ACC 211 Final Ch 11

Term
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A _____ is a segment of a business whose manager is accountable for specific activities.
a.demographic center
b.customer segment
c.targeted market segment
d.responsibility center
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Terms in this set (18)
A _____ is a segment of a business whose manager is accountable for specific activities.
a.demographic center
b.customer segment
c.targeted market segment
d.responsibility center
d.responsibility center
Which of the following is a reason for a firm to decentralize?
a.Ease of gathering and using local information
b.High motivation of top-level management
c.Lack of competition in the market
d.Lack of training of segment managers
a.Ease of gathering and using local information
Which of the following statements is true of turnover?
a.It is also referred to as return on sales.
b.It is the portion of sales that is available for interest, taxes, and profit.
c.It is the ratio of operating income to sales.
d.It is the ratio of sales to average operating assets.
d.It is the ratio of sales to average operating assets.
Which of the following statements is true of turnover?
a.It is also referred to as return on sales.
b.It is the portion of sales that is available for interest, taxes, and profit.
c.It is the ratio of operating income to sales.
d.It is the ratio of sales to average operating assets.
d.It is the ratio of sales to average operating assets.
Following is the financial information of Optimum Solvers Inc. for the last financial year:Operating Income216,000Sales$2,160,000Average Operating Assets$720,000Calculate its margin ratio and turnover ratio.
a.Margin ratio is 11%; turnover ratio is 3
b.Margin ratio is 10%; turnover ratio is 4
c.Margin ratio is 10%; turnover ratio is 3
d.Margin ratio is 11%; turnover ratio is 4
c.Margin ratio is 10%; turnover ratio is 3

Margin = Operating Income / Sales = $216,000 / $2,160,000 = 0.10, or 10%
Turnover = Sales / Average Operating Assets = $2,160,000 / $720,000 = 3
Which of the following is an advantage of the return on investment (ROI) measure?
a.It is the best measure to compare the financial results of companies with similar capital structures.
b.It encourages managers to focus on operating asset efficiency.
c.It encourages focus on divisional profitability at the expense of profitability for the overall firm.
d.It is easy to manipulate the results using different inputs for computing ROI.
b.It encourages managers to focus on operating asset efficiency.
_____ is the ratio of operating income to sales.
a.Margin
b.Return on income (ROI)
c.Hurdle rate
d.Turnover
a.Margin
Following is the financial information of Aquazire Enterprises for the last financial year:Margin10%Turnover2.10Sales$508,000Average operating assets$347,000Calculate its return on investment (ROI).
a.19.00%
b.21.00%
c.20.00%
d.18.00%
b.21.00%

ROI = Margin × Turnover = 0.10 × 2.10 = 0.21, or 21.00%
Which of the following is a disadvantage of the return on investment (ROI) measure?
a.It encourages managers to focus on the short run at the expense of the long run.
b.It encourages managers to focus on the overall profitability of the firm at the expense of divisional profitability.
c.It encourages managers to mask inefficiencies within the various subdivisions with the overall profit margins.
d.It encourages top management to evaluate local managers' capabilities based on their profit targets.
a.It encourages managers to focus on the short run at the expense of the long run.
The following information relates to Fortunate Solutions Company:Sales$550,000Operating Income$48,000Beginning Assets$290,000Ending Assets$330,000Calculate the residual income if the company requires a minimum rate of return of 10%.
a.$21,000
b.$17,000
c.$19,000
d.$14,000
b.$17,000

Residual Income = Operating Income - (Minimum Rate of Return × Average Operating Assets) = $48,000 - (10% × $310,000*) = $17,000
Average Operating Assets = (Beginning Assets + Ending Assets) / 2 = ($290,000 + $330,000) / 2 = $310,000
Which of the following is true of residual income? a.If residual income is less than zero, then the division is earning less than the minimum required rate of return. b.If residual income is less than zero, then the division is earning more than the market rate of return. c.If residual income is less than zero, then the division is earning less than the market rate of return. d.If residual income is less than zero, then the division is earning more than the minimum required rate of return.a.If residual income is less than zero, then the division is earning less than the minimum required rate of return.Which of the following is an advantage of residual income? a.It is easy to compare performance of different investment centers as the level of investment differs. b.It encourages a short-run orientation like return on investment (ROI) resulting in long-run survival of a firm. c.It encourages managers to accept any project that earns a return that is above the minimum rate. d.It is an absolute measure of profitability as different investment centers have a constant level of investment.c.It encourages managers to accept any project that earns a return that is above the minimum rate.Which of the following statements is true of transfer pricing? a.It is mandatory for two divisions within a company to transfer at the price set by the management of the company. b.It includes internal transfers between two divisions of a company. c.It impacts only the selling division of a company and not the company as a whole. d.It impacts the profitability of the selling and buying divisions only if they are in different countries.b.It includes internal transfers between two divisions of a company.Which of the following statements is true of a negotiated transfer price? a.A negotiated transfer price results from the negotiation between the buying department and the top management. b.A negotiated transfer price results from the negotiation between the selling department and the top management. c.A negotiated transfer price allows the selling and buying divisions to share any cost savings resulting from avoided costs. d.A negotiated transfer price is useful in case an in-house division has to incur additional selling and distribution costs than external market participants.c.A negotiated transfer price allows the selling and buying divisions to share any cost savings resulting from avoided costs.AquaShine Inc. has a number of divisions, including the Beige Division, a producer of fabric, and the Purple Division, a fabric painting division. The cost per yard of the cloth manufactured by Beige Division of the AquaShine Inc. is as follows:Direct material$26Direct labor$7Variable overhead$3Fixed overhead$4Calculate the transfer price if the company allows transfer pricing at cost plus 10%. a.$40 b.$44 c.$47 d.$36b.$44 Transfer price = Full cost + (Full cost × 10%) = (Direct material + Direct labor + Variable overhead + Fixed overhead) + (10% × Full cost) = ($26 + $7 + $3 + $4) + [10% × ($26 + $7 + $3 + $4)] = $40 + (10% × $40) = $40 + $4 = $44Consider the following information for the manufacturing cell of Stripes Company:Maximum units produced in a quarter294,000 unitsActual units produced in a quarter252,000 unitsProductive hours in a quarter42,000 hoursCompute the theoretical velocity and the actual velocity in units per hour. a.Theoretical velocity is 6 units per hour, and actual velocity is 5 units per hour. b.Theoretical velocity is 7 units per hour, and actual velocity is 6 units per hour. c.Theoretical velocity is 6 units per hour, and actual velocity is 7 units per hour. d.Theoretical velocity is 7 units per hour, and actual velocity is 5 units per hour.b.Theoretical velocity is 7 units per hour, and actual velocity is 6 units per hour. Theoretical velocity = Maximum units produced in a quarter / Productive hours in a quarter = 294,000 units per quarter / 42,000 hours per quarter = 7 units per hour Actual velocity = Actual units produced in a quarter /Productive hours in a quarter = 252,000 units per quarter / 42,000 hours per quarter = 6 units per hourhe _____ perspective of the Balanced Scorecard management system defines and selects the market segments in which the company chooses to compete. a.customer b.learning and growth c.internal d.financiala.customerWhich of the following is true of the financial perspective of the Balanced Scorecard management system? a.It is the source of the capabilities that enable the accomplishment of the objectives of the Balance Scorecard system. b.It establishes long- and short-term financial performance objectives. c.Customer values, employee capabilities, and innovation process are its strategic themes. d.It is the source of the revenue component for financial objectives.b.It establishes long- and short-term financial performance objectives.