Chapter 12—Performance Evaluation and DecentralizationTRUE/FALSE 1. The practice of delegating decision-making authority to lower levels of management in a company is called centralization. ANS: F The practice of delegating decision-making authority to lower levels of management in a company is called decentralization. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. 2. In a decentralized company, overall profit margins can mask inefficiencies within the various subdivisions. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. 3. Decentralization is usually achieved by creating units called divisions. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. 4. A production department within the factory, such as assembly, is an example of a profit center. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 1 min. 5. In a decentralized company, central management is able to focus on strategic planning and decision making. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-26-Management Functions KEY: Bloom's: Comprehension NOT: 1 min. 6. Turnover is the most common measure of performance for an investment center. ANS: F Return on investment (ROI) is the most common measure of performance for an investment center. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 7. Return on investment (ROI) can be calculated by multiplying margin times turnover. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 8. Turnover is the ratio of sales to average operating assets. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 9. Decreasing inventories leads to a reduction in return on investment (ROI). ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. 10. Residual income is sometimes used to overcome the tendency of ROI to discourage investments that are profitable for the company, but that lower the division's ROI. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-33Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. 11. Unlike ROI, residual income does not encourage a short-run orientation. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 12. Economic value added (EVA) is similar to ROI in that it links net income to capital employed. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. 13. A key feature of economic value added (EVA) is that it emphasizes after-tax operating income and the actual cost of capital. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 14. Residual income is the difference between operating income and the product of the hurdle rate and the company's average operating assets. ANS: T Residual income is the difference between operating income and the minimum dollar return required on a company's operating assets: RI = operating income (minimum rate of return [hurdle rate] average operating assets) PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 15. In calculating residual income, the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 16. The use of residual income encourages managers to accept any project that earns above the minimum rate. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 17. The direct comparison of the performance of two different investment centers is difficult using residual income because residual income is an absolute measure. ANS: T Another problem with residual income is that, unlike ROI, it is an absolute measure of profitability. Thus, direct comparison of the performance of two different investment centers becomes difficult, since the level of investment may differ. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 18. Economic value added is just a specific way of calculating residual income. ANS: T A specific way of calculating residual income is economic value added. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 19. The net income reduced by the total annual cost of capital is equal to the economic value added. ANS: T Economic value added (EVA) is net income (operating income minus taxes) minus the total annual cost of capital. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 20. Basically, EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons). ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 21. Using EVA to calculate residual income, the dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed. ANS: T EVA is after-tax operating income minus the dollar cost of capital employed. The dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 22. In terms of operating income for the company as a whole, the transfer price set by the buying and selling divisions nets out. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. 23. If there is a competitive outside market for the transferred product, then the best transfer price is the cost-based transfer price. ANS: F If there is a competitive outside market for the transferred product, then the best transfer price is the market price. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. 30. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ANS: T OBJ: LO: 12-4 PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic . the buying division sets the ceiling (maximum possible transfer price) for the bargaining range. A transfer price is the price charged for a component by the selling division to the buying division of the same company. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. the selling division sets the ceiling (maximum possible transfer price) for the bargaining range.24. When the selling division can sell and the buying division can buy externally at the market price. 25. The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division. 29. Transfer pricing is a complex issue. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. 28. In negotiated transfer pricing. the company as a whole will be in the same position whether or not a market price transfer takes place internally. 27. In negotiated transfer pricing. 26. The selling division would never agree to a transfer price below its full manufacturing cost. 32. 31. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. When a product is transferred at market price. profit center d. it must be at cost. 2. A(n) ___________ is a responsibility center in which a manager is responsible only for sales. A(n) ___________ is a responsibility center in which a manager is responsible for revenues. ANS: T If there is a competitive outside market for the transferred product. costs.STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. investment center f. and investments. MATCHING Select the term from below to match with the correct statement. divisional managers' actions will simultaneously optimize divisional profits and firmwide profits. revenue center c. or revenues. the transfer will optimize both divisional and companywide profits. 3. and negotiated transfer prices. These transfer pricing policies include market price. a. cost-based transfer prices. . cost center e. ANS: F However. then the best transfer price is the market price. In such a case. The transfer pricing policy only requires that if the product is transferred. The manager of a(n) ___________ is evaluated on the basis of income. 33. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. decentralization 1. centralization b. The selling division is forced to transfer a product internally when a cost-based transfer pricing policy is set by top management. A(n) ___________ is a responsibility center in which a manager is responsible only for costs. 4. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 1 min. neither division is forced to transfer the product internally. Several transfer pricing policies are used in practice. 9. a.5. 7. 4. The ratio of sales to average operating assets. Turnover b. 8. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 1 min. 5. 7. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 1 min. 1. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ROI d. 8. ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 1 min. 9. The dollar difference between operating income and minimum required return on a company’s operating assets. 6. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 1 min. The ratio of operating income to sales. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 1 min. 3. Select the appropriate definition for each of the items listed below. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 1 min. Margin c. The practice of delegating decision-making authority to lower levels is __________. . 