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Exam 14: Performance Evaluation for Decentralized Operations

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Question 41

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In a cost center, the manager has responsibility and authority for making decisions that affect:

A) only revenues.
B) both revenues and assets.
C) only costs.
D) both costs and revenues.

E) None of the above
F) B) and C)

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Question 42

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The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the revenues of that department.

A) True
B) False

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Question 43

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The profit margin, a component of the rate of return on investment, focuses on the profitability by indicating the rate of profit earned on each sales dollar.

The profit center income statement should include only those revenues and expenses that can be controlled by the manager.

In evaluating the profit center manager, the income from operations should be compared:

Materials used by Boone Company in producing Division C's product are currently purchased from outside suppliers at a cost of $20 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $17 per unit. A transfer price of $19 per unit is negotiated and 60,000 units of material are transferred, with no reduction in Division A's current sales. How much would Boone's total income from operations increase?

Division A of Purvis Company has a rate of return on investment of 15% and an investment turnover of 1.6. What is the profit margin?

Which of the following expenses incurred by a department store is an indirect expense?

The following financial information was summarized from the accounting records of Block Corporation for the current year ended December 31: The income from operations for the Hardware Division is:

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

The sales, income from operations, and invested assets for each division of Garner Company are as follows: $\begin{array}{llll}\text {Invested}&\text { Income from}\\\text { Assets } & \text { Operations } & \text { Sales } & \\\$ 2,500,000 & \$ 470,000 & \$ 3,000,000 & \text { Division } E \\2,400,000 & 430,000 & 3,600,000 & \text { Division F } \\3,000,000 & 560,000 & 6,000,000 & \text { Division C }\end{array}$ (a)Using the expanded expression, determine the profit margin, investment tumover, and rate of retum on investment for each division. Round to one decinal place. (b)Which division is (are) the most profitable as per dollar invested?

The budget for Department 5 of Plant M for the current month ending March 31 is as follows: $\begin{array}{ll}\$ 206,000 & \text { Materials } \\265,000 & \text { Factory wages } \\67,800 & \text { Stpervisory salaries } \\35,000 & \text { Depreciation of plant and equipment } \\22,500 & \text { Power and light } \\15,500 & \text { Insurance and property taxes } \\9,700 & \text { Maintenance }\end{array}$ During March, the costs incurred in Department 5 of Plant M were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456.

The manager of a profit center does not make decisions concerning the fixed assets invested in the center.

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

It is beneficial for related companies to negotiate a transfer price when the supplying company has unused capacity in its plant.

Businesses that are separated into two or more manageable units and in which managers have authority and responsibility for operations are said to be:

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Responsibility accounting reports for a profit center typically show:

A responsibility center in which the department manager has responsibility for and authority over costs in the department is termed a cost center.