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| 1 | |
The short-term financial performance of investment centers is evaluated using one or more measures that incorporate some measure of earnings and some measure of investment. In choosing from among the available alternatives, which of the following criteria can be used? |
| | A) | extent to which the measure motivates managers |
| | B) | whether the measure provides appropriate incentive for managers |
| | C) | extent to which the measure fairly rewards managers for the decisions they make |
| | D) | All of the above. |
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| 2 | |
Which of the following is NOT a method for developing or estimating the current market value of assets for purposes of calculating return on investment (ROI)? |
| | A) | Gross Book Value. |
| | B) | Replacement Cost. |
| | C) | Liquidation Value. |
| | D) | Economic Value Added. |
| | E) | Answers A and D are correct. |
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| 3 | |
Division A of the Hickory Company, which is considered an investment center for performance measurement purposes, has the following information pertaining to the current year: <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q3_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (9.0K)</a>]]>
The desired minimum rate of return for Division A is 15 percent.
What is the return on investment (ROI) for Division A? |
| | A) | 10% |
| | B) | 5% |
| | C) | 20% |
| | D) | 15% |
| | E) | None of the above |
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| 4 | |
Division A of the Hickory Company, which is considered an investment center for performance measurement purposes, has the following information pertaining to the current year: <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q4_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (9.0K)</a>]]>
The desired minimum rate of return for Division A is 15 percent.
What is Division A's return on sales (ROS)? |
| | A) | 5% |
| | B) | 10% |
| | C) | 15% |
| | D) | 20% |
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| 5 | |
Division A of the Hickory Company, which is considered an investment center for performance measurement purposes, has the following information pertaining to the current year:  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q5_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (9.0K)</a>]]>
The desired minimum rate of return for Division A is 15 percent.
What is the amount of assets attributable to Division A? |
| | A) | $125,000 |
| | B) | $250,000 |
| | C) | $500,000 |
| | D) | $1,000,000 |
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| 6 | |
Division A of the Hickory Company, which is considered an investment center for performance measurement purposes, has the following information pertaining to the current year:  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q6_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (9.0K)</a>]]>
The desired minimum rate of return for Division A is 15 percent.
The manager of Hickory is paid a bonus based on ROI. Would the manager likely invest in a project that has an estimated ROI of 18 percent? |
| | A) | Yes, because the project's ROI exceeds the desired minimum rate of return. |
| | B) | Yes, because the project's ROI is greater than the division's current ROI. |
| | C) | Yes, because the project's ROI is equal than the division's current ROI. |
| | D) | No, because the project's ROI is less than the division's current ROI. |
| | E) | No, because the project's ROI is greater than the division's current ROI. |
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| 7 | |
Division A of the Hickory Company, which is considered an investment center for performance measurement purposes, has the following information pertaining to the current year:  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q7_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (9.0K)</a>]]>
The desired minimum rate of return for Division A is 15 percent.
What is Division A's residual income (RI)? |
| | A) | ($12,500) |
| | B) | ($25,000) |
| | C) | ($100,000) |
| | D) | $75,000 |
| | E) | $12,500 |
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| 8 | |
Economic value added (EVA®) is: |
| | A) | another name for residual income (RI). |
| | B) | an estimate of a business unit's economic profit during a period. |
| | C) | an estimate of the current return on investment generated by a business unit. |
| | D) | defined as reported operating income less a divisional charge for assets. |
| | E) | estimated as NOPAT (i.e., after-tax cash operating income, after depreciation). |
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| 9 | |
The relationship between return on sales and asset turnover in the calculation of return on assets is: |
| | A) | linear. |
| | B) | curvilinear, downward sloping. |
| | C) | curvilinear, upward sloping |
| | D) | linear, upward sloping. |
| | E) | linear, downward sloping. |
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| 10 | |
Which of the following is a method for establishing a transfer price? |
| | A) | Variable-cost method. |
| | B) | Average price method. |
| | C) | Market cost method. |
| | D) | Split-cost method. |
| | E) | All of the above are transfer pricing methods. |
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| 11 | |
Which of the following is a key factor to consider in deciding whether to make internal transfers, and, if so, in setting the transfer price? |
| | A) | Is there an outside supplier? |
| | B) | Is the seller's variable cost less than the market price? |
| | C) | Is the selling unit operating at full capacity? |
| | D) | All of the above are key factors. |
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| 12 | |
Alpha Division has the following information pertaining to Product X that it currently transfers to the Beta Division. <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q12_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (12.0K)</a>]]>
Product X is currently selling for $50 in the marketplace.
What is transfer price per unit for Product X assuming that both Alpha and Beta agree to use variable product costs plus a 90 percent markup? |
| | A) | $60 |
| | B) | $38 |
| | C) | $42 |
| | D) | $30 |
| | E) | $20 |
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| 13 | |
Alpha Division has the following information pertaining to Product X that it currently transfers to the Beta Division. <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q13_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (12.0K)</a>]]>
Product X is currently selling for $50 in the marketplace.
What is the transfer price per unit for Product X assuming that both Alpha and Beta agree to use full product costs plus a 40 percent markup? |
| | A) | $60 |
| | B) | $38 |
| | C) | $42 |
| | D) | $30 |
| | E) | $20 |
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| 14 | |
Alpha Division has the following information pertaining to Product X that it currently transfers to the Beta Division. <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078025532/966416/Chap19_q14_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (12.0K)</a>]]>
Product X is currently selling for $50 in the marketplace.
What is transfer price per unit for Product X assuming that both Alpha and Beta agree to use the market price? |
| | A) | $50 |
| | B) | $38 |
| | C) | $42 |
| | D) | $30 |
| | E) | $20 |
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| 15 | |
Value creation in the New Economy means that performance measurement should focus on: |
| | A) | current assets. |
| | B) | long-lived assets. |
| | C) | total assets. |
| | D) | intangible assets. |
| | E) | all of the above. |
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