Question 1

A disadvantage of ROI is

Accepted Answer

A)  it leads to goal incongruence 
B)  its short-run focus 
C)  its focus on divisional profit rather than overall profit of the firm 
D)  all of the above 
A)  it leads to goal incongruence 
B)  its short-run focus 
C)  its focus on divisional profit rather than overall profit of the firm 
D)  all of the above

Question 2

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. If the weighted average cost of capital is 6 percent, economic value added for the Candy Division is

Accepted Answer

A)  £42,000 
B)  £114,000 
C)  £190,000 
D)  £360,000 
A)  £42,000 
B)  £114,000 
C)  £190,000 
D)  £360,000

Question 3

O'Neil Company requires a return on capital of 15 percent. The following information is available for 2002:
Required:
   
a.
Compute return on investment using both book and current values for each division. (Round answer to three decimal places.)
b.
Compute residual income for both book and current values for each division.
c.
Does book value or current value provide the better basis for performance evaluation?
d.
Which division do you consider the most successful?

Accepted Answer

The answer of O'Neil Company requires a return on capital...

Question 4

The operating margin for the Randall Company last year was 8 percent. If total sales are £1,250,000 and average operating assets are £400,000, ROI was

Accepted Answer

A)  25% 
B)  20% 
C)  16% 
D)  10% 
A)  25% 
B)  20% 
C)  16% 
D)  10%

Question 5

The compensation package for divisional managers of Grant Enterprises consists of (1) a salary of £120,000, (2) a bonus of 20 percent of the increase in divisional income, and (3) stock options for 5,000 shares of Grant stock. The options permit the managers to purchase the stock at £40 per share. The Western Division reported divisional income of £1,000,000 for last year and £1,300,000 for the current year. The Western Division's manager exercised stock options for 5,000 shares of Grant stock at a current market price of £55 per share.
The total amount of compensation for the Western Division's manager is

Accepted Answer

A)  £380,000 
B)  £320,000 
C)  £285,000 
D)  £255,000 
A)  £380,000 
B)  £320,000 
C)  £285,000 
D)  £255,000

Question 6

Figure 2
The following information was reported on two projects of Dartmouth, SA.:
-Refer to Figure 2. Dartmouth, SA.'s turnover for the prior year was

Accepted Answer

A)  5.6 
B)  13.9 
C)  4 
D)  2.5 
A)  5.6 
B)  13.9 
C)  4 
D)  2.5

Question 7

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

Accepted Answer

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

Question 8

Figure 2
The following information was reported on two projects of Dartmouth, SA.:
-Refer to Figure 2. Dartmouth, SA.'s margin for the current year is

Accepted Answer

A)  7.0% 
B)  7.2% 
C)  4.0% 
D)  2.5% 
A)  7.0% 
B)  7.2% 
C)  4.0% 
D)  2.5%

Question 9

Figure 2
The following information was reported on two projects of Dartmouth, SA.:
-Refer to Figure 2. Dartmouth, SA.'s margin for the prior year was

Accepted Answer

A)  18.0% 
B)  7.2% 
C)  4.0% 
D)  2.5% 
A)  18.0% 
B)  7.2% 
C)  4.0% 
D)  2.5%

Question 10

The following information was extracted from the accounting records of Florissant Valley Motors: Florissant Valley's ROI for the current year is

Accepted Answer

A)  greater than for the prior year due to the change in turnover 
B)  greater than for the prior year due to the change in margin 
C)  less than for the prior year due to the change in turnover 
D)  less than for the prior year due to the change in margin 
A)  greater than for the prior year due to the change in turnover 
B)  greater than for the prior year due to the change in margin 
C)  less than for the prior year due to the change in turnover 
D)  less than for the prior year due to the change in margin

Question 11

A firm has £2,000,000 of long-term bonds paying 8 percent interest and £8,000,000 of common stock. The firm is considered to be of average risk with the return to the stockholders estimated to be 14 percent. If the company's tax rate is 40 percent, what is the firm's weighted average cost of capital?

Accepted Answer

A)  12.80% 
B)  12.16% 
C)  8.32% 
D)  none of the above 
A)  12.80% 
B)  12.16% 
C)  8.32% 
D)  none of the above

Question 12

Figure 4
The following results for the year pertain to the Northern Division of Garvey Ltd.:
-Refer to Figure 4 above. If Northern's average operating assets are £1,200,000 and their minimum required rate of return is 12 percent, what is the Northern Division's return on investment?