2. Residual income 6. The most common measure of performance for an investment center. 5. ________________ decision making allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility.COMPLETION 1. ANS: centralized PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-26-Management Functions KEY: Bloom's: Knowledge NOT: 2 min. ANS: responsibility center PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. decisions are made at the very top level. 6. 2. . ANS: divisions PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. In _______________ decision making. 3. A(n) ________________ is when a manager is responsible only for sales. When a manager is responsible for only costs it is known as a(n) _______________. 4. ANS: Decentralized PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-26-Management Functions KEY: Bloom's: Knowledge NOT: 2 min. A ____________________ is a segment of the business whose manager is accountable for specific sets of activities. ANS: cost center PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. Decentralization usually is achieved by creating units called ___________. and lower-level managers are charged with implementing these decisions. ANS: Operating income PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. _______________ indicate the minimum ROI necessary to accept an investment. ANS: investment center PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. An ______________________ is when a manager is responsible for revenues. 8. _________________ is found by dividing sales by average operating assets. ANS: Turnover PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min.ANS: revenue center PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. _____________________ refers to earnings before interest and taxes. 12. 7. 11. ANS: Margin PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. ANS: return on investment PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. investment centers are evaluated on the basis of __________________. . 10. 9. Typically. _____________ is the ratio of operating income to sales. costs and investments. ANS: transfer price PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 13. A _________________ is the price charged for a component by the selling division to the buying division of the same company. ANS: Balanced Scorecard . The ________________ is a strategic management system that defines a strategic-based responsibility accounting system. ANS: residual income PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. If there is a competitive outside market for the transferred product. ___________________ is after tax operating income minus the dollar cost of capital employed. then the best transfer price is the _____________. 16. ANS: Economic value added PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. 14. The difference between operating income and the minimum dollar return required on a company’s operating assets is the _______________.ANS: Hurdle rate PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. 17. 15. ANS: market price PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. d. performance evaluation. ANS: Single-loop feedback PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-25Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 20. The practice of delegating decision-making authority to the lower levels of management in a company is a. ANS: Customer value PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-25Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. b. where realization is what the customer receives and sacrifices is what is given up in return. decentralization. ANS: Double-loop feedback PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-25Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 18. . e. _________________ emphasizes only effectiveness of implementation. ________________ is the difference between realization and sacrifice. MULTIPLE CHOICE 1. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-26Management Functions KEY: Bloom's: Knowledge NOT: 2 min. 19.PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. c. ______________________ occurs whenever managers receive information about the effectiveness of strategy implementation as well as the validity of the assumptions underlying the strategy. authorization. centralization. hierarchy flattening. e. 3.2. All of these. profit center. d. c. revenue center. b. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. None of these. A responsibility center in which a manager is responsible for both revenues and costs is a(n) a. b. cost center. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-26Management Functions KEY: Bloom's: Comprehension NOT: 2 min. investment center. e. type of responsibility given to divisional manager d. Which of the following is a reason for decentralization? a. b. b. Ease of gathering and using local information. Training and motivating segment managers. investment center. Focusing of central management. 5. 4. A responsibility center in which a manager is responsible only for sales is a(n) a. geographical b. d. two or more of the other answers are correct e. . None of these. profit center. d. c. cost center. types of goods or services produced c. 6. Divisions in a decentralized company can be created along which of the following lines? a. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. cost center. revenue center. revenue center. Exposing segments to market forces. A responsibility center in which a manager is responsible only for costs is a(n) a. e. c. profit center. center not presented here. c. ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-26Management Functions KEY: Bloom's: Comprehension NOT: 2 min. A responsibility center in which a manager is responsible for revenues. d. investment center e. allows higher management to make all decisions. None of these. c. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-26-Management Functions KEY: Bloom's: Knowledge NOT: 2 min. A segment of Mega Inc. Decentralization is frequently chosen by companies because it a. None of these. b. 10. The decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility is a. c. b. optimal strategic accounting. 8. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. allows for training and motivation of local managers. 7. investment center. d. e. d. and investment is a(n) a. b.d. responsibility accounting. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-25Managerial Characteristics/Terminology KEY: Bloom's: Comprehension NOT: 2 min. The segment is most probably accounted for as a(n) a. protects segments of the company from competitive pressures. b. revenue center. e. The various models of blankets are produced in a single factory using stable technology. decentralization. controllable accounting. revenue center. . c. cost center. profit center. 9. e.. d. also located in the factory. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Knowledge NOT: 2 min. allows higher management to gather local information to make better decisions. cost center. None of these. None of these. profit center. allows the CEO to make all important decisions. cost. manufactures and sells blankets. They are sold by the sales department. c. e. investment center. c. Return on investment (ROI) is calculated as a. 11. 13. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental . c. the Western Division. (beginning operating assets + ending operating assets)/2. operating income/average operating assets. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. c. b. operating income/sales. d. operating income/sales. c. he decided against it because. e. However. The Western Division is most probably accounted for as a(n) a. e. b. average operating assets/operating income. e. e. operating income/average operating assets operating income/sales. JetSky Airways has three divisions. b. operating income/average operating assets. 12. revenue center. Turnover is calculated as a. Margin is calculated as a. d. d. (beginning operating assets + ending operating assets)/2. 14. cost center. (beginning operating assets + ending operating assets)/2. average operating assets/operating income. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Comprehension NOT: 3 min. d. investment center. although revenues would increase and the new planes would be less expensive to operate. b. the initial cost of the planes was quite large. