Exam 23: Performance Evaluation for Decentralized Operations

ABC Corporation has three service departments with the following costs and activity base: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: How much service department cost would be allocated to the Macro Division?

In a cost center, the manager has responsibility and authority for making decisions that affect:

The following is a measure of a manager's performance working in a cost center.

The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price.

If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

If divisional income from operations is $75,000, invested assets are $737,500, and the minimum rate of return on invested assets is 6%, the residual income is $36,750.

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

In an investment center, the manager has the responsibility for and the authority to make decisions that affect:

A manager is responsible for costs only in a(n):

The profit margin for Atlantic Division is 28% and the investment turnover is 2.8. What is the rate of return on investment for Atlantic Division?

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses.

Avey Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Avey Corporation is:

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income.

In rate of return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets.

The sales, income from operations, and invested assets for each division of Marcus Company are as follows:

Ralston Company has income from operations of $75,000, invested assets of $360,000, and sales of $790,000. Required: Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin percentage to two decimal places and investment turnover to three decimal places.

The sales, income from operations, and invested assets for each division of Grosbeak Company are as follows:

Assume that Division J has achieved income from operations of $165,000 using $900,000 of invested assets. If management desires a minimum rate of return of 11%, the residual income is: