 |
1 | |
Which of the following is not an advantage of decentralization? |
| | A) | Upper-level management is encouraged to concentrate on strategic decisions. |
| | B) | Managers are motivated to improve productivity. |
| | C) | Lower-level managers are able to take on less responsibility. |
| | D) | Performance evaluation is improved. |
|
|
2 | |
An organizational unit that controls identifiable revenue or expense items is called a(n): |
| | A) | responsibility center. |
| | B) | cost center. |
| | C) | profit center. |
| | D) | investment center. |
|
|
3 | |
Which of the following statements regarding a cost center is true? |
| | A) | A cost center generates revenues and incurs expenses. |
| | B) | A cost center measures capital investments. |
| | C) | A cost center is not responsible for expenses. |
| | D) | A cost center is not responsible for revenues. |
|
|
4 | |
Which of the following statements regarding a profit center is true? |
| | A) | A profit center generates revenues and incurs expenses. |
| | B) | A profit center measures capital investments. |
| | C) | A profit center is not responsible for expenses. |
| | D) | A profit center is not responsible for revenues. |
|
|
5 | |
Which of the following statements regarding an investment center is true? |
| | A) | An investment center is only responsible for revenues and expenses. |
| | B) | An investment center is only responsible for investments in marketable securities. |
| | C) | An investment center is only responsible for capital investments. |
| | D) | An investment center is responsible for revenues, expenses and capital investments. |
|
|
6 | |
Which of the following would not be found on a responsibility report for the sales manager? |
| | A) | Actual sales |
| | B) | President’s salary |
| | C) | Budgeted commissions expense |
| | D) | Sales price variance |
|
|
7 | |
When comparing a company’s responsibility reports for the manufacturing division (a level two responsibility center) and the production department (a level four responsibility center), it would be expected that: |
| | A) | the two responsibility reports are the same. |
| | B) | the responsibility report for the production department has a higher degree of summarization about the assembly line than does the responsibility report for the manufacturing division. |
| | C) | the responsibility report for the manufacturing division has a higher degree of summarization about the assembly line than does the responsibility report for the production department. |
| | D) | the responsibility report for the manufacturing division has more detail about the assembly line than does the responsibility report for the production department. |
|
|
8 | |
Responsibility reports highlight unusual items that managers can then analyze to aid in their control of the company’s operational goals and objectives. This form of management is referred to as: |
| | A) | management by objective. |
| | B) | management by exception. |
| | C) | management by benchmarking. |
| | D) | management control. |
|
|
9 | |
Under the controllability concept, managers should be evaluated based on revenues and costs over which they have: |
| | A) | some control. |
| | B) | absolute control. |
| | C) | predominant control. |
| | D) | ideal control. |
|
|
10 | |
Qualitative features of a responsibility report include all of the following except: |
| | A) | complex data. |
| | B) | variances. |
| | C) | relevant information. |
| | D) | timely information. |
|
|
11 | |
Many organizations use return on investment (ROI) to evaluate management performance. In computing ROI, companies consider: |
| | A) | net income. |
| | B) | controllability of the assets. |
| | C) | total assets listed on the general ledger. |
| | D) | total liabilities. |
|
|
12 | |
In computing ROI, companies use operating income and operating assets instead of using net income and total assets because: |
| | A) | net income and total assets are not performance measures. |
| | B) | total assets may include non-operating assets, which are not always under the control of the manager being evaluated. |
| | C) | managers can determine which items upon which they should be evaluated. |
| | D) | net income is a financial statement concept and cannot be used for analysis. |
|
|
13 | |
In computing ROI, what do most companies use as the valuation base for operating assets? |
| | A) | Historical cost |
| | B) | Replacement cost |
| | C) | Book value |
| | D) | Market value |
|
|
14 | |
The ROI calculation is impacted by all of the following factors except: |
| | A) | operating income. |
| | B) | contribution margin. |
| | C) | sales. |
| | D) | operating assets. |
|
|
15 | |
ROI may be improved by all of the following except: |
| | A) | increasing sales. |
| | B) | reducing expenses. |
| | C) | increasing the margin. |
| | D) | increasing the investment base. |
|
|
16 | |
Diggin Company reported the following information for 2006:
| Sales | $600,000 | | Net income | 280,000 | | Operating assets | 400,000 | | Margin | 10% |
What is Diggin Company’s ROI for 2006? |
| | A) | 6.67% |
| | B) | 7% |
| | C) | 15% |
| | D) | 70% |
|
|
17 | |
Munro Company reported the following information for 2006:
| Sales | $400,000 | | Contribution margin | 280,000 | | Operating income | 200,000 | | Turnover | .4 |
What is Munro Company’s ROI for 2006? |
| | A) | 20% |
| | B) | 28% |
| | C) | 56% |
| | D) | 80% |
|
|
18 | |
A situation in which a manager makes a decision which benefits him but which is not in the best interests of the company is referred to as: |
| | A) | residualization. |
| | B) | sub-decision making. |
| | C) | suboptimization. |
| | D) | secondary decision making. |
|
|
19 | |
Smith Company reported the following information for 2006:
| Sales | $450,000 | | Operating assets | 300,000 | | Operating income | 100,000 | | Desired ROI | 10% |
What is Smith Company’s residual income for 2006? |
| | A) | $10,000 |
| | B) | $45,000 |
| | C) | $70,000 |
| | D) | $255,000 |
|
|
20 | |
If the manager of the Rose Division were to accept the project, what would be the Rose Division’s new residual income? |
| | A) | $28,000 |
| | B) | $30,000 |
| | C) | $48,000 |
| | D) | $120,000 |
|
|
21 | |
If the manager of the Rose Division is evaluated based upon residual income, would he accept the project? |
| | A) | No, there is no change in residual income. |
| | B) | Yes, there is no change in residual income. |
| | C) | No, residual income decreases $2,000. |
| | D) | Yes, residual income increases $2,000. |
|
|
22 | |
If the Rose Division manager’s performance is based on ROI, would the manager of the Rose Division accept this project? |
| | A) | Yes, the Rose Division’s ROI will increase to 36%. |
| | B) | No, the Rose Division’s ROI will increase to 36%. |
| | C) | Yes, the Rose Division’s ROI will decrease to 24%. |
| | D) | No, the Rose Division’s ROI will decrease to 24%. |
|
|
23 | |
The price at which products or services are sold between corporate divisions is referred to by the purchasing division as a: |
| | A) | sales price. |
| | B) | sales cost. |
| | C) | transfer price. |
| | D) | transfer expense. |
|
|
24 | |
Which of the following approaches for establishing transfer prices is the preferred method? |
| | A) | Price based on negotiation |
| | B) | Price based on market forces |
| | C) | Price as centrally determined. |
| | D) | Price based on cost. |
|
|
25 | |
In setting a transfer price, the objective of each individual divisional manager is to: |
| | A) | maximize corporate revenue. |
| | B) | have the purchasing division pay the lowest possible price so that overall corporate costs will be as low as possible. |
| | C) | have the selling division charge a high price in order to increase corporate sales. |
| | D) | maximize the profitability of his or her own division. |
|