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. None of these. sales/average operating assets. operating income/sales. the Eastern Division. sales/average operating assets. sales/average operating assets.ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-36-Budgeting and Responsibility KEY: Bloom's: Comprehension NOT: 3 min. average operating assets/operating income. profit center. The manager of the Western Division had wanted to purchase replacement airplanes for the division. and the Northern Division. and investment. Reject the investment if it returns an ROI equal to 15%. b. the efficient use of resources in generating income. . None of these. It can encourage managers to cut inventories and reduce overall investment. the relationship among sales. d. ANS: E PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 2 min. b. All of these. increasing sales. One step that would increase ROI (holding everything else constant) is a. 15. increasing costs. Reject the investment if it returns less than 15% ROI. c. increasing investment. c. c. operating asset efficiency. Accept the investment as long as its ROI is positive. It can encourage managers to focus on the long run at the expense of the short run. It can produce a narrow focus on divisional profitability at the expense of profitability for the overall firm. d. It can encourage managers to focus on cost cutting efforts. decreasing operating income. c. 16. Reject the investment if it returns more than 15% ROI.analysis KEY: Bloom's: Knowledge NOT: 2 min. cost efficiency. Division A had ROI of 15% last year. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 3 min. The manager of a division is displeased with the ROI of the division. e. e. The manager of Division A is considering an additional investment for the coming year. It can accomplish all of these disadvantages. Which of the following is a disadvantage of a focus on return on investment? a. ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 3 min. Accept the investment as long as it provides positive operating income. A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on a. b. 18. expenses. b. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 3 min. d. e. e. d. 17. What step will the manager likely choose to take? a. 000 $ 50. Shandling Company had operating income of $70. 600.000 12% 15% 20% If the asset base is decreased by $100. average assets of $100. Cannot be determined from this information.750) 0.5 = 0.000 = 0. c. 16. 0. 50% c.000.000. Beta Division had the following information: Asset base in Beta Division Operating income in Beta Division Cost of capital Target ROI Margin for Beta Division $400. 10% b. 20. 32% b.5%.0%. and turnover of 0. 40% ANS: A ROI = $10. 16% d. ANS: B SUPPORTING CALCULATIONS: $50.000/($400. Castor Company had income of $10.750. 21. 64% e.19. d. sales of $218.000 $100. 62.7% PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental .000) = 16. with no other changes.5.1 or 10% PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min.000.16 or 16% PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min. 25% d.000 and sales of $40. 100. b. ANS: C ROI = margin turnover = ($70.4% e.7%.000/$100.000/$218. What is Shandling's ROI? a.0%. 20% c. the return on investment of Beta Division will be a. What is Castor's ROI? a.000. 22. ANS: A SUPPORTING CALCULATIONS: [(0. b. remain the same. 25%. the ROI would a.0%.0%.30 5. c.10.8%. 238. ANS: C SUPPORTING CALCULATIONS: 4. the return on investment would be a.20 = 1. increase by 15%. 23. would increase by 56%.2 0. If the margin of 0. 25. b.30 1. ANS: A SUPPORTING CALCULATIONS: 1. b.5]/1. b. 23.0%.5 = 10% increase PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 3 min. decrease by 10%. c. the ROI would increase by a. d.2 and a margin of 0. If the operating asset turnover increased by 50% and the margin increased by 50%. 42. 100%.0 increased by 10%. If the National Division of American Products Company had a turnover ratio of 4.analysis KEY: Bloom's: Application NOT: 3 min. c. c. would increase by 20%. would decrease by 60%.3 stayed the same and the turnover ratio of 5.10 = . d. increase by 10%.42 or 42% PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 3 min. If the operating asset turnover ratio increased by 30% and the margin increased by 20%. 24. 420.5) 1. . 50%.56 or a 56% increase PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 3 min. cannot be determined. the divisional ROI a. d. c. It encourages managers of departments with high ROIs to invest in average ROI projects.26 c. 0.000 28. It discourages excessive investment in operating assets. 125%. a. rounding to two decimal places. ANS: A PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 2 min. It encourages myopic behavior. It encourages managers to pay careful attention to the relationships among sales. ANS: A PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 2 min. 26.50 e. Which of the following is not a disadvantage of the ROI performance measure? a.000 $390.000 $420. and investment.35 ANS: C Margin = $86.000 = 0.000/$225. All of these are disadvantages of the ROI measure. Refer to Figure 12-1. 27.50 1. It encourages cost efficiency. c. Calculate Dempsey's margin for last year. It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole. ANS: D SUPPORTING CALCULATIONS: 1. b. Figure 12-1.000 $225. Dempsey Company provided the following information for last year: Operating income Sales Beginning operating assets Ending operating assets $86. d.0 b. 0. 0.50 = 2. 2. b. 0.38 d.d.25 or 125% increase PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 3 min. d. It encourages managers to focus on the long run rather than the short run. expenses. Which of the following is not an advantage of ROI? a.38 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 . 0. c. Refer to Figure 12-1. e.000/(($420. c.15. Refer to Figure 12-1.000)/2) = 0.000 ANS: B .000 c. ANS: B ROI = $86.1 ? 17% 14% Division C $1.NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min.21.10. $420. What are the average operating assets for Division C? a. $410.000 $82. The following information pertains to the three divisions of Yang Company: Sales Net operating income Average operating assets Return on investment Margin Turnover Target ROI Division A Division B ? ? $48.000 $420.015 2. Dempsey's turnover ratio for last year was a.000)/2) = 0.000 + $390. Refer to Figure 12-5.56 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min. 0.000 + $390. b. $95.0.56. $82.000 d. e.32. 2.000 418.345.2 0. 0. b. 30. 2.46. 0.21 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min. d. 0. 0.0. 0. 29. Figure 12-5.000 b.000 ? 20% ? ? 8% 31. Dempsey's return on investment for last year was a. ANS: C Turnover = $225. 0.32. d.000 ? ? 15% 0.000/(($420.50. 20 c. The manager of Stock Division projects the following for next year: Sales $185. What is the turnover for Division C? a.250. 32.000/0.000/0.500 ANS: A Average operating assets Turnover PTS: NAT: STA: KEY: $82. 1.000 c. 34.200.000 d. $125.670 d.000 b.000 d.000/0.015 = $1. $18.000 = 3.20 = $410.28 b. Refer to Figure 12-5. $208.15 = $120. 3. Refer to Figure 12-5. Refer to Figure 12-5.20 = $410.333 ANS: C $18. $120.$82. $1.000/$410. What are the sales for Division B? a. $1. $420.000 b. 0. What are the average operating assets for Division B? a. $18.000 PTS: NAT: STA: KEY: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 3 min.28 times 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 3 min.000 $1.000/0.345.000 c.000 PTS: NAT: STA: KEY: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 2 min.200.000 ANS: B $18.000 . 6. Figure 12-2. 33.000 PTS: NAT: STA: KEY: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 3 min. Average investment for Stock Division will decrease if the project is accepted for investment.14)($375.(0.000 c.(0. What is the residual income for Stock Division without the additional investment? a.500 PTS: NAT: STA: KEY: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 2 min.200 e. residual income of the division will increase.000 . $40. None of these.000 + $6.000) .14)($375.000 b. Residual income is calculated as . 