Final Review Chapter 11

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 550,000 If the company's minimum required rate of return on average operating assets is 16%, its residual income would be: Multiple Choice: A. $14,000. B. $15,000. C. $12,000. D. $13,000. Explanation Net operating income (a)$ 100,000Required return on assets ($550,000 × 16%) (b)$ 88,000Residual income (a) − (b)$ 12,000

$12,000.

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 600,000 If the company's minimum required rate of return on average operating assets is 16%, its residual income would be: Multiple Choice: A. $7,000. B. $5,000. C. $4,000. D. $6,000. Explanation Net operating income (a)$ 100,000Required return on assets ($600,000 × 16%) (b)$ 96,000Residual income (a) − (b)$ 4,000

$4,000

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 800,000 The turnover is closest to: Multiple Choice: A. 0.2 B. 0.5 C. 0.3 D. 0.3 Explanation Sales (a)$ 400,000Average operating assets (b)$ 800,000Turnover (rounded) (a) ÷ (b)0.5

0.5

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 600,000 The turnover is closest to: Multiple Choice: A. 0.35 B. 0.17 C. 0.25 D. 0.67 Explanation Sales (a)$ 400,000Average operating assets (b)$ 600,000Turnover (rounded) (a) ÷ (b)0.67

0.67

Economic value added (EVA) is an adaptation of: Multiple Choice: A. Return on investment (ROI) B. Residual income. C. Margin. D. Turnover.

Residual Income

A manager of a cost center is most likely to be evaluated using a: Multiple Choice: A. variance analysis performance report. B. properly formatted segmented income statement. C. set of financial ratios that focus on margin and turnover. D. financial measure such as residual income.

variance analysis performance report.

Assume a company had net operating income of $300,000, sales of $1,500,000, average operating assets of $1,000,000, and a minimum required rate of return on average operating assets of 17%. The company's residual income is closest to: Multiple Choice: A. $130,000. B. $30,000. C. $45,000. D. $145,000. Explanation Net operating income (a)$ 300,000Required return on operating assets ($1,000,000 × 17%) (b)$ 170,000Residual income (a) − (b)

$130,000

Assume a company had net operating income of $300,000, sales of $1,500,000, average operating assets of $1,000,000, and a minimum required rate of return on average operating assets of 10.00%. The company's residual income is closest to: Multiple Choice: A. $150,000. B. $200,000. C. $100,000. D. $250,000. Explanation Net operating income (a)$ 300,000Required return on operating assets ($1,000,000 × 10.00%) (b)$ 100,000Residual income (a) − (b)$ 200,000

$200,000

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses84,000Net operating income$ 56,000Average operating assets$ 425,000 The margin is closest to: Multiple Choice: A. 14.0%. B. 94.1%. C. 35.0%. D. 13.3%. Explanation Net operating income (a)$ 56,000Sales (b)$ 400,000Margin (a) ÷ (b)14.0%

14.0%

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 650,000 The return on investment (ROI) is closest to: Multiple Choice: A. 15.4%. B. 61.5%. C. 25.5%. D. 35.0%. Explanation Net operating income (a)$ 100,000Average operating assets (b)$ 650,000ROI (rounded) (a) ÷ (b)15.4%

15.4%

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 600,000 The return on investment (ROI) is closest to: Multiple Choice35.0%.16.7%.Correct66.7%.25.0%. Explanation Net operating income (a)$ 100,000Average operating assets (b)$ 600,000ROI (rounded) (a) ÷ (b)16.7%

16.7%

Assume a company reported the following results: Sales$ 400,000Variable expenses260,000Contribution margin140,000Fixed expenses40,000Net operating income$ 100,000Average operating assets$ 600,000 The margin is closest to: Multiple Choice: A. 16.7%. B. 25.0%. C. 35.0%. D. 66.7%. Explanation Net operating income (a)$ 100,000Sales (b)$ 400,000Margin (a) ÷ (b)25%

25.0%

Which of the following is a criticism of return on investment (ROI)? Multiple Choice: A. A manager can control margin, but is unable to control turnover even though it influences the calculation of ROI. B. A manager can control turnover, but is unable to control margin even though it influences the calculation of ROI. C. A manager who is evaluated using ROI may reject investment opportunities that lower her ROI even though the investment would be profitable for the company as a whole. D. A manager's non-operating assets are excluded from the calculation of ROI.

A manager who is evaluated using ROI may reject investment opportunities that lower her ROI even though the investment would be profitable for the company as a whole.

Which of the following is a criticism of return on investment (ROI)? Multiple Choice: A. A manager can control margin, but is unable to control turnover even though it influences the calculation of ROI. B. A manager's non-operating assets are excluded from the calculation of ROI. C. A manager can control turnover, but is unable to control margin even though it influences the calculation of ROI D. A manager who takes over a business segment usually inherits many committed costs that they cannot control, but that influence the calculation of ROI.

A manager who takes over a business segment usually inherits many committed costs that they cannot control, but that influence the calculation of ROI.

