ACTY 2110 - Ch. 10

a

Macey, Inc.'s investment center had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000, and net operating income was $70,000. Return on investment was ______. a.) 20% b.) 3% c.) 17.5% d.) 23.3%

internal business processes

The balanced scorecard perspective that focuses on all activities from product design and development until the time it is in the hands of the customer is _____ _____ _____.

false

True or false: Cost centers have no impact on revenue.

true

True or false: In strongly decentralized organizations, even the lowest-level managers can make decisions.

a

A comprehensive performance measurement system that is derived from an organization's strategic vision is ______. a.) a balanced scorecard b.) return on investment c.) the minimum required rate of return d.) a residual income statement

b

Investment turnover × profit margin = ______. a.) economic value added b.) return on investment c.) return on equity d.) residual income

interest, taxes

Net operating income is income before other income, _____, and _____.

profit, investment

The manager of a(n) _____ center has control over both costs and revenues, but not over the use of _____ funds.

investment

The manager of a(n) _____ center has control over costs, revenue, and purchasing long-lived company's assets.

b

The most common method of evaluating a profit center manager is based on the ______. a.) capital expenditure plan b.) segmented income statement c.) revenue and sales goals d.) quality of service provided within the organization

a, c, d

There are many variances of ROI, including return on ______. a.) equity b.) residual income c.) capital employed d.) assets

a, d

When calculating Return on Investment (ROI), net operating income ______. a.) includes income from normal operations b.) is presented after taxes c.) includes earnings from investments outside of normal operations d.) does not include interest expense

more

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be _____(more/less) likely to pursue projects that will benefit the entire company.

c

When performance is evaluated based on ROI, managers may ______. a.) accept every project that has a return greater than the hurdle rate b.) only accept projects that have a negative residual income c.) not make an investment that would be good for the company as a whole d.) put too much focus on increasing residual income

a

Which of the following business segments would not be considered a cost center? a.) Retail outlet b.) Accounting department c.) Manufacturing facilities d.) Personnel department

b

Which of the following statements regarding the balanced scorecard is incorrect? a.) Each perspective of the balanced scorecard should include specific objectives and measures. b.) Balanced scorecard objectives are generally broad and generic. c.) The balanced scorecard focuses on achieving financial and non-financial goals. d.) To be effective, balanced scorecard category performance measures should be linked together.

c

The most common method used to evaluate profit center managers is based on ______. a.) residual income b.) revenue and sales goals c.) segmented income statements d.) return on investment

residual income

The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its _____ _____.

a, d

The required rate of return ______. a.) considers the risk of an investment b.) should reflect the highest return a manager wants to earn on an investment c.) does not consider opportunity cost d.) considers financing costs

a, b, d

Which of the following statements are true? a.) A profit manager is accountable for direct fixed costs. b.) A direct fixed cost supports a specific business segment. c.) Segment margin is another term for profit margin. d.) Common fixed costs are commonly incurred at higher levels of an organization.

a, c

Which of the following statements regarding the balanced scorecard are true? a.) The learning and growth perspective typically contains leading indicators of future performance. b.) Specific objectives and measures or targets of performance should only be included in the financial perspective. c.) Objectives and measures in each category should be linked so that performance in one area leads to performance in another.

c

Which of the following is not a characteristic of decentralization? a.) Decentralization puts the decision-making authority in the hands of those who have the most information on day-to-day operations. b.) Decentralization helps to train lower-level managers for higher level positions. c.) Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions. d.) Decentralization allows top management to concentrate on bigger issues, such as overall strategy.

d

According to the ______ managers should only be held accountable for what they are actually in charge of. a.) responsibility principle b.) decentralization principle c.) balanced scorecard d.) controllability principle

25

Given beginning operating assets of $140,000, ending operating assets of $180,000, net operating income of $40,000, and tax expense of $8,000, return on investment is equal to _____%.

b, d

How can a company increase its return on investment (ROI)? a.) Increase operating assets b.) Increase sales c.) Borrow additional funds d.) Reduce operating expenses

b

In decentralized organizations, decision-making authority is ______. a.) not granted to the lowest-level managers b.) spread throughout the organization c.) confined to a few top executives

increase, decrease, decrease

In order to increase return on investment (ROI), the company must _____ (increase/decrease) sales, and/or _____(increase/decrease) operating expenses and/or _____(increase/decrease) average operating assets.