35.900 d. Refer to Figure 12-2. $4. ROI of the division will decrease.000 of additional income. ANS: OBJ: STA: KEY: D PTS: 1 DIF: Difficulty: Moderate LO: 12-2 | LO: 12-3 NAT: BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Comprehension NOT: 3 min. $7. e. 37.000 + $40. The residual income of the project is less than the residual income of the division without the project. $7. Which of the following statements is true? a. d. 36.500 ANS: E Residual income = $60.000 c. If the manager invests in the additional project. Refer to Figure 12-2. $6. $40. c.000 The manager can invest in an additional project that would require $40. $25. $6. What is the residual income for Stock Division with the additional project? a. $6.600 ANS: C Residual income = ($60.200 e. Refer to Figure 12-2. The company's minimum rate of return is 14%. b.000) = $7.000 investment in additional assets and would generate $6. $6.000 $375.000 b.600 d.900 PTS: NAT: STA: KEY: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 2 min.Operating income Operating assets $60.000) = $7. 38. If the manager invests in the additional project. therefore the project will be rejected. ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. d. economic value added (EVA). margin. ANS: D Basically. operating income/(ROI average operating assets).a. . average cost of capital. b. 39. Economic Value Added is residual income with the cost of capital equal to the firm's a. c. e. b. c. In calculating residual income. d. e. c. budgeted cost of capital. ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. turnover. b. 40. the variable set by top management is called the a. c. EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons). Which of the following is an absolute dollar measure rather than a percentage? a. operating income (ROI average operating assets). average operating assets. d. operating income. All of these. operating income (minimum rate of return average operating assets). average operating assets. The performance measure that uses after-tax operating income and the actual cost of capital employed is a. b. return on investment (ROI). (minimum rate of return average operating assets)/operating income. operating income/(minimum rate of return average operating assets). d. economic value added (EVA). standard cost of capital. ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. b. 42. residual income. operating income. residual income. actual cost of capital. 41. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. e. the actual percentage cost of capital multiplied by the average capital employed. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min. c.250. ANS: D Economic value added (EVA) is net income (operating income minus taxes) minus the total annual cost of capital. margin minus total annual cost of capital. 45. the actual percentage cost of capital multiplied by the total capital employed. the standard percentage cost of capital multiplied by the average capital employed. actual operating assets. 43.000 Division Y ? $25.2 15% What is the residual income for Division X? a.000 ? 0. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Knowledge NOT: 2 min.000 ? 20% 0.10 1. The following information pertains to the three divisions of Marlow Company: Sales Net operating income Average operating assets Return on investment Margin Turnover Target ROI Division X ? $36. operating income minus total annual cost of capital. Using Economic Value Added (EVA) to calculate residual income. the standard percentage cost of capital multiplied by the total capital employed. c. ANS: D EVA is after-tax operating income minus the dollar cost of capital employed.000 ? 15% ? ? 10% . 44. d. the cost of capital employed is a. The calculation of Economic Value Added is a. $36.05 ? 12% Division Z $1. The dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed. ANS: C The minimum rate of return is set by the company and is the same as the hurdle rate mentioned in the section on ROI. b. hurdle rate.000 $75. b. d. operating income minus taxes and the total annual cost of capital. d.000 $300.c. operating income minus average cost of capital. 000. internal transfers are always costly to the firm. b. it may impact on the taxes paid by the multinational company. ANS: D SUPPORTING CALCULATIONS: $560. d.000.000 ($300. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge . the lower the total costs. d.000. The Auto Division of Big Department Store had a net operating income of $560.000 0.000 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 3 min. a net asset base of $4. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min.000.b. Sales for the period totaled $3. The level of the transfer price can affect the overall company because a. None of these.000.000) PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 2 min.000. $360.12) = $80. $480. cost-based price. A price charged for a component by the selling division to the buying division of the same company is called a(n) a. $(36.000) ANS: C SUPPORTING CALCULATIONS: $36. b. transfer price.000. b.000) d. $45. 46. e.000 0. the higher the transfer price. e.000. c. c.000. $120. d.000 ($4. economic value added. 48. c. and a required rate of return of 12%.000 c. 47. The residual income for the period is a. $80.000. $(9. market price. the transfer price may be higher than the cost-based price.15) = $(9. the higher the operating income. the lower the transfer price. price set by central management.760 d. cost-based price. If there is a competitive outside market for the transferred product.200 + $300 + $150) 1. the floor of the bargaining range would most probably set at a. $585 c. ANS: E PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Comprehension NOT: 2 min. The standard unit costs for Engine Division are: Direct materials Direct labor Variable overhead Fixed overhead Market price per unit $ 600 1.NOT: 2 min. $2.925 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 3 min. market price. 51. c.30 = $2. e. b.730 What is the transfer price based on full cost plus a markup of 30%? a. c. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. variable cost of manufacturing. full manufacturing cost. If the selling division is operating at less than full capacity. e. 49. d. None of these. 50. $2. d. then the best transfer price is the a. b.200 300 150 2. These transfer pricing policies include . The Engine Division provides engines for the Tractor Division of a company. Several transfer pricing policies are used in practice. negotiated price. 52. $2.730 ANS: A SUPPORTING CALCULATIONS: ($600 + $1.925 b. manufacturing cost plus some percentage for profit. market price. average price of all products sold by the selling division. $1. revenue to Division 'A' and a cost to Division B.a. Pautner Company had the following historical accounting data per unit: .730 The engine department has excess capacity. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 2 min. transfer at market price. 53. cost-based transfer prices.200 300 150 2. transfer at cost. The transfer price is a.200 + $300) = $2. and negotiated transfer prices. c.350 b. All of these. ANS: D Several transfer pricing policies are used in practice. Division A produces a component and wants to sell it to Division B. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. $2. d. b. $300 c. The Engine Division provides engines for the Tractor Division of a company. b.100 ANS: D SUPPORTING CALCULATIONS: ($600 + $1. revenue to Division 'B' and a cost to Division A. These transfer pricing policies include market price. $900 d. What is the best transfer price to avoid transfer price problems? a. transfer at negotiated price.100 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 3 min. d. a cost to Division 'B' and no effect on Division A. 55. c. revenue to Division 'A' and no effect on Division B. 54. The standard unit costs for Engine Division are: Direct materials Direct labor Variable overhead Fixed overhead Market price per unit $ 600 1. 48. Mantra currently buys its boxes from an outside supplier for $1. Grey Inc.80 each (the same price that Centra receives). $0.00 ANS: A SUPPORTING CALCULATIONS: ($60 + $30 + $15 + $24) 1. $136. Centra. mandates that any transfers take place at full manufacturing cost.70 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 4 min.35 $0. Refer to Figure 12-3.000 boxes per year. $1. