based transfer prices based on variable costs 
C) cost-based transfer prices based on full costs 
D) all of the above 
A) market-based transfer prices 
B) cost-based transfer prices based on variable costs 
C) cost-based transfer prices based on full costs 
D) all of the above

Question 17

Return on sales can be computed by multiplying return on investment by the capital turnover.

Accepted Answer

A) True 
 B)False

Question 18

Campos Company's records reveal the following:     Variable costs:
  The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.Assume Division A is working at full capacity.Division B can buy the parts from an outside supplier at $75 per unit.What is the lowest transfer price per unit Division A should accept from Division B?

Accepted Answer

A) $24 
B) $51 
C) $66 
D) $75 
A) $24 
B) $51 
C) $66 
D) $75

Question 19

In general,use of economic profit or EVA will promote goal congruence and lead to better investment decisions than the use of ROI.

Accepted Answer

A) True 
 B)False

Question 20

The following information pertains to Robert Company:   Invested capital is defined as total assets minus current liabilities.The after-tax cost of capital is 20%.What is the residual income?

Accepted Answer

A) $2,600 
B) $4,000 
C) $12,000 
D) $20,000 
A) $2,600 
B) $4,000 
C) $12,000 
D) $20,000

Profit centers can exist only in a decentralized organization.

The following information is available for Des Plaines Company: Invested capital is defined as total assets less current liabilities.The after-tax operating income is $150,000.The after-tax cost of capital is 20%.The before-tax operating income is $200,000.What is the residual income?

A transfer price exists when two segments of the same organization sell ________.

Return on sales can be increased by increasing expenses.

Which of the following statements is NOT a benefit of decentralization?

The following information is available for Bono Company: Invested capital is defined as total assets less current liabilities.What is invested capital?

The following information is available for Gable Company: Invested capital is defined as total assets.Net operating income is $60,000.What is ROI?

The use of net book value promotes a more conservative approach to asset replacement when compared to gross book value.

If actual costs are used for transfer pricing by a selling division,the division has little incentive to control costs.

The following information is available for the Jaeger Company: Required: A)Compute capital turnover. B)Compute operating income. C)Compute return on sales.

Possible definitions of invested capital include total assets and total stockholders' equity.

According to agency theory,employment contracts will balance three factors that include ________.

Return on investment can be computed as times .

The most popular systems for transfer pricing in practice are ________.

Return on sales can be computed by multiplying return on investment by the capital turnover.

In general,use of economic profit or EVA will promote goal congruence and lead to better investment decisions than the use of ROI.

The following information pertains to Robert Company: Invested capital is defined as total assets minus current liabilities.The after-tax cost of capital is 20%.What is the residual income?

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 10: Management Control in Decentralized Organizations

Profit centers can exist only in a decentralized organization.

The following information is available for Des Plaines Company: Invested capital is defined as total assets less current liabilities.The after-tax operating income is $150,000.The after-tax cost of capital is 20%.The before-tax operating income is $200,000.What is the residual income?

A transfer price exists when two segments of the same organization sell ________.

Return on sales can be increased by increasing expenses.

Which of the following statements is NOT a benefit of decentralization?

The following information is available for Bono Company: Invested capital is defined as total assets less current liabilities.What is invested capital?

The following information is available for Gable Company: Invested capital is defined as total assets.Net operating income is $60,000.What is ROI?

The use of net book value promotes a more conservative approach to asset replacement when compared to gross book value.

If actual costs are used for transfer pricing by a selling division,the division has little incentive to control costs.

The following information is available for the Jaeger Company: Required: A)Compute capital turnover. B)Compute operating income. C)Compute return on sales.

Possible definitions of invested capital include total assets and total stockholders' equity.

According to agency theory,employment contracts will balance three factors that include ________.

Return on investment can be computed as ________ times ________.

The most popular systems for transfer pricing in practice are ________.

Return on sales can be computed by multiplying return on investment by the capital turnover.

In general,use of economic profit or EVA will promote goal congruence and lead to better investment decisions than the use of ROI.

The following information pertains to Robert Company: Invested capital is defined as total assets minus current liabilities.The after-tax cost of capital is 20%.What is the residual income?

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Return on investment can be computed as times .