Question 1

Assuming that the weighted average cost of capital remains the same, EVA will increase by

Accepted Answer

A)  investing in a project wherein after-tax operating income is greater than the cost of capital 
B)  investing in a project wherein after-tax operating income is less than the cost of capital 
C)  increasing operating expenses 
D)  decreasing after-tax operating income 
A)  investing in a project wherein after-tax operating income is greater than the cost of capital 
B)  investing in a project wherein after-tax operating income is less than the cost of capital 
C)  increasing operating expenses 
D)  decreasing after-tax operating income A

Question 2

Figure 3
Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 6 percent.
-Refer to Figure 3 above. If you were the president of the firm, which projects would you want the division manager to accept?

Accepted Answer

A)  Projects A, B, and C 
B)  Projects B and C 
C)  Project A only 
D)  Project B only 
A)  Projects A, B, and C 
B)  Projects B and C 
C)  Project A only 
D)  Project B only B

Question 3

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 8 percent.
If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Accepted Answer

A)  Projects A, B, and C 
B)  Projects A and C 
C)  Projects A and B 
D)  Project A only 
A)  Projects A, B, and C 
B)  Projects A and C 
C)  Projects A and B 
D)  Project A only D

Question 4

Profit centre managers would be evaluated based on

Accepted Answer

A)  operating income of the profit centre 
B)  return on investment 
C)  economic value added 
D)  all of the above 
A)  operating income of the profit centre 
B)  return on investment 
C)  economic value added 
D)  all of the above

Question 5

GreenWorld Company wants to increase its ROI from 20 percent to 25 percent in the current year. They cannot increase operating income and sales from the previous year's levels of £50,000 and £1,200,000, respectively. To increase ROI, GreenWorld should

Accepted Answer

A)  make additional investments of £25,000 
B)  sell obsolete inventory for £10,000 and use the proceeds to pay off debts 
C)  sell obsolete inventory for £50,000 and use the proceeds to pay off debts 
D)  GreenWorld can't increase ROI. 
A)  make additional investments of £25,000 
B)  sell obsolete inventory for £10,000 and use the proceeds to pay off debts 
C)  sell obsolete inventory for £50,000 and use the proceeds to pay off debts 
D)  GreenWorld can't increase ROI.

Question 6

Figure 5
The following results for the year are for the Candy Division of Art Enterprises:
Average operating assets are £1,200,000. The firm's minimum required rate of return is 5 percent. The tax rate for the firm is 40 percent.
-Refer to Figure 5 above. Asset turnover for the Candy Division is

Accepted Answer

A)  .23 
B)  .28 
C)  .30 
D)  .34 
A)  .23 
B)  .28 
C)  .30 
D)  .34

Question 7

The manager of a cost centre is responsible for

Accepted Answer

A)  decisions regarding costs. 
B)  decisions regarding revenues. 
C)  decisions to invest in assets. 
D)  both a and b 
A)  decisions regarding costs. 
B)  decisions regarding revenues. 
C)  decisions to invest in assets. 
D)  both a and b

Question 8

Figure 5
The following results for the year are for the Candy Division of Art Enterprises:
Average operating assets are £1,200,000. The firm's minimum required rate of return is 5 percent. The tax rate for the firm is 40 percent.
-Refer to Figure 5 above. Return on investment for the Candy Division is

Accepted Answer

A)  30.0% 
B)  16.0% 
C)  12.0% 
D)  15.83% 
A)  30.0% 
B)  16.0% 
C)  12.0% 
D)  15.83%

Question 9

Mr. Baker, a divisional manager, is compensated as follows:
Mr. Baker's division reported operating income of £5,000,000 this year. On December 1, Mr. Baker exercised his stock option when the stock was selling for £57 per share.
Required:
   
a.
Determine the amount of Mr. Baker's bonus for the year.
b.
Determine the value of the stock option to Mr. Baker.
c.
Determine the total amount of Mr. Baker's compensation for the year.

Accepted Answer

The answer of Mr. Baker, a divisional manager, is compensated...

Question 10

_____ exists when the major functions of organization are controlled by top management.

Accepted Answer

A)  Decentralization 
B)  Centralization 
C)  Optimization 
D)  An unfavorable overhead variance 
A)  Decentralization 
B)  Centralization 
C)  Optimization 
D)  An unfavorable overhead variance

Question 11

The Production Department is most likely considered to be a(n)

Accepted Answer

A)  profit centre 
B)  contribution centre 
C)  investment centre 
D)  cost centre 
A)  profit centre 
B)  contribution centre 
C)  investment centre 
D)  cost centre

Question 12

Doobey, Incorporated, has just formed a new division, and the following four investment opportunities are available to the division. The firm requires a minimum return of 8 percent.
Required:
   
a.
Calculate the return on investment (ROI) for each investment opportunity.
b.
If you were the division manager and you were evaluated based on ROI, which investment opportunity would you accept?
c.
If you were president of Doobey, Incorporated, which projects would you want the division to accept?

Accepted Answer

The answer of Doobey, Incorporated, has just formed a new...

Question 13

Which of the following departments would NOT be a cost centre?