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 .70 b. $198.35 b. The minimum profit level accepted by the company is a markup of 30%. A second division.48 c. $167.000 boxes per year. What would be the transfer price if Centra transferred boxes to Mantra? a. The units also may be sold externally for $210 per unit.50 d. Cannot be determined from the information given. has many divisions that are evaluated on the basis of ROI. Mantra.60 $0. $1. Figure 12-3. One division. Centra incurs the following costs for one box: Direct materials Direct labor Variable overhead Fixed overhead Total $0.40 $0.Direct materials Direct labor Variable overhead Fixed overhead Variable selling expenses Fixed selling expenses $60 30 15 24 45 9 The units are normally transferred internally from Division A to Division B. $1.48 Centra has capacity to make 700. $129.90 c. makes boxes.13 $1. Assume that Grey Inc. 56. What would be the transfer price if Division X uses full cost plus markup? a. makes chocolates and needs 80. There were no beginning or ending inventories.90 ANS: B The cost-based transfer price is $1.30 = $167.00 d. e. Centra ANS: E As the seller.35 + $0. $1. Because Centra has excess capacity. Assume that Grey Inc.35. Centra b. $1. Centra sets the floor of the bargaining range. what is the floor of the bargaining range and which division sets it? a. Refer to Figure 12-3. Centra ANS: C As the buyer. Mantra d.35. Centra sets the minimum (floor) transfer price. Mantra d. If Centra and Mantra agree to transfer boxes. $1.48. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental . Assume that Grey Inc. $1. PTS: NAT: STA: KEY: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 BUSPROG: Analytic AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis Bloom's: Application NOT: 5 min. Mantra ANS: A As the seller. Assume that Grey Inc. It would be set at market price of $1.60 + $0. $1. $1. the floor is $1. $1. $1. $1.000 boxes. Mantra e. $1. $1. Mantra e. Centra is producing 600.80. If Centra and Mantra agree to transfer boxes.35.80.35. $1.80.80. Mantra sets the ceiling of the bargaining range. allows division managers to negotiate transfer price.80.35. Centra is producing 600. Centra b. Mantra e.48. Centra is producing 700. allows division managers to negotiate transfer price. Centra c. If Centra and Mantra agree to transfer boxes. Since Centra is producing at capacity and can sell all that it produces at the market price. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.000 boxes. Mantra d. what is the floor of the bargaining range and which division sets it? a. $1. Centra c. allows division managers to negotiate transfer price.35 ($0.40). 59. it would set the minimum transfer price at $1.80. 57. 58.35.80. $1.000 boxes. Refer to Figure 12-3.NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min. $1. what is the ceiling of the bargaining range and which division sets it? a.48.48. Centra b. Refer to Figure 12-3. Centra c. only plans to produce and sell 620.000 zippers per year. $1. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 4 min.38.000 zippers per year.70 Quinn has capacity to make 950. LeatherStuff e.500 b. $315. $2. Style b. LeatherStuff e. makes boots that use the zippers and needs 90.50 each (the same price that Style receives). Refer to Figure 12-4. $22. Style. 62.50.20 $0. Style incurs the following costs for one zipper: Direct materials Direct labor Variable overhead Fixed overhead Total $0.analysis KEY: Bloom's: Application NOT: 5 min.000 . Refer to Figure 12-4. LeatherStuff currently buys zippers from an outside supplier for $3. LeatherStuff c. makes zippers that are used in the manufacture of boots. $1. $3. Assume that Quinn allows negotiated transfer pricing. in this case. It is set at variable cost because Style has excess capacity. What is the floor of the bargaining range and which division sets it? a.50.70.50. One division.23 $0. $3. 60. Style. but due to a soft market. $2.70. $2.32 $2. Figure 12-4. Style d. Assume that Quinn allows negotiated transfer pricing.38.95 $1.70. $3. Style ANS: B LeatherStuff. Assume that Style and LeatherStuff have agreed on a transfer price of $3. Refer to Figure 12-4. as the buying division. Style d. What are the total cost savings for LeatherStuff? a.50.25. Style b.000 zippers next year. LeatherStuff. Quinn Inc.38. $1. Another division. sets the ceiling at market price. LeatherStuff c. Style ANS: E The floor is set by the selling division. $2. 61. has a number of divisions.38. $1. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 4 min.70. What is the ceiling of the bargaining range and which division sets it? a. $3. 000 e.50 x 90. cost information management.$124.38 x 90.000 = $292.000 = $124.000 = $315. $22. What is the total benefit for Quinn.000 Cost to LeatherStuff at $3. b. activity-based management.500 b. responsibility accounting.38) x 90. Inc. $292. What is the total benefit for Style? a.000 d. Refer to Figure 12-4.25 x 90. 65.800 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.500 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min. $69.000 ANS: A Previous cost to LeatherStuff = $3. d. 63.000 = $292. $169. The strategic management system that translates an organization's mission and strategy into operational objectives and performance measures is a.300 d.25.800 ANS: E Total benefit = ($3.200 = $168.500 = $22. .$1. $163.000 e. strategic accounting. $81. $168.000 ANS: C Revenue from components transferred = $3. $190.? a.000 e. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25.000 = $190.$292. $292.500 . $69.000 b. c. Assume that Style and LeatherStuff have agreed on a transfer price of $3.c.500 Cost to Style = $1.25 x 90. $81.500 c.000 . Refer to Figure 12-4.200 Benefit to Style = $292.50 .500 c. $243. 64. $292.500 Savings to LeatherStuff = $315.25 transfer price = $3.300 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.500 d. internal business process c. a. None of these. customer b. learning and growth d. customer . a. learning and growth b. customer b. learning and growth d. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 67. The Balanced Scorecard perspective that defines the customer and market segments in which the business unit will compete is the ____ perspective. 66. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. financial e. a. 68. a. internal business process c. internal business process c. The Balanced Scorecard perspective that describes the internal processes needed to provide value for customers and owners is the ____ perspective. The Balanced Scorecard perspective that defines the capabilities than an organization needs to create long-term growth and improvement is the ____ perspective. customer b. ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 69. None of these. internal business process c. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min.e. None of these. financial e. financial e. Balanced Scorecard. learning and growth d. The Balanced Scorecard perspective that describes the economic consequences of actions taken in the other three perspectives is the ____ perspective. responsiveness. The process value chain consists of a. and initiatives for each perspective of the Balanced Scorecard. customer value.d. design. value. satisfaction. and post-sales service. means of specifying objectives. innovation. financial e. 73. b. operations. and post-sales service. measures. target objectives. The difference between realization and sacrifice defines a. The number of units of output that can be produced in a given period of time is called a. set of linked objectives aimed at an overall goal. innovation. d. d. targets. . and selling. None of these. design. reliability. and objectives. 71. c. means of providing managers with information about the effectiveness of strategy implementation and the validity of the assumption underlying the strategy. d. strategic management system that defines a strategic-based responsibility accounting system. e. None of these. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 72. single-loop feedback. cycle time. ANS: A PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. b. operations. b. and value. e. production. c. 70. c. e. b. A testable strategy is defined as a a. satisfaction. ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. unit process time. c. None of these. ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 4 minutes b. processing time/total time.5(60 minutes)/6 problems = 90/6 = 15 minutes per problem PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 3 min. 90 minutes c. d. velocity. Shirley worked on her accounting homework for one and one half hours. Last night. cell conversion time. What is the cycle time for one problem? a. Last night. During that time. e. During that time.d. 4 per hour b. processing time/nonprocessing time. total time/processing time.67 per hour c. 15 minutes d. MCE (manufacturing cycle efficiency) is calculated using the following formula: a. 74. 