Question 1

Beta Division had the following information: What is EVA for Beta Division?

Accepted Answer

A)  £60,000 
B)  £48,000 
C)  £7,500 
D)  £2,000 
A)  £60,000 
B)  £48,000 
C)  £7,500 
D)  £2,000

Question 2

a. Identify advantages of a decentralized approach to management.
b. In comparison, identify advantages of a centralized approach to management.

Accepted Answer

a. Decentralization

Question 3

_____ is the delegation of decision-making authority to successively lower management levels in an organization.

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 4

Average operating assets are calculated as

Accepted Answer

A)  (Beginning net book value + Ending net book value)/2 
B)  (Beginning net book value - Ending net book value)/2 
C)  (Beginning fair market value + Ending fair market value)/2 
D)  (Beginning fair market value - Ending fair market value)/2 
A)  (Beginning net book value + Ending net book value)/2 
B)  (Beginning net book value - Ending net book value)/2 
C)  (Beginning fair market value + Ending fair market value)/2 
D)  (Beginning fair market value - Ending fair market value)/2

Question 5

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. Profit margin for the Clark Division is

Accepted Answer

A)  26.7% 
B)  33.3% 
C)  40.0% 
D)  60.0% 
A)  26.7% 
B)  33.3% 
C)  40.0% 
D)  60.0%

Question 6

The EVA of Credit Financial's African Division was (£15,000) last year. If after-tax income is £60,000 and the capital employed totaled £500,000, what is the weighted average cost of capital?

Accepted Answer

A)  15% 
B)  3% 
C)  12% 
D)  9% 
A)  15% 
B)  3% 
C)  12% 
D)  9%

Question 7

Assuming all other things are equal, a company's ROI would decrease when

Accepted Answer

A)  operating expenses increase 
B)  operating income increases 
C)  average operating assets decrease 
D)  operating expenses decrease 
A)  operating expenses increase 
B)  operating income increases 
C)  average operating assets decrease 
D)  operating expenses decrease

Question 8

The evaluation of investment centres and the evaluation of the managers who run them

Accepted Answer

A)  should be the same evaluation 
B)  should be separate evaluations 
C)  should be done quarterly 
D)  None of the above are correct. 
A)  should be the same evaluation 
B)  should be separate evaluations 
C)  should be done quarterly 
D)  None of the above are correct.

Question 9

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 The Profit margin for the Candy Division is

Accepted Answer

A)  5.0% 
B)  23.1% 
C)  31.7% 
D)  52.8% 
A)  5.0% 
B)  23.1% 
C)  31.7% 
D)  52.8%

Question 10

Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 percent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was

Accepted Answer

A)  £2,500 
B)  £37,500 
C)  £12,500 
D)  £7,500 
A)  £2,500 
B)  £37,500 
C)  £12,500 
D)  £7,500

Question 11

The following results for the current year are for the Grundy Division of Salmon Enterprises:
Average operating assets are £1,400,000. The firm's minimum required rate of return is 8 percent. The weighted average cost of capital is 6 percent. The division's 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 12

Why do firms decentralize?

Accepted Answer

Many companies choose to decen

Question 13

What problems do owners face in encouraging goal congruence of managers? What is a stock option? How can stock options encourage goal congruence?

Accepted Answer

Owners may have difficulty in developing

Question 14

Ms. Morris, a divisional manager, is compensated as follows:
Ms. Morris's division reported operating income of £10,000,000 this year. On December 1, Ms. Morris exercised her stock option when the stock was selling for £15 per share.
Required:
   
a.
Determine the amount of Ms. Morris's bonus for this year.
b.
Determine the value of the stock option to Ms. Morris.
c.
Determine the total amount of Ms. Morris's compensation for the year.

Accepted Answer

The answer of Ms. Morris, a divisional manager, is compensated...

