Question 1

Division X's profit margin is 17%, and its investment turnover is 4.2.What is the rate of return on investment for Division X?

Accepted Answer

The rate of return on investment (ROI) is calculated by multiplying the profit margin by the investment turnover. In this case, the ROI is 17% x 4.2 = 71.4%.

Question 2

The following data are taken from the management accounting reports of Dancer Co.: $$\begin{array} { l r r r } 
& \text { Div. A } & \text { Div. B } & \text { Div. C } \
\text { Operating income } & \$ 1,800,000 & \$ 1,350,000 & \$ 1,900,000 \
\text { Total service department charges } & 1,700,000 & 1,050,000 & 1,100,000
\end{array}$$ ? If an incentive bonus is paid to the manager who achieved the highest operating income before service department charges, it follows that

Accepted Answer

The answer of The following data are taken from the...

Question 3

Rooney Inc.had $375,000 in invested assets, sales of $735,000, operating income amounting to $105,000, and a minimum acceptable rate of return of 12% on its invested assets.The residual income for Rooney is:

Accepted Answer

Residual income = Operating Income - (Minimum Acceptable Rate of Return x Invested Assets) 
Residual income = $105,000 - (0.12 x $375,000) 
Residual income = $105,000 - $45,000 
Residual income = $60,000

Question 4

Operating income for Division A is $520,000, total service department charges are $480,000, and operating expenses are $3,200,000.What are the revenues for Division A?

Accepted Answer

The answer of Operating income for Division A is $520,000,...

Question 5

Division R reported operating income of $800,000 and total service department charges of $275,000.Therefore its:

Accepted Answer

Total operating income before service department charges can be calculated as:

Total operating income = Operating income + Total service department charges 
Total operating income = $800,000 + $275,000 
Total operating income = $1,075,000

Therefore, option C is correct as it represents the operating income before the service department charges. The other options are incorrect as they are not related to the given information.

Question 6

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: $$\begin{array} { l r r r } 
& \begin{array} { r } 
\text { Northern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Southern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Corporate } \
\text { Total }
\end{array} \
\text { Cost of goods sold } & \$ 310,000 & \$ 175,000 & \
\text { Direct operating expenses } & 250,000 & 115,000 & \
\text { Net sales } & 600,000 & 410,000 & \
\text { Interest expense } & & & \$ 12,000 \
\text { General overhead } && & 101,000 \
\text { Income tax } & && 26,700
\end{array}$$ ? The operating income for the Southern Division is:

Accepted Answer

Operating income is calculated as net sales minus cost of goods sold and direct operating expenses. For the Southern Division, this is $410,000 - $175,000 - $115,000 = $120,000.

Question 7

Which of the following would not be considered as an internal centralized service department?

Accepted Answer

The manufacturing department is not typically considered an internal centralized service department as it is directly involved in the production of goods or services. The other options listed (payroll accounting, information systems, and purchasing) are all examples of internal centralized service departments that provide support or services to other functional areas within the organization.

Question 8

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

Accepted Answer

In an investment center, the manager has responsibility for and authority to make decisions regarding not only costs and revenues, but also the assets invested in the center. This means that they have control over the entire financial performance of the center, giving them greater flexibility to make strategic decisions.

Question 9

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: $$\begin{array} { l r r r } 
& \text { Northern } & \text { Southern } & \text { Corporate } \
& \text { Division } & \text { Division } & \text { Total } \
\text { Cost of goods sold } & \$ 310,000 & \$ 175,000 & \
\text { Direct operating expenses } & 250,000 & 115,000 & \
\text { Net sales } & 600,000 & 410,000 & \
\text { Interest expense } & & & \$ 12,000 \
\text { General overhead } & && 101,000 \
\text { Income tax } & && 26,700
\end{array}$$ ? The net income for Globe Corporation is:

Accepted Answer

To calculate the net income for Globe Corporation, first, we need to sum up the total figures for cost of goods sold, direct operating expenses, and net sales across both divisions. Then, subtract the total cost of goods sold, total direct operating expenses, interest expense, general overhead, and income tax from the total net sales.Total Cost of Goods Sold = $310,000 (Northern) + $175,000 (Southern) = $485,000Total Direct Operating Expenses = $250,000 (Northern) + $115,000 (Southern) = $365,000Total Net Sales = $600,000 (Northern) + $410,000 (Southern) = $1,010,000Total Expenses = $485,000 (Cost of Goods Sold) + $365,000 (Direct Operating Expenses) + $12,000 (Interest Expense) + $101,000 (General Overhead) = $963,000Net Income before Income Tax = $1,010,000 (Total Net Sales) - $963,000 (Total Expenses) = $47,000Net Income after Income Tax = $47,000 - $26,700 (Income Tax) = $20,300However, since $20,300 is not an option and there seems to be a mistake in my calculation, let's correct the approach based on the options provided:Correct Calculation:Total Expenses (excluding Income Tax) = $485,000 + $365,000 + $12,000 + $101,000 = $963,000Net Operating Income = $1,010,000 - $963,000 = $47,000Net Income = Net Operating Income - Income Tax = $47,000 - $26,700 = $20,300Given the discrepancy in my initial explanation and the final answer not matching any of the options, it appears there was a miscalculation. The correct approach to find the net income involves subtracting all expenses, including the income tax, from the total net sales. The options provided do not match the recalculated outcome, indicating a need to reassess the calculation based on the provided options and the correct methodology for calculating net income. Given this, the correct choice should be based on the calculation of total net sales minus total costs and expenses (including interest expense, general overhead, and income tax). The error in the explanation was in the final step of calculation, not aligning with the provided options correctly. The correct net income calculation should directly follow from the provided financial information, taking into account all expenses and the income tax.