75. total time/nonprocessing time.5 hours = 4 problems per hour PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 3 min. e. b. ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. Shirley worked on her accounting homework for one and one half hours. 15 per hour ANS: A Velocity = 6 problems/1. What is the velocity in problems per hour? a. she completed 6 problems. c. 10 per hour e. 10 minutes e. 6 minutes ANS: C Cycle time = 1. ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge NOT: 2 min. 6 per hour d. she completed 6 problems. . 76. nonprocessing time/processing time. 0. In order to speed things up.67% PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 3 min.5) = . PROBLEM 1.000 $165. 20. a patient scheduled for an operation spent about 1 hours waiting.000. What is the MCE? a.5 + 1 + 1. Porter Company makes children's board games. b. 37. 100%.5% e. moving 4 hours.5% PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 4 min. c. and 1. 78. 16.375 = 37. Pollux Company had the following income statement for last year: Sales Less: Cost of goods sold Gross margin Less: Selling & administrative expense Operating income Beginning assets were $565. e. 50% d.5/(1. ANS: A MCE = Processing Time/(Processing time + Move time + Inspection Time + Waiting Time) MCE = 2/(2 + 6 + 4) = 0. They found that on average. 25%. $360.1667 = 16.0%.000 and ending assets were $597.000 78. The Manufacturing Cycle Efficiency (MCE) for Porter Company is a.77. the nurses in charge studied how much time patients actually spent in various activities. d. 100% b. 20% ANS: D MCE = Processing Time/(Processing time + Move time + Inspection Time + Waiting Time) MCE = 1.600 $ 86.400 . The average operation takes 90 minutes. A Utah hospital decided to streamline its surgical suite operation.000 195. 60% c.67%. One popular game requires the following amounts of time: processing 2 hours. 33%.5 hours in moving from lab to x-ray to the operating room. waiting 6 hours. 08 2. C. Average operating assets = ($565. 3. margin is __________________ Turnover is __________________ and ROI is __________________.5 ROI = 0.000/$3.800.620 ROI = $86.000 using average operating assets of $1.000 = 0.000.600.5 = 0. what is ROI for Noble Company? ANS: A.400/$581.000 = 2. 2. C.000/$7. Noble Company has two divisions.000) = 0. the Domestic Division and the International Division.20 or 20% C.1 2.000/$2. the International Division earned $560.000 + $560. Expense $180. A.800. Margin = $560.5 = 0.000/$1.600.000.7% PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 10 min.000 97.000.000 = 2. D. ROI = ($360. Chase Company had the following income statement for last year: Sales Less: Cost of goods sold Gross margin Less: Selling & Admin.500 39.000.000 using average operating assets of $2.000)/($1. Last year.440.9% PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min. Margin = $360. If these are the only two divisions of Noble Company. What are average operating assets? What is margin? What is turnover? What is ROI? ANS: A.400/$360.000 + $597.25 or 25% B.000 Margin = $86.217 or 21.300 .5 ROI = 0.000 = 0.440.000 = 0. Last year.24 or 24% Turnover = $360.440. B.800.000 = 0. C. For the International Division.000. B. Sales for the Domestic Division were $3.000. margin is __________________ Turnover is __________________ and ROI is __________________.08 or 8% Turnover = $7.600.) A.149 or 14. B. D.(Carry computations out to three decimal places. the Domestic Division earned $360. For the Domestic Division.000)/2 = $581.000/$581.000 = 0.000 + $2.000.1 or 10% Turnover = $3. Sales for the International Division were $7.500 $ 82. 000 $725.000 $725.000 0.000 $800.0862 0.1875 0.000 = 0. What are the margin. turnover and ROI? C.500 C. Average operating assets = ($279. What would be the effect on margin.2 OBJ: LO: 12-2 .500.291666 1. B.6 0.625 ROI = 0. Average operating assets were $__________________. What would be the effect on margin. but the best estimate is the campaign would generate an additional $75. Given the following information for the Reardon Division: Asset base Sales Revenues Expenses $500.200/$180. D.000 $100.000 Margin = $43.200 Beginning assets were $279. Reardon has an option to make an additional investment that would add $100. turnover and ROI? ANS: Asset base Revenue Expenses Operating Income (Revenue Expense) Margin (Operating Income/Revenue) Turnover (Revenue/Asset Base) ROI (Operating Income/Asset Base) PTS: 1 DIF: Difficulty: Challenging A.500 $62.15 or 15% PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.500 B. It would generate an additional $50. Another option (independent of alternative B) for Reardon is to run an advertising campaign that would require additional advertising expenses of $37.000 $662.500 Required: A.000 $662.000 = 0.500 + $296. $600. Margin was __________________. $500.45 1. D. Return on investment was __________________%. and ROI for Reardon Division? B.500. C.1250 1.000 to the asset base. 4.125 0. A.000 $700. B.000/$288. ANS: A.000 $662.24 0.1452 0.500 $112.Operating income $ 43. turnover. C. Turnover was __________________.24 or 24% Turnover = $180.500)/2 = $288.000 in sales revenue and no additional expenses.000 of revenue.625 = 0.000 $775.500 and ending assets were $296. $500. $400.000. 5.04 or 4% F.000 $144.000.5 (H) ANS: A. .16 B = $2. 0.000 and actual cost of capital is 6%. the value of operating assets was $263.000 (E) (F) 10% Theta Division $ (G) $800.000 $51.000/G = 0.5 = .12 1. Monfett Manufacturing requires a minimum rate of return of 15%.000 $85. $144.12 1.000 PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 10 min.08 (C) 16% Delta Division $250. F = $250.000/D = 0. At the end of the year. Total capital employed equal $350.000/$250.000 At the beginning of the year.000 $304.000/$2.500.18 or 18% D = $100.000 0.000 C.NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 10 min. $400.0 D.08 A = $5.000 $316.000 = 2.000/B = 0. $10.500.200.000/$100.000.000 G = $1.000 = 2.000 $ (D) $10.5 times G.12 H.000 B. the value of operating assets was $336.000 0. Figure 12-7 Monfett Manufacturing earned operating income last year as shown in the following income statement: Sales Cost of goods sold Gross margin Selling and administrative expense Operating income Less: Income taxes (at 40%) Net income $620.000 = . Provide the missing data in the following situations: Sales Operating assets Net operating income Margin Turnover Return on investment Phi Division $ (A) $ (B) $400.000.000 $34.000 $219. E = $10. C = $5.10 E.000/A = 0. Average operating assets B. Refer to Figure 12-7.000)/2 = $299. Margin C. EVA = after-tax operating income .000 .500 = 2.500 B.000 + $336.6. Calculate the following: A.(15% x $299. Turnover = Sales/Average operating assets $620. 7.500) = $40.) ANS: A.000 .000/$299. Average operating assets = Beginning assets + ending assets/2 ($263.(6% x $350.000)/2 = $299. Calculate the following: A. EVA ANS: A.500 B.000 = . Refer to Figure 12-7.000 .075 Average operating assets = (Beginning assets + ending assets)/2 ($263.000/$620.(actual percentage cost of capital x total capital employed) $51.000) = $30. Return on investment (Carry computations out to two decimal places. Residual income = operating income .000 + $336.29 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.14 or 14% C. Turnover D.07 = 0. ROI = Margin x Turnover .07 D.(minimum rate of return x average operating assets) $85. Margin = Operating income/Sales $85. Residual income B.14 x 2. B. Last year.000.000 (0. residual income is __________________.500 = 0. Dixie Company has the following data for 2011: . Margin = $48.PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min. 10.000. The minimum rate of return for Jenkins Company is 12%.000 (0. average assets of $345. residual income is __________________.000. For the Okla Division. C. What is margin for the Southern Division? What is turnover for the Southern Division? What is ROI for the Southern Division? What is residual income for the Southern Division? ANS: A.000) = $20. D.300.000 Residual income = $66.500/$345.300/$241.000) = $80. the Okla Division and the Homa Division.000.000 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.000 = 0.14 or 14% Residual income = $48.2 or 20% Turnover = $241.000) = $6. The Southern Division of Jenkins Company had income of $48.09 $550.12 $550. C.000 and sales of $241.000 using average operating assets of $2.300 (0. For the Okla Division. D. Minimum required rate of return for Red Earth is 9%.20 0. C. the Homa Division earned $260.7 = 0.000 (0. B.09 $2.000) = $16.500.500 Residual income = $260. For the Homa Division. A. ANS: A.12 $2.000 using average operating assets of $550. the Okla Division earned $66.900 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-2 | LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min. B. A. residual income is __________________.000) = $0 Residual income = $260. residual income is __________________. C.000 (0.000. Red Earth Company has two divisions. D. Now assume that the minimum required rate of return for Red Earth is 12%.7 ROI = 0. 