Question 1

The transfer price is revenue to the acquiring segment,and it is a cost to the segment producing the product.

Accepted Answer

A) True 
 B)False

Question 2

Performance-based rewards can be monetary or nonmonetary.

Accepted Answer

A) True 
 B)False

Question 3

In return on investment calculations,we should measure invested capital ________ because ________.

Accepted Answer

A) at the end of the period; it is easiest 
B) at the end of the period; income is measured at the end of the period 
C) at the beginning of the period; it is a lead indicator 
D) as an average for the period under review; income is measured over a period of time

Question 4

The following information pertains to Moore Company:  Invested capital is defined as total assets.The weighted average cost of capital is 10%.A project earning a ROI of 12% should be ________.

Accepted Answer

A) accepted 
B) rejected 
C) compared to the company's ROI 
D) compared to the company's residual income

Question 5

Residual income is defined as ________.

Accepted Answer

A) sales less operating expenses 
B) operating income divided by revenue 
C) net operating profit after tax less a capital charge 
D) net operating profit after tax

Question 6

Companies using EVA consider research and development to be a capital investment.

Accepted Answer

A) True 
 B)False

Question 7

Multinational companies use transfer pricing to minimize their worldwide income taxes,duties and tariffs.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about management control systems is FALSE?

Accepted Answer

A) In designing management control systems,top managers must consider the system's impact on the employee behavior desired by the organization. 
B) The management control system should be designed to achieve the best possible alignment between local manager decisions and the actions central management seeks. 
C) The design of a management control system should consider the responsibilities of managers and the amount of autonomy they have. 
D) Profit-center managers always have more decentralized decision-making authority than cost-center managers.

Question 9

Historical cost is widely used for asset valuation because ________.

Accepted Answer

A) it reports the replacement cost of long-term assets 
B) it is more subjective than other approaches 
C) it requires additional data collection 
D) the cost of obtaining additional data exceeds the benefit

Question 10

SS Company's revenues are $300 on invested capital of $240.Expenses are currently 70% of sales.If SS Company can reduce its invested capital by 25%,return on investment will be ________.

Accepted Answer

A) 18.75% 
B) 50.00% 
C) 75.00% 
D) 93.75%

Question 11

The following information pertains to Maria Company:  Invested capital is defined as total assets.The capital charge is 10%.What is the residual income?

Accepted Answer

A) $1,600 
B) $4,000 
C) $15,000 
D) $20,000

Question 12

Top managers who wish to encourage decentralization will often make sure that both buying and selling division managers understand all the facts and then allow the managers to negotiate a transfer price.

Accepted Answer

A) True 
 B)False

Question 13

Higher-level managers have the best information concerning local conditions.

Accepted Answer

A) True 
 B)False

Question 14

Return on investment tells how much a company's operating income exceeds what it is paying for capital.

Accepted Answer

A) True 
 B)False

Question 15

The greater the influence of noncontrollable factors on responsibility center results,the more problems there are in using the results to measure and reward a manager's performance.

Accepted Answer

A) True 
 B)False

Question 16

Cost of capital is the company's cost of inventory multiplied by the amount of investment.

Accepted Answer

A) True 
 B)False

Question 17

Operating income divided by sales is ________.

Accepted Answer

A) residual income 
B) capital turnover 
C) return on investment 
D) return on sales

Question 18

The following information is available for West Allis Company:  Invested capital is defined as total stockholders' equity.What is invested capital?

Accepted Answer

A) $125,000 
B) $225,000 
C) $250,000 
D) $300,000

Question 19

North Division sells a part internally to South Division.South Division uses the part to produce inexpensive products sold at discount stores.North Division incurs costs of $1.50 per part,while South Division incurs additional costs of $4.80 per product.North Division sells the part to South Division for $2.00 per part.The final product is sold to external customers for $8.00 each.Which of the following formulas correctly reflects the company's operating income?

Accepted Answer

A) $8.00 - $1.50 - $4.80 - $2.00 = $(0.30) 
B) $8.00 - $1.50 - $4.80 = $1.70 
C) $8.00 - $4.80 -$2.00 = $1.20 
D) $8.00 - $1.50 = $6.50

Question 20

When a company measures performance using economic profit,managers tend to invest in any project earning more than the cost of capital and,as a result,increase the firm's total profits.

Accepted Answer

A) True 
 B)False

Exam 10: Management Control in Decentralized Organizations

The transfer price is revenue to the acquiring segment,and it is a cost to the segment producing the product.

Performance-based rewards can be monetary or nonmonetary.

In return on investment calculations,we should measure invested capital because .

The following information pertains to Moore Company: Invested capital is defined as total assets.The weighted average cost of capital is 10%.A project earning a ROI of 12% should be ________.

Residual income is defined as ________.

Companies using EVA consider research and development to be a capital investment.

Multinational companies use transfer pricing to minimize their worldwide income taxes,duties and tariffs.

Which of the following statements about management control systems is FALSE?

Historical cost is widely used for asset valuation because ________.

SS Company's revenues are $300 on invested capital of $240.Expenses are currently 70% of sales.If SS Company can reduce its invested capital by 25%,return on investment will be ________.

The following information pertains to Maria Company: Invested capital is defined as total assets.The capital charge is 10%.What is the residual income?

Top managers who wish to encourage decentralization will often make sure that both buying and selling division managers understand all the facts and then allow the managers to negotiate a transfer price.

Higher-level managers have the best information concerning local conditions.

Return on investment tells how much a company's operating income exceeds what it is paying for capital.

The greater the influence of noncontrollable factors on responsibility center results,the more problems there are in using the results to measure and reward a manager's performance.

Cost of capital is the company's cost of inventory multiplied by the amount of investment.

Operating income divided by sales is ________.

The following information is available for West Allis Company: Invested capital is defined as total stockholders' equity.What is invested capital?

When a company measures performance using economic profit,managers tend to invest in any project earning more than the cost of capital and,as a result,increase the firm's total profits.