Question 10

The following financial information was summarized from the accounting records of Globe Corporation for the current year ended December 31: $$\begin{array} { l r r r } 
& \begin{array} { r } 
\text { Northern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Southern } \
\text { Division }
\end{array} & \begin{array} { r } 
\text { Corporate } \
\text { Total }
\end{array} \
\text { Cost of goods sold } & \$ 310,000 & \$ 175,000 & \
\text { Direct operating expenses } & 250,000 & 115,000 & \
\text { Net sales } & 600,000 & 410,000 & \
\text { Interest expense } & & & \$ 12,000 \
\text { General overhead } && & 101,000 \
\text { Income tax } & && 26,700
\end{array}$$ ? The gross profit for the Southern Division is:

Accepted Answer

Gross profit is calculated as Net Sales minus Cost of Goods Sold. For the Southern Division, this is $410,000 - $175,000 = $235,000.

Question 11

Blair Inc.had $725,000 in invested assets, sales of $1,100,000, operating income amounting to $72,000, and a minimum acceptable rate of return of 14% on its invested assets.Blair's investment turnover is _____.

Accepted Answer

Investment turnover = Sales / Invested assets
Investment turnover = $1,100,000 / $725,000
Investment turnover = 1.51
Blair Inc. has an investment turnover of 1.5.

Question 12

Which of the following statements is used to measure the performance of a profit center's manager?

Accepted Answer

The divisional income statement is used to measure the performance of a profit center's manager, as it shows the profit or loss generated by the division during a specific period. The other options (A, B, and C) do not directly measure a manager's performance in terms of profitability.

Question 13

Operating income for Division M is $150,000, and operating income before service department charges is $975,000.Therefore,:

Accepted Answer

Operating income before service department charges ($975,000) minus operating income after service department charges ($150,000) equals the total service department charges ($825,000).

Question 14

How do the responsibilities of a manager in an investment center compare to the responsibilities of managers in a cost or profit center?

Accepted Answer

Investment center managers have broader responsibilities, including decisions on investments and operations, making their role more encompassing than those of cost or profit center managers, who focus on cost control or profitability, respectively.

Question 15

The following data are taken from the management accounting reports of Dancer Co.: $$\begin{array} { l r r r } 
& { \text { Div. A } } & \text { Div. B } &{ \text { Div. C } } \
\text { Operating income } & \$ 3,600,000 & \$ 3,700,000 & \$ 2,700,000 \
\text { Total service department charges } & 3,400,000 & 2,100,000 & 2,200,000
\end{array}$$ ? If an incentive bonus is paid to the manager who achieved the highest operating income before service department charges, it follows that:

Accepted Answer

Division A has the highest operating income before service department charges.

Question 16

Zygot Inc.had $650,000 invested in assets, sales of $1,250,000, operating income amounting to $140,000, and a minimum acceptable rate of return of 12% on its invested assets.The rate of return on investment for Zygot is:

Accepted Answer

The rate of return on investment (ROI) is calculated by dividing the operating income by the invested assets and multiplying by 100 to express it as a percentage.

ROI = (Operating income / Invested assets) x 100

ROI = ($140,000 / $650,000) x 100

ROI = 21.5%

Therefore, the rate of return on investment for Zygot is 21.5%. The correct choice is B.

Question 17

Zync Inc.had $1,150,000 in invested assets, sales of $1,300,000, operating income amounting to $185,000, and a minimum acceptable rate of return of 15% on its invested assets.Zync's profit margin is:

Accepted Answer

The profit margin is calculated as operating income divided by sales. Therefore, the profit margin for Zync Inc. is $185,000 / $1,300,000 = 0.1423, or 14.2%.

Question 18

Responsibility accounting reports for profit centers will include:

Accepted Answer

Responsibility accounting reports for profit centers need to include both revenues and expenses in order to determine the net income or loss from operations. By including both sources of income and expenses, managers can assess the overall profitability of the profit center and make informed decisions about how to allocate resources.

Question 19

Some organizations use internal service departments to provide services to several divisions or departments within an organization.Which of the following would probably not lend itself as a service department?

Accepted Answer

Inventory control involves physical storage and management of inventory, which is usually specific to a particular department or division. It does not lend itself well as a service department servicing multiple divisions or departments within an organization.

Question 20

Big Inc.had $275,000 invested in assets, sales of $302,500, operating income of $60,500, and a minimum acceptable rate of return of 5% on its invested assets.The rate of return on investment for Big Inc.is:

Accepted Answer

The rate of return on investment (ROI) is calculated by dividing the operating income by the invested assets. For Big Inc., this is $60,500 / $275,000 = 0.22, or 22%.

Quiz 14: Performance Evaluation for Decentralized Operations