9. For the Homa Division. Last year. 8.12 $345. D. Residual income = $66. B. 000 $80.000 Division B: A.000 = 1.000 = 1. 11. Turnover ratio C. Turnover ratio = $300.000 0.90 1.25 C. Paige Inc.15($320. ROI = 0.60 .15($200. has a division that makes paint and another division that constructs subdivision houses. ROI D.10 1.000/$200.000 0. Margin ratio = $30.50 C. Residual income = $80.20 or 20% B.000 0. Margin ratio B.000 = .Sales Contribution margin Operating income Average operating assets Cost of capital Division A $400. Residual income = $30. Residual income E.20($200.10 or 10% B. ROI = 0.000 15% Dixie Company has a target ROI of 20%.000 $200.45 0.15 $4.25 = 25% D. The paint division incurs the following costs for one gallon of paint: Direct materials Direct labor Variable overhead Fixed overhead Total $1.000) = $32.000 $125. EVA = $30.20($320.000/$320.000) = $(10.000 0.000 E.000/$400. EVA ANS: Division A: A. EVA = $80.000) = $0 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 | LO: 12-3 NAT: BUSPROG: Analytic STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 10 min.000/$300.000) E.20 1. Margin ratio = $80.000 $30.000 $160.000 15% Division B $300.000 = .000) = $16.50 = 15% D. Turnover ratio = $400.000 $320. Required: Calculate the following amounts for each division: A.10 1. B.90 1.30 $3.00) 200.30 $5. The Construction Division currently buys 200.as a whole $__________________ ANS: A. calculate the amount by which each of the following will be better off with the transfer than without it.000 = $370.000 gallons per year.30 per gallon (the same price that the Paint Division receives). The minimum transfer price per gallon of paint is $__________________.45) 200.10 1.000 gallons of paint from an outside supplier for $5.000 gallons next year.60 The Paint Division can make 1. B.000 = $60. The Construction Division currently buys its paint from an outside supplier for $5.30 (market price) $3. this price is set by which of the two divisions? ANS: A.The Paint Division can make 1. $5.. The maximum transfer price per gallon of paint is $__________________. B. Paint Division $__________________ Construction Division $__________________ Paige Inc. 12. C. this price is set by which of the two divisions? The minimum transfer price per gallon of paint is $__________________.000 = $310.15 $4. construction division $5.000 gallons per year. Assume that the transfer takes place at $5 per gallon.20.000.45) 200. and expects to produce 800.000 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application . A. Paige Inc. $5.000. B.20 per gallon (the same price that the Paint Division receives).45 (variable cost per gallon) Paint Division benefit = ($5. has a division that makes paint and another division that constructs subdivisions. A. and is at capacity. = ($5.20.000 Construction Division benefit = ($5. C. paint division PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. The paint division incurs the following costs for one gallon of paint: Direct materials Direct labor Variable overhead Fixed overhead Total $1.00 $3.45 0. The maximum transfer price per gallon of paint is $__________________.000 Benefit to Paige Inc. Paige Inc.000 Required: Compute the transfer price for a chair leg using: A.20 per gallon (the same price that the Paint Division receives). and expects to produce 1. 1. 13. A.90 . has a division that makes paint and another division that constructs subdivisions. B. The maximum transfer price per gallon of paint is $__________________. $20 B. D. it doesn't matter since the appropriate transfer price is equal to the market price. B. The retail price of the legs is $20 per leg.20 (market price) No.000. C. ANS: A.000 gallons of paint from an outside supplier for $5.000 gallons per year.000. Each chair completed by the Finishing Division requires four legs.20 (market price) $5.000 + (0. C.25 $90. Production quantity and cost data for 2011 are as follows: Chair legs Direct materials Direct labor Overhead (25% is variable) 30. The only product of the Dear Division is chair legs that are used by the Finishing Division.60 The Paint Division can make 1. The Dear Division of Zimmer Company sells all of its output to the Finishing Division of the company.000 gallons next year. $5.90 1.45 0. 14. B. C. Does it matter whether or not the two divisions transfer? ANS: A. variable costs.15 $4.000 $ 90. The minimum transfer price per gallon of paint is $__________________.000 $ 90.000 + $90. variable product costs plus a fixed fee of 20%.20 [$135. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. market price.NOT: 10 min.000 $135. full cost plus 20% markup. The construction division currently buys 200.10 1. The paint division incurs the following costs for one gallon of paint: Direct materials Direct labor Variable overhead Fixed overhead Total $1.000 = $9.000)]/30. 60 D.50 per component.000 + (0. Required: A.000 = $8. The maximum transfer price is set by the buying division.10 PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. 15.000 + $90.000)]/30. what will be the transfer price? ANS: . Each year the ListenNow Division purchases component AZ in order to manufacture the MP3 players. What is the maximum transfer price? Which division sets it? B. The Delta Division can sell all of the components AZ it makes to outside companies for $6. the Delta Division can make up to 60. If the transfer takes place. including Delta Division and ListenNow Division. Suppose the company policy is that all transfer take place at full cost. [$135. What is the transfer price? ANS: A.000 component AZs per year.20 ($135. The ListenNow Division needs 18.000 components per year.000 + $90. The minimum transfer price is set by the selling division. 16. Required: A.000 + $90. Refer to Figure 12-8.10. The manager of the Delta Division has approached the manager of the ListenNow Division about selling component AZ to the ListenNow Division. The ListenNow Division owns and operates a line of MP3 players. in this case. B.50. Figure 12-8 Bostonian Inc.000)/30. Full cost transfer price = $3. The full product cost of component AZ is $3. in this case. Assume that the company policy is that all transfer prices are negotiated by the divisions involved. Refer to Figure 12-8. Which division sets the maximum transfer price? Which division sets the minimum transfer price? B.000 = $12. Currently it purchases this component from an outside supplier for $6.25 $90.C. 1. has a number of divisions. the ListenNow Division. What is the minimum transfer price? Which division sets it? C. the Delta Division.25 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. 50. B.500 + 13. B.50 18. set by the Delta Division. C.500 = $90. is $1.A. The ListenNow Division would not pay any more than $6. If the transfer takes place. the transfer price will be $6. The maximum transfer price.75. What is the change in operating income for the Delta Division? For the ListenNow Division? For Bostonian Inc. In this case.000 103.500 $ 13. it expects to produce and sell only 45.500 Company benefit = $76. The Delta Division incurs variable costs of $1. set by the ListenNow Division. The minimum transfer price.000 $ 76.50 18. 17.50 per component.000) Benefit $117. is $6.50. Benefit to Delta Division: Revenue ($5. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min.500 27. Required: A.50.50. The company policy is that all transfer prices are negotiated by the divisions involved.50 because that is the price it currently pays to outside suppliers.000 PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application .500 Benefit to ListenNow Division: Outside supplier ($6. The maximum transfer price. as a whole? ANS: A. set by the ListenNow Division. What is the maximum transfer price? Which division sets it? B.50 per component are relevant because the Delta Division has excess capacity. The minimum transfer price. Suppose that the two divisions agree on a transfer price of $5.75 18.50 each next year. This division is operating at capacity and can sell all that it makes to outside buyers for $6.50. What is the minimum transfer price? Which division sets it? C.000) Transfer price ($5. set by the Delta Division.000) Less: Variable cost ($1.000 components for $6. is $6. only variable costs of $1.50. Refer to Figure 12-8.000 components per year). C. is $6.000) Benefit $103.75 18. Although the Delta Division has been operating at capacity (60. 