Accepted Answer

A)  advertising department 
B)  city police department 
C)  building and grounds department 
D)  sales department 
A)  advertising department 
B)  city police department 
C)  building and grounds department 
D)  sales department

Question 14

Return on investment can be broken into two components:

Accepted Answer

A)  profit margin and asset turnover 
B)  contribution margin and asset turnover 
C)  segment margin and asset turnover 
D)  profit margin and inventory turnover 
A)  profit margin and asset turnover 
B)  contribution margin and asset turnover 
C)  segment margin and asset turnover 
D)  profit margin and inventory turnover

Question 15

In order to promote goal congruence, a manager of an investment centre is best evaluated using

Accepted Answer

A)  standard variable costing income statements 
B)  budgets and standard costs 
C)  return on investment 
D)  economic value added 
A)  standard variable costing income statements 
B)  budgets and standard costs 
C)  return on investment 
D)  economic value added

Question 16

The sales in the Components Division last year totaled £600,000, and its ROI was 15 percent. If the company's operating margin was 5 percent, then its average operating assets must have been

Accepted Answer

A)  £4,000,000 
B)  £200,000 
C)  ££60,000 
D)  It cannot be determined from the information given. 
A)  £4,000,000 
B)  £200,000 
C)  ££60,000 
D)  It cannot be determined from the information given.

Question 17

Investment centre managers would be evaluated based on

Accepted Answer

A)  operating income of the profit centre 
B)  return on investment 
C)  economic value added 
D)  all of the above 
A)  operating income of the profit centre 
B)  return on investment 
C)  economic value added 
D)  all of the above

Question 18

The compensation package for divisional managers of Grant Enterprises consists of (1) a salary of £80,000, (2) a bonus of 25 percent of the increase in divisional income, and (3) stock options for 2,000 shares of Grant stock. The options permit the managers to purchase the stock at £60 per share. The Western Division reported divisional income of £700,000 for last year and £850,000 for the current year. This year the Western Division's manager exercised stock options for 2,000 shares of Grant stock when the market price was £80 per share.
The total amount of compensation for the Western Division's manager is

Accepted Answer

A)  £117,500 
B)  £157,500 
C)  £230,000 
D)  £237,500 
A)  £117,500 
B)  £157,500 
C)  £230,000 
D)  £237,500

Question 19

Figure 6
The following results for the year pertain to the Maddox Division of Ryan Ltd.:
The weighted average cost of capital is 12 percent. The firm's minimum required rate of return is 14 percent. Taxes for the firm are 40 percent.
-Refer to Figure 6 above. If the total capital employed by the Maddox Division is £800,000, what is the economic value added (EVA)?

Accepted Answer

A)  £12,000 
B)  £96,000 
C)  £108,000 
D)  £180,000 
A)  £12,000 
B)  £96,000 
C)  £108,000 
D)  £180,000

Question 20

Which of the following measures should companies use for performance evaluation?

Accepted Answer

A)  ROI 
B)  EVA 
C)  nonfinancial measures such as market share and customer's complaints 
D)  all of the above 
A)  ROI 
B)  EVA 
C)  nonfinancial measures such as market share and customer's complaints 
D)  all of the above

Assuming that the weighted average cost of capital remains the same, EVA will increase by

Figure 3 Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 6 percent. -Refer to Figure 3 above. If you were the president of the firm, which projects would you want the division manager to accept?

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 8 percent. If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Profit centre managers would be evaluated based on

GreenWorld Company wants to increase its ROI from 20 percent to 25 percent in the current year. They cannot increase operating income and sales from the previous year's levels of £50,000 and £1,200,000, respectively. To increase ROI, GreenWorld should

Figure 5 The following results for the year are for the Candy Division of Art Enterprises: Average operating assets are £1,200,000. The firm's minimum required rate of return is 5 percent. The tax rate for the firm is 40 percent. -Refer to Figure 5 above. Asset turnover for the Candy Division is

The manager of a cost centre is responsible for

_____ exists when the major functions of organization are controlled by top management.

The Production Department is most likely considered to be a(n)

Which of the following departments would NOT be a cost centre?

Return on investment can be broken into two components:

In order to promote goal congruence, a manager of an investment centre is best evaluated using

The sales in the Components Division last year totaled £600,000, and its ROI was 15 percent. If the company's operating margin was 5 percent, then its average operating assets must have been

Investment centre managers would be evaluated based on

Which of the following measures should companies use for performance evaluation?

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Pricing Decisions and Profitability Analysis

Capital Investment Decisions

Cost Assignment

Activity-Based Costing

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis

Transfer Pricing in Divisionalized Companies

Cost Management

Strategic Performance Management

Filters

Exam 12: Divisional Financial Performance Measurement

Assuming that the weighted average cost of capital remains the same, EVA will increase by

Figure 3 Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 6 percent. -Refer to Figure 3 above. If you were the president of the firm, which projects would you want the division manager to accept?

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 8 percent. If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Profit centre managers would be evaluated based on

GreenWorld Company wants to increase its ROI from 20 percent to 25 percent in the current year. They cannot increase operating income and sales from the previous year's levels of £50,000 and £1,200,000, respectively. To increase ROI, GreenWorld should

Figure 5 The following results for the year are for the Candy Division of Art Enterprises: Average operating assets are £1,200,000. The firm's minimum required rate of return is 5 percent. The tax rate for the firm is 40 percent. -Refer to Figure 5 above. Asset turnover for the Candy Division is

The manager of a cost centre is responsible for

_____ exists when the major functions of organization are controlled by top management.

The Production Department is most likely considered to be a(n)

Which of the following departments would NOT be a cost centre?

Return on investment can be broken into two components:

In order to promote goal congruence, a manager of an investment centre is best evaluated using

The sales in the Components Division last year totaled £600,000, and its ROI was 15 percent. If the company's operating margin was 5 percent, then its average operating assets must have been

Investment centre managers would be evaluated based on

Which of the following measures should companies use for performance evaluation?

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Pricing Decisions and Profitability Analysis

Capital Investment Decisions

Cost Assignment

Activity-Based Costing

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis

Transfer Pricing in Divisionalized Companies

Cost Management

Strategic Performance Management

Filters