Question 15

Return on investment (ROI) is calculated as

Accepted Answer

A)  Operating income/Average operating assets 
B)  (Operating income/Sales) x (Sales/Average operating assets) 
C)  Operating income margin x Operating asset turnover 
D)  all of the above 
A)  Operating income/Average operating assets 
B)  (Operating income/Sales) x (Sales/Average operating assets) 
C)  Operating income margin x Operating asset turnover 
D)  all of the above

Question 16

Return on investment (ROI) is calculated as

Accepted Answer

A)  Divisional operating income/Divisional investment 
B)  Divisional investment - Division income 
C)  Divisional investment/Divisional operating income 
D)  Divisional income - (Divisional investment x Required rate of return) 
A)  Divisional operating income/Divisional investment 
B)  Divisional investment - Division income 
C)  Divisional investment/Divisional operating income 
D)  Divisional income - (Divisional investment x Required rate of return)

Question 17

Decentralization occurs when

Accepted Answer

A)  the firm's operations are located over a large geographic area to reduce risk 
B)  authority for important decisions is delegated to lower segments of the organization 
C)  important decisions are made at the upper levels and the lower levels of the organization are responsible for implementing the decisions 
D)  None of the above are correct. 
A)  the firm's operations are located over a large geographic area to reduce risk 
B)  authority for important decisions is delegated to lower segments of the organization 
C)  important decisions are made at the upper levels and the lower levels of the organization are responsible for implementing the decisions 
D)  None of the above are correct.

Question 18

A firm has £1,000,000 of long-term bonds paying 8 percent interest and £3,000,000 of common stock. The firm is considered to be of average risk with the return to the stockholders estimated to be 12 percent. If the company's tax rate is 35 percent, what is the firm's weighted average cost of capital?

Accepted Answer

A)  11.00% 
B)  7.15% 
C)  10.30% 
D)  none of the above 
A)  11.00% 
B)  7.15% 
C)  10.30% 
D)  none of the above

Question 19

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 7 percent.
If you were the president of the company, which projects would you want the division manager to 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

Question 20

A possible disadvantage of a decentralized organization is that

Accepted Answer

A)  decisions are made more slowly. 
B)  divisional managers are less motivated. 
C)  divisional managers are not specialized. 
D)  divisional managers will run their divisions to benefit themselves at the expense of suboptimizing the entire organization. 
A)  decisions are made more slowly. 
B)  divisional managers are less motivated. 
C)  divisional managers are not specialized. 
D)  divisional managers will run their divisions to benefit themselves at the expense of suboptimizing the entire organization.

Beta Division had the following information: What is EVA for Beta Division?

a. Identify advantages of a decentralized approach to management. b. In comparison, identify advantages of a centralized approach to management.

_____ is the delegation of decision-making authority to successively lower management levels in an organization.

Average operating assets are calculated as

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. Profit margin for the Clark Division is

The EVA of Credit Financial's African Division was (£15,000) last year. If after-tax income is £60,000 and the capital employed totaled £500,000, what is the weighted average cost of capital?

Assuming all other things are equal, a company's ROI would decrease when

The evaluation of investment centres and the evaluation of the managers who run them

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 The Profit margin for the Candy Division is

Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 percent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was

Why do firms decentralize?

What problems do owners face in encouraging goal congruence of managers? What is a stock option? How can stock options encourage goal congruence?

Return on investment (ROI) is calculated as

Return on investment (ROI) is calculated as

Decentralization occurs when

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 7 percent. If you were the president of the company, which projects would you want the division manager to accept?

A possible disadvantage of a decentralized organization is that

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

Beta Division had the following information: What is EVA for Beta Division?

a. Identify advantages of a decentralized approach to management. b. In comparison, identify advantages of a centralized approach to management.

_____ is the delegation of decision-making authority to successively lower management levels in an organization.

Average operating assets are calculated as

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. Profit margin for the Clark Division is

The EVA of Credit Financial's African Division was (£15,000) last year. If after-tax income is £60,000 and the capital employed totaled £500,000, what is the weighted average cost of capital?

Assuming all other things are equal, a company's ROI would decrease when

The evaluation of investment centres and the evaluation of the managers who run them

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 The Profit margin for the Candy Division is

Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 percent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was

Why do firms decentralize?

What problems do owners face in encouraging goal congruence of managers? What is a stock option? How can stock options encourage goal congruence?

Return on investment (ROI) is calculated as

Return on investment (ROI) is calculated as

Decentralization occurs when

The following information is provided: Assume the division's current ROI is 10 percent and the firm's minimum required rate of return is 7 percent. If you were the president of the company, which projects would you want the division manager to accept?

A possible disadvantage of a decentralized organization is that

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