b

Net operating income ÷ Sales revenue = ______. a.) Investment turnover b.) Profit margin c.) Residual income d.) Return on investment

c

Net operating income ÷ average invested assets = ______. a.) margin b.) residual income c.) return on investment d.) turnover

controllability principle

One of the most important concepts in responsibility accounting is the _____ _____ which states that managers should only be held responsible for what they are in charge of.

b

Residual income is equal to ______. a.) net operating income ÷ average invested assets b.) net operating income - (average invested assets × hurdle rate) c.) net operating income ÷ sales d.) net operating income + minimum acceptable profit e.) margin × turnover

b, c, d

Responsibilities of a profit center manager may include ______. a.) investing in long-term assets b.) involvement in strategic initiatives related to product success c.) contract negotiations d.) controlling division costs

geographical, product, functional

Responsibility centers can be based on _____ regions, _____ lines, _____ characteristics, or some combination of the three.

a

Return on investment (ROI) is a measure used to evaluate managers of ______ centers. a.) investment b.)profit & investment c.) cost d.) profit

d

Revenue center managers are evaluated primarily on their ______. a.) segment margin b.) ability to develop cost-effective strategies c.) capital expenditure plan d.) ability to meet sales goals

investment turnover

Sales revenue divided by average invested assets equals _____ _____.

segment margin

Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the _____ _____.

a

The four groups of performance measures typically used in the balanced scorecard approach are financial, ______. a.) customer, internal business processes, and learning and growth b.) customer, internal business processes, and quality assurance c.) customer, learning and growth, and quality assurance d.) internal business processes, learning and growth, and quality assurance

customer

The link between internal business processes and financial results is the _____ perspective of the balanced scorecard.

a, d

The required rate of return ______. a.) considers financing costs b.) does not consider opportunity cost c.) should reflect the highest return a manager wants to earn on an investment d.) considers the risk of an investment

hurdle

The required rate of return is also known as the _____ rate.

2, 5, 10

Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average invested assets of $400,000. Based on this, Valley's investment turnover is _____, its profit margin is _____%, and its return on investment is _____%.

residual income

When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on _____ _____.

goal incongruence

A performance evaluation system can create _____ _____ or a conflict of interest between what is best for a division and best for the company as a whole.

a

Measuring the value provided to shareholders is the ______ perspective of the balanced scorecard. a.) financial b.) internal business processes c.) customer d.)learning and growth

d

ROI is a method used to evaluate ______. a.) profit and investment centers, but not cost centers b.) cost, profit, and investment centers c.) cost and profit centers, but not investment centers d.) investment centers, but not cost or profit centers

b

When a manager is evaluated on residual income, an investment is acceptable when ______. a.) net operating income for the new investment is above the current return on average operating assets b.) net operating income for the investment is above the minimum required return on average operating assets c.) it generates any positive net operating income d.) the return on investment of the new project equals or exceeds current ROI

4000

Carlos, Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average invested assets of $200,000 and a net operating income of $24,000. The department's residual income is $_____.

centralized

Decision-making authority lies mostly with higher-level managers in strongly ______ organizations.

c

Evaluating how the company will sustain the ability to change and improve is part of the ______ perspective of the balanced scorecard. a.) customer b.) financial c.) learning and growth d.) internal business processes

a

Managers of cost centers are evaluated on ______. a.) their ability to control costs and provide quality service b.) the segment margin generated for their center c.) revenues, costs, and the use of investment funds d.) their ability to meet sales quotas

a, d

ROI can be calculated as ______. a.) profit margin multiplied by investment turnover b.) profit margin divided by investment turnover c.) average invested assets divided by net operating income d.) net operating income divided by average invested assets

a

Which type of manager(s) have the authority to make purchase decisions regarding company assets? a.) Investment center managers only b.) Both profit and investment center managers c.) Profit center managers only

direct, common

A(n) _____ fixed cost is under the control of a segment manager and a(n) _____ fixed cost is outside the segment manager's control.

responsibility

An area of business that a manager has control over and is accountable for is called a(n) _____ center.

profit margin, investment

In order to fully evaluate ROI, managers should compute both _____ _____ and _____ turnover.

revenue/profit

Sales quotas are often given to _____ center managers.