Deck 12: Segment Reporting, Decentralization, and the Balanced Scorecard

Question 1

All other things the same, a decrease in average operating assets will increase return on investment (ROI).

Answer 1

True

Question 2

The Legal Department of an organization is not considered a responsibility center because it does not generate revenue.

Answer 2

False

Question 3

Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of $50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000. Lyons Company's common fixed expenses were:

A) $85,000
B) $70,000
C) $45,000
D) $40,000

Answer 3

C

Question 4

A segment of a business responsible for both revenues and expenses would be called:

A) a cost center.
B) an investment center.
C) a profit center.
D) residual income.

Question 5

If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, then management should reexamine its strategy.

Question 6

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it?

A) this method does not take into account differences in the size of divisions.
B) investments may be adopted that will decrease the overall return on investment.
C) the minimum required rate of return may eliminate desirable investments.
D) residual income does not measure how effectively the division manager controls costs.

Question 7

When used in return on investment (ROI) calculations, operating assets include investments in land held for future use and investments in other companies.

Question 8

All other things the same, if a division's traceable fixed expenses decrease the division's segment margin will increase.

Question 9

A balanced scorecard is an integrated set of performance measures that should be designed to support management's strategy throughout the organization.

Question 10

A company that has a profit can increase its return on investment by:

A) increasing sales revenue and operating expenses by the same dollar amount.
B) increasing average operating assets and operating expenses by the same dollar amount.
C) increasing sales revenue and operating expenses by the same percentage.
D) decreasing average operating assets and sales by the same percentage.

Question 11

A decentralized organization is one in which decisions are made by top management and then implemented by managers at lower operating levels.

Question 12

Which of the following performance measures will decrease if there is an increase in the accounts receivable?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 13

Return on investment (ROI) may not be fully controllable by a manager because of committed costs.

Question 14

The concept of economic value added (EVA) is most similar to:

A) residual income.
B) transfer pricing.
C) segment reporting.
D) return on investment.

Question 15

Return on investment (ROI) is equal to the margin multiplied by:

A) sales.
B) turnover.
C) average operating assets.
D) residual income.

Question 16

Residual income is primarily useful because it helps to compare the performance of divisions of different sizes.

Question 17

The emphasis in the balanced scorecard is on improvement rather than meeting a preset standard.

Question 18

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

A) A reduction in expenses.
B) An increase in net operating income.
C) An increase in operating assets.
D) An increase in sales.

Question 19

An investment center is any responsibility center in an organization that controls cost and revenues and invested funds.

Question 20

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost?

A) store manager salaries
B) store building depreciation expense
C) the cost of corporate advertising aired during the Super Bowl
D) all of these

Question 21

Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.
Sales in Store J totaled:

A) $400,000
B) $250,000
C) $150,000
D) $100,000

Question 22

Deskin Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 19%. In February, the Commercial Products Division had average operating assets of $780,000 and net operating income of $139,800. What was the Commercial Products Division's residual income in February?

A) -$8,400
B) -$26,562
C) $8,400
D) $26,562

Question 23

Denner Company has two divisions, A and B, that reported the following results for October:
If common fixed expenses were $31,000, total fixed expenses must have been:

A) $31,000
B) $62,000
C) $93,000
D) $52,000

Question 24

The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was:

A) $20,000
B) $l8,000
C) $5,000
D) $2,000

Question 25

Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.
Ieso Company's total fixed expenses for the year were:

A) $40,000
B) $100,000
C) $140,000
D) $170,000

Question 26

Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%?

A) 2.00%
B) 15.00%
C) 9.99%
D) 7.50%

Question 27

Verkamp Corporation has two divisions: the YDI Division and the QCC Division. The corporation's net operating income is $31,800. The YDI Division's divisional segment margin is $111,800 and the QCC Division's divisional segment margin is $152,800. What is the amount of the common fixed expense not traceable to the individual divisions?

A) $143,600
B) $184,600
C) $264,600
D) $232,800

Question 28

In January, the Universal Solutions Division of Zima Corporation had average operating assets of $520,000 and net operating income of $97,600. The company uses residual income, with a minimum required rate of return of 18%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in January?

A) $4,000
B) ($4,000)
C) $17,568
D) ($17,568)

Question 29

A company's average operating assets are $220,000 and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%?

A) ($450)
B) $450
C) $600
D) ($600)

Question 30

Kaighn Corporation has two divisions: the West Division and the East Division. The corporation's net operating income is $18,500. The West Division's divisional segment margin is $27,700 and the East Division's divisional segment margin is $49,400. What is the amount of the common fixed expense not traceable to the individual divisions?

