Question 1

What is an advantage of using economic value added (EVA) in performance measurement over return on investment (ROI)?

Accepted Answer

A)  It is easier to calculate. 
B)  It encourages investments that are profitable to the company. 
C)  both a and b 
D)  none of the above 
A)  It is easier to calculate. 
B)  It encourages investments that are profitable to the company. 
C)  both a and b 
D)  none of the above

Question 2

The manager of an investment centre is responsible for

Accepted Answer

A)  decisions regarding costs. 
B)  decisions regarding revenues. 
C)  decisions to invest in assets. 
D)  all of the above. 
A)  decisions regarding costs. 
B)  decisions regarding revenues. 
C)  decisions to invest in assets. 
D)  all of the above.

Question 3

The manager of a profit centre is responsible for

Accepted Answer

A)  delivering a quality product or service at reasonable but minimal cost. 
B)  decisions to invest in capital equipment. 
C)  decisions regarding revenue generation. 
D)  both a and c 
A)  delivering a quality product or service at reasonable but minimal cost. 
B)  decisions to invest in capital equipment. 
C)  decisions regarding revenue generation. 
D)  both a and c

Question 4

Types of responsibility centres include all of the following EXCEPT

Accepted Answer

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

Question 5

Compare and contrast decentralization and centralization.

Accepted Answer

Decentralization is the delegation of de

Question 6

Figure 4
The following results for the year pertain to the Northern Division of Garvey Ltd.:
-Refer to Figure 4. Northern's total capital employed is £1,200,000, and their weighted average cost of capital is 12 percent. Economic value added for the Northern Division is

Accepted Answer

A)  £240,000 
B)  £144,000 
C)  (£104,000) 
D)  £16,000 
A)  £240,000 
B)  £144,000 
C)  (£104,000) 
D)  £16,000

Question 7

The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?

Accepted Answer

A)  £36,000 
B)  £45,000 
C)  £(9,000) 
D)  £(36,000) 
A)  £36,000 
B)  £45,000 
C)  £(9,000) 
D)  £(36,000)

Question 8

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

Question 9

The following results for the current year are for the Calvin Division of Stinson Enterprises:
Average operating assets are £500,000. The firm's minimum required rate of return is 10 percent, the weighted average cost of capital is 8 percent, and the tax rate is 30 percent.
Required:
   
a.
Calculate profit margin for the division.
b.
Calculate asset turnover for the division.
c.
Calculate return on investment (ROI) for the division.
d.
Calculate economic value added (EVA) for the division.

Accepted Answer

The answer of The following results for the current year...

Question 10

Correll Company has two divisions, A and B. Information for each division is as follows: What is the residual income for A?

Accepted Answer

A)  £40,000 
B)  £25,000 
C)  £15,000 
D)  £28,000 
A)  £40,000 
B)  £25,000 
C)  £15,000 
D)  £28,000

Question 11

If Dixie Company has sales of £1,200,000 and operating assets of £600,000, what operating margin will they have to earn to generate an ROI of 20 percent?

Accepted Answer

A)  5% 
B)  7.5% 
C)  10% 
D)  20% 
A)  5% 
B)  7.5% 
C)  10% 
D)  20%

Question 12

All of the following are considered perquisites EXCEPT

Accepted Answer

A)  expense account 
B)  salary 
C)  use of company car 
D)  All of the above are considered perquisites. 
A)  expense account 
B)  salary 
C)  use of company car 
D)  All of the above are considered perquisites.

Question 13

Goal congruence refers to

Accepted Answer

A)  the goals of the firm being consistent with the goals of its customers 
B)  the goals of the suppliers being consistent with the goals of the firm 
C)  the goals of the individual investment centres being consistent with the goals of the firm 
D)  none of the above 
A)  the goals of the firm being consistent with the goals of its customers 
B)  the goals of the suppliers being consistent with the goals of the firm 
C)  the goals of the individual investment centres being consistent with the goals of the firm 
D)  none of the above

Question 14

The term "divisional margin" is used to describe the:

Accepted Answer

A)  amount a given division contributes toward covering common corporate expenses. 
B)  sum of divisional cost of goods sold and net income. 
C)  excess of divisional sales over its variable manufacturing expenses. 
D)  excess of manufacturing margin over all variable expenses. 
A)  amount a given division contributes toward covering common corporate expenses. 
B)  sum of divisional cost of goods sold and net income. 
C)  excess of divisional sales over its variable manufacturing expenses. 
D)  excess of manufacturing margin over all variable expenses.

