ch 10 managerial acct
Which of the following statements is correct?
A manager might reject a proposal using ROI that the manager would accept using residual income.
True or false: A balanced scorecard includes leading indicators but NOT lagging indicators.
False
There are many variances of ROI, including return on ______.
assets equity capital employed
Responsibilities of a profit center manager may include ______.
contract negotiations controlling division costs involvement in strategic initiatives related to product success
According to the ______ managers should only be held accountable for what they are actually in charge of.
controllability principle
The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.
customer, internal business processes, and learning and growth
An organization in which decision-making authority is spread throughout the organization is
decentralized
A performance metric based on after-tax net operating income, cost of capital, and total capital employed is ______.
economic value added
Measuring the value provided to shareholders is the ______ perspective of the balanced scorecard.
financial
When calculating Return on Investment (ROI), net operating income ______.
includes income from normal operations does not include interest expense
Net operating income is income before other income,
interest tax
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
internal business processes
True or false: Cost centers have no impact on revenue.
false
ROI is a method used to evaluate ______.
investment centers, but not cost or profit centers
A problem with decentralization is that ______.
it may lead to duplication of resources
Evaluating how the company will sustain the ability to change and improve is part of the ______ perspective of the balanced scorecard.
learning and growth
The transfer pricing method that generally provides the most benefit to the seller is the ______ method.
market price
Managers of cost centers are expected to ______.
minimize costs and maximize cost-effectiveness
The manager of a(n) ____________ center has control over both costs and revenues, but not over the use of _________________ funds.
profit investment
The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its
residual income
Transfer prices are not particularly important when managers are evaluated on ______.
total firm value
The price charged when one segment of a company provides goods or services to another segment of the same company is the ______ price.
transfer
The amount that one division charges when it sells goods or services to another division of the same company is called a(n)
transfer price
The required rate of return is also known as the
hurdle rate
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.
2,5,10
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 ______.
20%
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
25
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
4000
Which of the following statements are true?
A direct fixed cost supports a specific business segment. Common fixed costs are commonly incurred at higher levels of an organization. A profit manager is accountable for direct fixed costs.
Which of the following statements regarding the balanced scorecard is incorrect?
Balanced scorecard objectives are generally broad and generic.
When a transfer price is based on cost plus a percentage markup, the method being used is ______.
COST BASED
Which of the following is not a characteristic of decentralization?
Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions.
How can a company increase its return on investment (ROI)?
Increase sales Reduce operating expenses
Which type of manager(s) have the authority to make purchase decisions regarding company assets?
Investment center managers only
Which of the following statements regarding decentralized organizations are correct?
Managers in decentralized operations may make decisions that are good for their department, but not for the organization as a whole. Decentralized organizations often use responsibility accounting systems to evaluate lower level-managers. Decentralization often allows decisions to be made faster, since not as many layers of management are needed for approval. Decentralization helps lower-level managers develop better management skills.
Which of the following statements regarding the balanced scorecard are true?
Objectives and measures in each category should be linked so that performance in one area leads to performance in another. The learning and growth perspective typically contains leading indicators of future performance.
Which of the following business segments would not be considered a cost center?
Retail outlet
Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true?
The department manager may not want to accept the project because it will lower the overall ROI for the department. The project should be accepted by the company because it increases overall residual income.
`Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. The manager of the Western division is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are true?
The project is acceptable because it exceeds the company's required rate of return. The project will generate positive residual income. The manager may decide to reject the project because it will lower the current ROI earned by his division.
Revenue center managers are evaluated primarily on their ______.
ability to meet sales goals
Return on investment, residual income, and economic value added ______.
are all lagging measures of performance
There are many variances of ROI, including return on ______.
capital employed assets equity
Decision-making authority is kept at the very top when an organization is
centralized
Decision-making authority lies mostly with higher-level managers in strongly ______ organizations.
centralized
The required rate of return ______.
considers financing costs considers the risk of an investment
One of the most important concepts in responsibility accounting is the ____________ _______________ , Correct Unavailable which states that managers should only be held responsible for what they are in charge of.
controllability principle
The manager of a(n) __________center does not have control over revenue or the use of investment funds.
cost
The link between internal business processes and financial results is the ___________perspective of the balanced scorecard.
customer
Internal transfer prices ______.
determine how revenues and costs are reported between divisions
Financial performance measures ______.
focus on past, not future performance may cause managers to make decisions that won't be optimal in the long run
Responsibility centers can be based on _________ regions, ____________ lines, _________characteristics, or some combination of the three.
geographical product functional
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.
goal incongruence
A transfer price developed using the ______cost , method should fall somewhere between the variable cost and the wholesale price.
negotiation
When a manager is evaluated on residual income, an investment is acceptable when ______.
net operating income for the investment is above the minimum required return on average operating assets
When performance is evaluated based on ROI, managers may ______.
not make an investment that would be good for the company as a whole
Business transactions between units or divisions are commonly known as ______.
related-party transactions
The economic value added calculation is similar to the computation of ______.
residual income
An area of business that a manager has control over and is accountable for is called a(n)
responsibility
An area of business that a manager has control over and is accountable for is called a(n)_________ center.
responsibility
Net operating income ÷ average invested assets = ______.
return on investment
Sales quotas are often given to____________ center managers.
revenue
Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the
segment margin
A(n) Blank 1 of 1 income statement is broken down by product line, region, or other area of a business.
segmented
The most common method used to evaluate profit center managers is based on ______.
segmented income statements
In decentralized organizations, decision-making authority is ______.
spread throughout the organization
Managers of cost centers are evaluated on ______.
their ability to control costs and provide quality service