600 vacuums were actually manufactured. There are five employees who each work 170 hours per month.8333 or 83. Each month. The cell could make 7. D. Actual cycle time in minutes. B. but only 1. but the staff believes that system improvements could lead to the processing of as many as 1. Theoretical velocity per hour.400 = 20 minutes/vacuum Theoretical velocity = 2. B. Actual velocity per hour. C. D.33% PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. Theoretical cycle time = 800 (60 minutes)/2. 19.200 = 10 minutes/pager Theoretical velocity per hour = (60 minutes/1 hour)/(10 minutes/pager) = 6 pagers per hour Actual cycle time = 1. The First National Bank has a mortgage loan office with conversion cost of $73. Figure 12-6.200 pagers but only made 6. Actual velocity per hour. C. 18.700 per month. Calculate the following: A. Theoretical cycle time = 1. Actual cycle time in minutes.400 vacuums/800 hours = 3 vacuums per hour Actual cycle time = 800 (60 minutes)/1.000 = 12 minutes/pager Actual velocity = (60 minutes/1 hour)/(12 minutes/pager) = 5 pagers per hour MCE = 10/12 = 0.400 vacuums. D. Theoretical cycle time in minutes. B.200 hours of time available per quarter.000 during that time. Theoretical velocity per hour. The pager manufacturing cell has 1. E. MCE is __________________ % (round your answer two digits).020 loan applications were processed. Last month. ANS: A. E. the vacuum cleaner manufacturing cell has 800 hours of time available. ANS: A. C. 1.950 per month.200(60 minutes)/6.600 = 30 minutes/vacuum Actual velocity =1600 vacuums/800 hours = 2 vacuums per hour PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. During that time. D. . C.NOT: 5 min. B.200(60 minutes)/7. Calculate the following: A. Theoretical cycle time in minutes. the cell could have manufactured up to 2. Calculate the following: A.450 hours Required: A. B. How much more is the department spending per application than it should be if perfect efficiency could be attained? ANS: A. C. Marshal Company has the following data for one of its manufacturing plants: Maximum units produced in a quarter = 425.2 applications per hour Theoretical velocity = 60/30 = 2 applications per hour PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. 21. PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application NOT: 5 min. Actual conversion cost per unit. Theoretical conversion cost per unit. Conversion cost in minutes.45/minute 30 minutes/application = $43.700 = 30 minutes/application Actual velocity = 60/50 = 1. C.45 per minute Theoretical conversion cost per unit = $1. B. Refer to Figure 12-6. D. .50 per application Actual conversion cost per unit = $1. D. ANS: A. C.50) more per application than it should be. Actual velocity per hour. Actual cycle time = [5(170)(60)]/1.950/[5(170)(60)] = $1. Refer to Figure 12-6.000 units Actual units produced in a quarter = 354. Computer the theoretical cycle time (in minutes).20. Theoretical velocity per hour. B. Theoretical cycle time in minutes.020 = 50 minutes/application Theoretical cycle time = [5(170)(60)]/1. D.50 $43. Conversion cost = $73. B.45/minute 50 minutes/application = $72.500 units Productive hours in one quarter = 35.50 per application The department is spending $29 ($72. C. Actual cycle time in minutes. D. Calculate the following: A. 22. 450 hours x 60 minutes per hour)/425. Compute the theoretical velocity in units per hour. Compute the actual velocity in units per hour. What are the advantages and disadvantages of return on investment (ROI)? ANS: Three advantages of ROI are: 1. ESSAY You decide 1. ANS: A.500 units = 6. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-1 NAT: BUSPROG: Communication STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-26-Management Functions KEY: Bloom's: Comprehension NOT: 5 min. D. training and motivating segment managers and enhanced competition. ANS: In centralized decision making. Decentralized decision-making allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility. It encourages managers to focus on the relationship among sales. 2. Computer the actual cycle time (in minutes).00 minutes per unit B. 2. It encourages managers to focus on cost efficiency.450 hours x 60 minutes per hour)/354. (35. Companies will choose to decentralize for several reasons. C.00 minutes per unit C. 60 minutes per hour/6 minutes per unit = 10 units per hour PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application NOT: 5 min.B.000 units = 5. Explain the differences between centralized and decentralized decision making. expenses. and investment. Also list some of the reasons why a company would choose to decentralize. (35. focusing of central management on items such as strategic planning and decision making. exposing segments to market forces. These reasons include the ease of gathering and using local information. . 60 minutes per hour/5 minutes per unit = 12 units per hour D. It encourages managers to focus on operating asset efficiency. 3. decisions are made at the very top level. and lower level managers are charged with implementing these decisions. It can produce a narrow focus on divisional profitability at the expense of profitability for the overall firm. The net price on outside sales is $3. Vases sold outside incur the sales commission.50 The Florist Division of the company sells cut flowers and uses the glass vases. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-4 NAT: BUSPROG: Communication STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Comprehension NOT: 5 min. this commission would not be paid on internal transfers.30 0. 4. The Glass Division produces and sells 100. 3. How is EVA (Economic Value Added) different from standard residual income calculations? ANS: The key features of EVA are that it uses (1) after-tax operating profit. While the Glass Division is operating at capacity. and (2) the actual cost of capital. The Florist Division saves $0. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-3 NAT: BUSPROG: Communication STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 5 min. The Florist Division uses 10.20 0.000 glass vases per year and sells them on the outside market for $4 each. it will make more money by transferring internally since it will save the selling commission.000 vases per year and currently buys them from an outside supplier for $4 each.75 per vase. 5.15 1.00 $0. Describe the four perspectives of the Balanced Scorecard. 2.35 0. ANS: The four perspectives of the Balanced Scorecard are: . ANS: Yes.50 ($4. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-2 NAT: BUSPROG: Communication STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Comprehension NOT: 5 min.Two disadvantages of ROI are: 1.75) by agreeing to the transfer. It encourages managers to focus on the short run at the expense of the long run. The Glass Division of a company makes glass vases which have the following unit costs: Direct materials Direct labor Variable overhead Fixed overhead Selling commission $0.50).75. Standard residual income uses some minimum desired cost of capital.00 $3. this is a good deal for each division. but the transfer price is $3. Is this a good idea for each division? Explain. The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.25 per vase ($4. The financial perspective which describes the economic consequences of actions taken in the other three perspectives. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 12-5 NAT: BUSPROG: Communication STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Comprehension NOT: 5 min. The process perspective which describes the internal processes needed to provide value for customers and owners. The customer perspective which defines the customer and market segments in which the business unit will compete. The learning and growth (infrastructure) perspective which defines the capabilities that an organization needs to create long-term growth and improvement. .