Accepted Answer

A)  33.3% 
B)  18.3% 
C)  13.3% 
D)  12.0% 
A)  33.3% 
B)  18.3% 
C)  13.3% 
D)  12.0%

Question 13

Figure 1
The following results for the year are for the Clark Division of First Enterprises:
Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent.
-Refer to Figure 1. Asset turnover for the Clark Division is

Accepted Answer

A)  66.7% 
B)  50.0% 
C)  40.0% 
D)  20.0% 
A)  66.7% 
B)  50.0% 
C)  40.0% 
D)  20.0%

Question 14

TotToys Ltd. recently made £2,000,000 of capital available to its Toddler Division. The manager of the Toddler Division is evaluating the possibility of investing the additional funds in two new toys. Information about the two new toys is as follows:
Any funds not invested in a project will be invested to earn the company's required minimum return of 10 percent. Without the additional investment, the Toddler Division's average operating assets would have been £10,000,000, and its operating income would have been £1,400,000.
Required:
   
a.
Compute the Toddler Division's operating income and ROI, assuming that the division manager rejects both projects.
b.
Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #1 project.
c.
Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #2 project.
d.
Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts both projects.
(Round all computations to the nearest two decimal places.)

Accepted Answer

The answer of TotToys Ltd. recently made £2,000,000 of capital...

Question 15

Figure 1
The following results for the year are for the Clark Division of First Enterprises:
Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent.
-Refer to Figure 1. Return on investment for the Clark Division is

Accepted Answer

A)  50.0% 
B)  40.0% 
C)  33.3% 
D)  20.0% 
A)  50.0% 
B)  40.0% 
C)  33.3% 
D)  20.0%

Question 16

Economic value added (EVA) is

Accepted Answer

A)  a monetary figure 
B)  a percentage rate of return 
C)  negative if the company is creating capital 
D)  none of the above 
A)  a monetary figure 
B)  a percentage rate of return 
C)  negative if the company is creating capital 
D)  none of the above

Question 17

Beta Division had the following information: What is the residual income for Beta Division?

Accepted Answer

A)  £60,000 
B)  £48,000 
C)  £7,500 
D)  £(10,000) 
A)  £60,000 
B)  £48,000 
C)  £7,500 
D)  £(10,000)

Question 18

Economic value added (EVA) is

Accepted Answer

A)  before-tax operating income minus the total annual cost of capital 
B)  after-tax operating income minus the total annual cost of capital 
C)  after-tax operating income minus the before-tax cost of debt 
D)  none of the above 
A)  before-tax operating income minus the total annual cost of capital 
B)  after-tax operating income minus the total annual cost of capital 
C)  after-tax operating income minus the before-tax cost of debt 
D)  none of the above

Question 19

Figure 2
The following information was reported on two projects of Dartmouth, SA.:
-Refer to Figure 2. Dartmouth, SA.'s turnover for the current year is

Accepted Answer

A)  5.6 
B)  13.9 
C)  4 
D)  2.5 
A)  5.6 
B)  13.9 
C)  4 
D)  2.5

Question 20

Explain why an organization should not use only financial measures to monitor performance.

Accepted Answer

First, no single financial measure captu

A disadvantage of ROI is

The operating margin for the Randall Company last year was 8 percent. If total sales are £1,250,000 and average operating assets are £400,000, ROI was

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s turnover for the prior year was

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

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s margin for the current year is

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s margin for the prior year was

The following information was extracted from the accounting records of Florissant Valley Motors: Florissant Valley's ROI for the current year is

Figure 4 The following results for the year pertain to the Northern Division of Garvey Ltd.: -Refer to Figure 4 above. If Northern's average operating assets are £1,200,000 and their minimum required rate of return is 12 percent, what is the Northern Division's return on investment?

Figure 1 The following results for the year are for the Clark Division of First Enterprises: Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent. -Refer to Figure 1. Asset turnover for the Clark Division is

Figure 1 The following results for the year are for the Clark Division of First Enterprises: Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent. -Refer to Figure 1. Return on investment for the Clark Division is

Economic value added (EVA) is

Beta Division had the following information: What is the residual income for Beta Division?

Economic value added (EVA) is

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s turnover for the current year is

Explain why an organization should not use only financial measures to monitor performance.

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

A disadvantage of ROI is

The operating margin for the Randall Company last year was 8 percent. If total sales are £1,250,000 and average operating assets are £400,000, ROI was

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s turnover for the prior year was

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

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s margin for the current year is

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s margin for the prior year was

The following information was extracted from the accounting records of Florissant Valley Motors: Florissant Valley's ROI for the current year is

Figure 4 The following results for the year pertain to the Northern Division of Garvey Ltd.: -Refer to Figure 4 above. If Northern's average operating assets are £1,200,000 and their minimum required rate of return is 12 percent, what is the Northern Division's return on investment?

Figure 1 The following results for the year are for the Clark Division of First Enterprises: Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent. -Refer to Figure 1. Asset turnover for the Clark Division is

Figure 1 The following results for the year are for the Clark Division of First Enterprises: Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent. -Refer to Figure 1. Return on investment for the Clark Division is

Economic value added (EVA) is

Beta Division had the following information: What is the residual income for Beta Division?

Economic value added (EVA) is

Figure 2 The following information was reported on two projects of Dartmouth, SA.: -Refer to Figure 2. Dartmouth, SA.'s turnover for the current year is

Explain why an organization should not use only financial measures to monitor performance.

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