Question 15

Evaluating performance using ROI encourages managers to focus on

Accepted Answer

A)  income and investment 
B)  cost efficiency and operating asset efficiency 
C)  both a and b 
D)  neither a nor b 
A)  income and investment 
B)  cost efficiency and operating asset efficiency 
C)  both a and b 
D)  neither a nor b

Question 16

Which of the following is a disadvantage of both residual income and ROI?

Accepted Answer

A)  They are both absolute measures of return. 
B)  They both are difficult to calculate. 
C)  They both do not discourage myopic behaviour. 
D)  All of the above are disadvantages of both ROI and residual income. 
A)  They are both absolute measures of return. 
B)  They both are difficult to calculate. 
C)  They both do not discourage myopic behaviour. 
D)  All of the above are disadvantages of both ROI and residual income.

Question 17

An example of an investment centre is a

Accepted Answer

A)  production department. 
B)  company. 
C)  marketing department. 
D)  credit department. 
A)  production department. 
B)  company. 
C)  marketing department. 
D)  credit department.

Question 18

Compare and contrast return on investment (ROI) and economic value added (EVA).

Accepted Answer

ROI is the ratio of operating income to

Question 19

Advantages of decentralization include all of the following EXCEPT

Accepted Answer

A)  divisional management is able to react to changing market conditions more rapidly than top management 
B)  divisional management is a source of personnel for promotion to top management positions 
C)  decentralization can motivate divisional managers 
D)  decentralization permits divisional management to concentrate on firmwide problems and long-range planning 
A)  divisional management is able to react to changing market conditions more rapidly than top management 
B)  divisional management is a source of personnel for promotion to top management positions 
C)  decentralization can motivate divisional managers 
D)  decentralization permits divisional management to concentrate on firmwide problems and long-range planning

Question 20

Discuss how firms can evaluate manager performance in such a way as to discourage myopic behaviour.

Accepted Answer

Both economic value added (EVA) and retu

What is an advantage of using economic value added (EVA) in performance measurement over return on investment (ROI)?

The manager of an investment centre is responsible for

The manager of a profit centre is responsible for

Types of responsibility centres include all of the following EXCEPT

Compare and contrast decentralization and centralization.

Figure 4 The following results for the year pertain to the Northern Division of Garvey Ltd.: -Refer to Figure 4. Northern's total capital employed is £1,200,000, and their weighted average cost of capital is 12 percent. Economic value added for the Northern Division is

The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?

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. If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Correll Company has two divisions, A and B. Information for each division is as follows: What is the residual income for A?

If Dixie Company has sales of £1,200,000 and operating assets of £600,000, what operating margin will they have to earn to generate an ROI of 20 percent?

All of the following are considered perquisites EXCEPT

Goal congruence refers to

The term "divisional margin" is used to describe the:

Evaluating performance using ROI encourages managers to focus on

Which of the following is a disadvantage of both residual income and ROI?

An example of an investment centre is a

Compare and contrast return on investment (ROI) and economic value added (EVA).

Advantages of decentralization include all of the following EXCEPT

Discuss how firms can evaluate manager performance in such a way as to discourage myopic behaviour.

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

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Exam 12: Divisional Financial Performance Measurement

What is an advantage of using economic value added (EVA) in performance measurement over return on investment (ROI)?

The manager of an investment centre is responsible for

The manager of a profit centre is responsible for

Types of responsibility centres include all of the following EXCEPT

Compare and contrast decentralization and centralization.

Figure 4 The following results for the year pertain to the Northern Division of Garvey Ltd.: -Refer to Figure 4. Northern's total capital employed is £1,200,000, and their weighted average cost of capital is 12 percent. Economic value added for the Northern Division is

The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?

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. If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Correll Company has two divisions, A and B. Information for each division is as follows: What is the residual income for A?

If Dixie Company has sales of £1,200,000 and operating assets of £600,000, what operating margin will they have to earn to generate an ROI of 20 percent?

All of the following are considered perquisites EXCEPT

Goal congruence refers to

The term "divisional margin" is used to describe the:

Evaluating performance using ROI encourages managers to focus on

Which of the following is a disadvantage of both residual income and ROI?

An example of an investment centre is a

Compare and contrast return on investment (ROI) and economic value added (EVA).

Advantages of decentralization include all of the following EXCEPT

Discuss how firms can evaluate manager performance in such a way as to discourage myopic behaviour.

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