acg 2071 chap 10
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: In strongly decentralized organizations, even the lowest-level managers can make decisions.
True Reason: Decentralized operations often allow the lower-levels of management to make decisions because they are most familiar with the day-to-day operations.
Managers should only be held accountable for what they are actually in charge of according to the _____.
controllability principle
Measuring the value provided to shareholders is the ______ perspective of the balanced scorecard.
financial
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
The transfer pricing method that treats the two segments as if they were independent businesses is the _____ method.
market-price
Net operating income ÷ Sales revenue = ______.
profit margin
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 minimum acceptable transfer price using the cost-based method is ______.
variable cost
Select all that apply The required rate of return ______.
-considers financing costs -considers the risk of an investment
Select all that apply Responsibilities of a profit center manager may include ______.
-contract negotiations -controlling division costs -involvement in strategic initiatives related to product success
Select all that apply A company can increase its return on investment (ROI) by ______.
-decreasing operating expenses -increasing sales
Select all that apply There are many variances of ROI, including return on______.
-equity -assets -capital employed
Select all that apply When calculating Return on Investment (ROI), net operating income ______.
-includes income from normal operations -does not include interest expense
Select all that apply When it comes to setting transfer prices, ______.
-managers of different departments may have very different goals -the price set can have an impact on individual manager performance
Select all that apply Garnett, Inc. has a required rate of return of 12%. The Western Division of Garnett has a current return on investment (ROI) of 14.5%. The manager of the Western division has been offered a project that is projected to earn 13.25%. The proposed new project ______.
-may be rejected by the manager -is acceptable to Garnett -will generate positive residual income
Select all that apply Financial performance measures ______.
-may cause managers to make decisions that won't be optimal in the long run -focus on past, not future performance
Select all that apply ROI can be calculated as ______.
-net operating income ÷ average invested assets -profit margin × investment turnover
Select all that apply 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. The division manager has a current ROI of 15%. Based on these facts, the ______.
-project should be accepted by the company because it increases residual income -division manager may not want to accept the project -division manager currently has a positive residual income
Macey, Inc.'s invested assets were $300,000 at the beginning of the year and $400,000 at the end of the year. Total revenue was $1,050,000, and net operating income was $70,000. Return on investment was ______.
20% Reason: Net operating income ÷ Average invested assets = $70,000 ÷ $350,000 = 20%.
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-- %. (Enter your answers as whole numbers.)
Blank 1: 2 Blank 2: 5 Blank 3: 10
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-- %. (Enter your answer as a whole number.)
Blank 1: 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 $. (Enter your answer as a whole number without decimal places.)
Blank 1: 4,000 or 4000
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. (Enter only one word per blank.)
Blank 1: controllability Blank 2: principle
The manager of a(n)-- center does not have control over revenue or the use of investment funds. (Enter only one word per blank.)
Blank 1: cost
An organization in which decision-making authority is spread throughout the organization is-- . (Enter only one word per blank.)
Blank 1: decentralized or decentralization
Responsibility centers can be based on-- regions,-- lines,-- characteristics, or some combination of the three. (Enter only one word per blank.)
Blank 1: geographical or geographic Blank 2: product Blank 3: functional
A performance evaluation system can create a conflict of interest between what is best for a manager and best for the organization and its owners, which is called---- . (Enter only one word per blank.)
Blank 1: goal Blank 2: incongruence
The required rate of return is also known as the-- rate. (Enter only one word per blank.)
Blank 1: hurdle
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. (Enter your answers as increase or decrease.)
Blank 1: increase Blank 2: decrease Blank 3: decrease
Net operating income is net income from normal operating activities, before other income--, , and-- . (Enter only one word per blank.)
Blank 1: interest Blank 2: taxes or tax
Authority to make decisions about how and where to invest the company's assets to drive long-term profitability manager rests with the manager of a(n)-- center. (Enter only one word per blank.)
Blank 1: investment
Sales revenue ÷ average invested assets equals---- . (Enter only one word per blank.)
Blank 1: investment Blank 2: turnover
A transfer price that falls somewhere between the variable cost and the wholesale priced was most likely developed using the-- method. (Enter only one word per blank.)
Blank 1: negotiation
The manager of a(n)-- center has control over both costs and revenues, but not the use of investment funds. (Enter only one word per blank.)
Blank 1: profit
In order to fully evaluate ROI, managers should compute both---- and-- turnover. (Enter only one word per blank.)
Blank 1: profit Blank 2: margin Blank 3: investment
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---- . (Enter only one word per blank.)
Blank 1: residual Blank 2: income
An area of business that a manager has control over and is accountable for is called a(n)-- center. (Enter only one word per blank.)
Blank 1: responsibility
Sales quotas are often given to-- center managers. (Enter only one word per blank.)
Blank 1: revenue or profit
Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the---- . (Enter only one word per bl
Blank 1: segment or segmented Blank 2: margin
A(n)-- income statement is broken down by product line, region, or other area of a business. (Enter only one word per blank.)
Blank 1: segmented or segment
The amount that one division charges when it sells goods or services to another division of the same company is called a(n)---- . (Enter only one word per blank.)
Blank 1: transfer Blank 2: price
true or false: Cost centers have no impact on revenue.
False Reason: Although cost centers do not generate revenue, they may have an impact through other measures, such as customer satisfaction and service quality.
True or false: Residual income can be broken down into profit margin and investment turnover.
False Reason: ROI can be broken down into profit margin and investment turnover.
True or false: When considering transfer prices, one factor is the overall company's perspective.
False Reason: The transfer price has no impact on the overall company, just the individual managers.
Which type of manager(s) have the authority to make purchase decisions regarding company assets?
Investment center managers only
Which of the following business segments would not be considered a cost center?
Retail outlet
A comprehensive performance measurement system that is derived from an organization's strategic vision is______.
a balanced scorecard
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
When a transfer price is based on cost plus a percentage markup, the method being used is ______.
cost-based
The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.
customer, internal business processes, and learning and growth
Inside information about the other division's costs, capacity, and demand will impact setting a transfer price using the ______ method.
negotiation
Residual income is equal to ______.
net operating income - (average invested assets × hurdle rate)
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
The formula for return on investment is _____.
net operating income ÷ average invested assets
When performance is evaluated based on ROI, managers may ______.
not make an investment that would be good for the company as a whole
The net operating income that an investment center earns above the amount required to earn the minimum required rate of return is ______.
residual income
Investment turnover × profit margin = ______.
return on investment
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