Accounting chapter 10

Net operating income is net incomes from normal operating activities, before other income, _______, and ______.

interest, taxes

True or false: Cost centers have no impact on revenue

false

Sales revenue / average invested assets =

investment turnover

The transfer pricing method that generally the most benefit to the seller is the ______ method.

market-price

Net operating income / sales revenue =

profit margin

In order to fully evaluate ROI, mangers should compute both ______ _______ and _______ turnover.

profit margin, 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

The amount that one division charges when it sells goods or services to another division of the same company is called a(n) _______ ______

transfer prices

The required rate of return is also known as the ______ rate

hurdle

Sales revenue / average invested assets = _______

Investment turnover

Three responsibilities of a profit center manager maybe include

1. controlling division costs 2. contract negotiations 3. involvement in strategic initiatives related to product success

Three assumptions on Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment which exceeds the company's 10% required rate of return. The division manager has a current ROI of 15%. Based on these facts, the ______.

1. division manager may not want to accept the project 2. division manager currently has a positive residual income 3. project should be accepted by the company because it increases residual income

Two true statements when calculating Return on Investment (ROI), net operating income

1. does not include interest expense 2. includes income from normal operations

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% $70,000/$350,000

Which type of manager has the ability to make purchase decisions regarding company assets?

Investment center managers only

The net operating income that an investment center earns above the amount required to earn that minimum required rate of return is _______

Residual income

Revenue center managers are evaluated primarily on their _______.

ability to meet sales good

The four groups of performance measures typically used in the balanced scorecard approach are financial, _________, _______, and ________.

customer, internal business process, and organization capacity

Residual income is equal to _______.

net operating income - (average invested assets x hurdle rate)

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

responsibility

Managers are given charge over a particular part of the business and are then evaluated based on performance in that area in ________.

responsibility accounting

Investment turnover x profit margin = _______

return on investment

Which two areas will reducing operating costs as a percentage of sales will increase ________

return on investment and profit margin

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

segment(ed) margin