A) $46,200
B) $67,900
C) $77,100
D) $58,600

Question 31

Given the following data:
Return on investment (ROI) would be:

A) 10%
B) 20%
C) 16.7%
D) 80%

Question 32

Anspach Corporation has two divisions: the Governmental Products Division and the Consumer Products Division. The Governmental Products Division's divisional segment margin is $11,800 and the Consumer Products Division's divisional segment margin is $155,500. The total amount of common fixed expenses not traceable to the individual divisions is $142,200. What is the company's net operating income?

A) ($167,300)
B) $25,100
C) $309,500
D) $167,300

Question 33

Campion Company has two divisions, A and B. The following data pertain to operations in May:

If common fixed expenses were $10,000, total fixed expenses were:

A) $10,000
B) $30,500
C) $40,500
D) $65,500

Question 34

Reardon Retail Company consists of two stores, A and B. Store A had sales of $80,000 during March, a contribution margin ratio of 30%, and a segment margin of $11,000. The company as a whole had sales of $200,000, a contribution margin ratio of 36%, and segment margins for the two stores totaling $31,000. If net operating income for the company was $15,000 for the month, the traceable fixed expenses in Store B must have been:

A) $16,000
B) $20,000
C) $31,000
D) $28,000

Question 35

Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.
The segment margin ratio in Store J was:

A) 16%
B) 24%
C) 40%
D) 60%

Question 36

A company had the following results last year: sales, $700,000; return on investment, 28%; and margin, 8%. The average operating assets last year were:

A) $200,000
B) $2,450,000
C) $540,000
D) $2,500,000

Question 37

Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.
Variable expenses in Store K totaled:

A) $70,000
B) $110,000
C) $200,000
D) $130,000

Question 38

Howe Company increased its ROI from 20% to 25%. Net operating income and sales remained at their previous levels of $40,000 and $1,000,000 respectively. The increase in ROI was attributed to a reduction in operating assets brought about by the sale of obsolete inventory at cost (the proceeds from the sale were used to reduce bank loans). By how much was inventory reduced?

A) $8,000
B) $40,000
C) $10,000
D) it is impossible to determine from the data given.

Question 39

Bonniwell Corporation has two divisions: the Delta Division and the Alpha Division. The Delta Division has sales of $620,000, variable expenses of $359,600, and traceable fixed expenses of $229,200. The Alpha Division has sales of $820,000, variable expenses of $541,200, and traceable fixed expenses of $172,900. The total amount of common fixed expenses not traceable to the individual divisions is $122,000. What is the company's net operating income?

A) $539,200
B) $15,100
C) $137,100
D) $417,200

Question 40

Last year the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover rounded to the nearest tenth?

A) 9.5
B) 10.2
C) 9.8
D) 9.2

Question 41

Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment.
A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:

A) $288,000
B) $279,000
C) $108,000
D) $441,000

Question 42

Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment.
The contribution margin of the West business segment is:

A) $108,000
B) $675,000
C) $288,000
D) $216,000

Question 43

Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment.
A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is:

A) $138,000
B) $675,000
C) $459,000
D) -$183,000

Question 44

The following information is available on Company A:
Company A's return on investment (ROI) is:

A) 4%
B) 15%
C) 20%
D) 36%

Question 45

Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment.
The contribution margin of the Commercial business segment is:

A) $146,000
B) $169,000
C) $546,000
D) $296,000

Question 46

Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment.
A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is:

A) $211,000
B) $51,000
C) $259,000
D) $121,000

Question 47

The Holmes Division recorded operating data as follows for the past year:
For the past year, the turnover was:

A) 25
B) 10
C) 4
D) 2

Question 48

The Holmes Division recorded operating data as follows for the past year:
For the past year, the margin was:

A) 12.50%
B) 13.00%
C) 14.75%
D) 15.00%

Question 49

Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year's income statement segmented by product line: Net operating income last year for Licuado Company as a whole was $24,800.
Licuado is considering the implementation of a $5,000 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,000. If the goal is to maximize the company's net operating income, for which product line should Licuado implement the advertising program?

A) Orange
B) Tomato
C) Carrot
D) Grape
E) any one of the product lines; the effect on net operating income will be identical

Question 50

Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year's income statement segmented by product line: Net operating income last year for Licuado Company as a whole was $24,800.
If the Carrot product line would have been dropped at the beginning of last year, how would this have changed the net operating income of Licuado Company as a whole?