Which of the following statements is true? Multiple Choice: A. Assuming all else holds constant, if the average accounts receivable decreases, then the margin will decrease. B. Assuming all else holds constant, if the average accounts receivable decreases, then the turnover will increase. C. Assuming all else holds constant, if the average accounts receivable decreases, then the margin will increase. D. Assuming all else holds constant, if the average accounts receivable decreases, then the turnover will decrease.

Assuming all else holds constant, if the average accounts receivable decreases, then the turnover will increase.

Which of the following statements is true? Multiple Choice: A. Assuming all else holds constant, if the cost of goods sold increases, then the margin will increase. B. Assuming all else holds constant, if the cost of goods sold increases, then the turnover will decrease. C. Assuming all else holds constant, if the cost of goods sold increases, then the turnover will increase. D. Assuming all else holds constant, if the cost of goods sold increases, then the margin will decrease.

Assuming all else holds constant, if the cost of goods sold increases, then the margin will decrease.

Which of the following statements is true? Multiple Choice: A. Assuming all else holds constant, if the selling and administrative expense decreases, then the turnover will decrease. B. Assuming all else holds constant, if the selling and administrative expense decreases, then the margin will decrease. C. Assuming all else holds constant, if the selling and administrative expense decreases, then the margin will increase. D. Assuming all else holds constant, if the selling and administrative expense decreases, then the turnover will increase.

Assuming all else holds constant, if the selling and administrative expense decreases, then the margin will increase.

Which of the following statements is true? Multiple Choice: A. Increasing sales while holding expenses constant will increase margin. B. Increasing sales while holding average operating assets constant will decrease margin. C. Increasing sales while holding expenses constant will decrease margin. D. Increasing sales while holding average operating assets constant will increase margin.

Increasing sales while holding expenses constant will increase margin.

Return on investment (ROI) could be calculated using which of the following formulas? Multiple Choice: A. Margin × (Average operating assets ÷ Sales) B. Margin × (Sales ÷ Net operating income) C. Margin × (Net operating income ÷ Sales) D. Margin × (Sales ÷ Average operating assets)

Margin × (Sales ÷ Average operating assets)

Return on investment (ROI) is calculated using which of the following formulas? Multiple Choice: A. Margin ÷ Turnover B. Margin − Turnover C. Margin × Turnover D. Margin + Turnover

Margin × Turnover

Return on investment (ROI) is calculated using which of the following formulas? Multiple Choice: A. Net operating income ÷ Average operating assets B. Average net operating income ÷ Total assets C. Average operating assets ÷ Net operating income D. Total assets ÷ Average net operating income

Net operating income ÷ Average operating assets

Margin is calculated using which of the following formulas? Multiple Choice: A. Net operating income ÷ Sales B. Sales ÷ Average operating assets C. Average operating assets ÷ Sales D. Sales ÷ Net operating income

Net operating income ÷ Sales

Which of the following is the formula for computing residual income? Multiple Choice: A. Net operating income ÷ (Average operating assets ÷ Minimum required rate of return) B. Net operating income ÷ (Average operating assets × Minimum required rate of return) C. Net operating income − (Average operating assets ÷ Minimum required rate of return) D. Net operating income − (Average operating assets × Minimum required rate of return)

Net operating income − (Average operating assets × Minimum required rate of return)

Which of the following is the definition for residual income? Multiple Choice: A. The net operating income that a profit center earns above the minimum required return on its total current assets. B. The net operating income that an investment center earns above the minimum required return on its average operating assets. C. The net operating income that an investment center earns above the minimum required return on its total current assets. D. The net operating income that an investment center earns above the minimum required return on its total sales.

The net operating income that an investment center earns above the minimum required return on its average operating assets.

Return on investment (ROI) could be calculated using which of the following formulas? Multiple Choice: A. Turnover × (Net operating income ÷ Sales) B. Turnover × (Sales ÷ Net operating income) C. Turnover × (Average operating assets ÷ Sales) D. Turnover × (Sales ÷ Average operating assets)

Turnover × (Net operating income ÷ Sales)

A responsibility center is best described as: Multiple Choice: A. any financial sub-unit within an organization that has the responsibility to account for the performance of other organizational sub-units. B. any part of an organization whose manager has control over and is accountable for cost, profit, or investments. C. any part of an organization that has responsibility for optimizing customer service and satisfaction. D. any part of an organization that has responsibility for managing product and service quality.

any part of an organization whose manager has control over and is accountable for cost, profit, or investments.

A manager of an investment center is most likely to be evaluated using a: Multiple Choice: A. financial measure such as residual income B. set of financial ratios that focus on profit margins. C. variance analysis performance report. D. properly formatted segmented income statement.

financial measure such as residual income.

A manager of a profit center is most likely to be evaluated using a: Multiple Choice: A. variance analysis performance report. B. set of financial ratios that focus on margin and turnover. C. properly formatted segmented income statement. D. financial measure such as residual income.

properly formatted segmented income statement.