A) $2,400 increase
B) $3,000 decrease
C) $5,400 increase
D) $12,000 decrease

Question 51

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
If Axle sells 15,000 units per year, the residual income should be:

A) $30,000
B) $100,000
C) $50,000
D) $10,000

Question 52

Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment.
A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is:

A) $673,000
B) $523,000
C) -$115,000
D) $204,000

Question 53

Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment.
A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is:

A) $273,000
B) $290,000
C) $169,000
D) $296,000

Question 54

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?

A) 14,500
B) 16,750
C) 18,250
D) 19,500

Question 55

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
If Axle sells 16,000 units per year, the return on investment should be:

A) 12%
B) 15%
C) 16%
D) 18%

Question 56

The Holmes Division recorded operating data as follows for the past year:
For the past year, the return on investment was:

A) 15.75%
B) 20.50%
C) 25.00%
D) 31.25%

Question 57

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
Suppose the manager of Axle desires a return on investment of 22%. In order to achieve this goal, Axle must sell how many units per year?

A) 14,500
B) 16,750
C) 18,250
D) 19,500

Question 58

Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment.
The contribution margin of the South business segment is:

A) $211,000
B) $673,000
C) $51,000
D) $392,000

Question 59

The following information is available on Company A:
Company A's residual income is:

A) $9,000
B) $21,000
C) $45,000
D) $24,000

Question 60

Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment.
A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is:

A) $110,000
B) $392,000
C) $546,000
D) -$172,000

Question 61

The Holmes Division recorded operating data as follows for the past year:
For the past year, the minimum required rate of return was:

A) 11%
B) 12%
C) 13%
D) 14%

Question 62

Deano Products is a division of a major corporation. The following data are for the last year of operations:
The division's turnover is closest to:

A) 32.26
B) 2.89
C) 0.10
D) 3.18

Question 63

Deano Products is a division of a major corporation. The following data are for the last year of operations:
The division's margin is closest to:

A) 9.9%
B) 3.1%
C) 34.5%
D) 31.4%

Question 64

Beak Industries is a division of a major corporation. Last year the division had total sales of $10,600,000, net operating income of $1,070,600, and average operating assets of $4,000,000.
The division's turnover is closest to:

A) 2.09
B) 9.90
C) 2.65
D) 0.27

Question 65

Beak Industries is a division of a major corporation. Last year the division had total sales of $10,600,000, net operating income of $1,070,600, and average operating assets of $4,000,000.
The division's margin is closest to:

A) 37.7%
B) 26.8%
C) 47.8%
D) 10.1%

Question 66

Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below:
The division's margin is closest to:

A) 44.6%
B) 26.7%
C) 35.2%
D) 9.4%

Question 67

Assume that Cranberry was being evaluated solely on the basis of return on investment (ROI). Which of the following investment opportunities would Cranberry want to invest in?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 68

Harstin Corporation has provided the following data:
The minimum required rate of return for the past year was:

A) 36%
B) 8%
C) 12%
D) 40%

Question 69

Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.
The division's residual income is closest to:

A) $(902,000)
B) $(3,335,600)
C) $1,978,000
D) $538,000

Question 70

Harstin Corporation has provided the following data:
The margin for the past year was:

A) 19.2%
B) 14.4%
C) 11.2%
D) 8.0%

Question 71

Harstin Corporation has provided the following data:
The turnover for the past year was:

A) 2.5
B) 6.94
C) 2.98
D) 1.4

Question 72

Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.
The division's turnover is closest to:

A) 2.52
B) 0.07
C) 40.00
D) 2.69

Question 73

The following information relates to the Cranberry Division of Innovative Bologna Corporation for last year:
What was the Cranberry Division's residual income for last year?

A) $26,400
B) $36,000
C) $41,400
D) $51,000

Question 74

Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.
The division's return on investment (ROI) is closest to:

A) 0.2%
B) 6.7%
C) 1.8%
D) 18.0%

Question 75

Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below:
The division's turnover is closest to:

A) 2.84
B) 10.64
C) 2.24
D) 0.27

Question 76

Deano Products is a division of a major corporation. The following data are for the last year of operations:
The division's return on investment (ROI) is closest to:

A) 9.9%
B) 31.5%
C) 0.3%
D) 2.4%

Question 77

Deano Products is a division of a major corporation. The following data are for the last year of operations:
The division's residual income is closest to:

A) $591,480
B) $(128,520)
C) $(1,698,120)
D) $1,311,480

Question 78

Harstin Corporation has provided the following data:
The return on investment for the past year was:

A) 28%
B) 20%
C) 36%
D) 8%

Question 79

Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below:
The division's return on investment (ROI) is closest to:

A) 21.1%
B) 2.5%
C) 26.7%
D) 7.0%

Question 80

Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.
The division's margin is closest to:

A) 2.5%
B) 39.7%
C) 6.7%
D) 37.2%