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Multiple Choice

This document contains a chapter about divisional performance measurement that includes multiple choice questions. It covers topics such as ROI, RI, transfer pricing, goal congruence, divisional profits, residual income, and how these metrics are calculated. The questions test understanding of how to evaluate divisional performance using various metrics like ROI, RI, profits, and residual income.

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Carlo Paras
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Download as DOCX, PDF, TXT or read online on Scribd
114 views

Multiple Choice

This document contains a chapter about divisional performance measurement that includes multiple choice questions. It covers topics such as ROI, RI, transfer pricing, goal congruence, divisional profits, residual income, and how these metrics are calculated. The questions test understanding of how to evaluate divisional performance using various metrics like ROI, RI, profits, and residual income.

Uploaded by

Carlo Paras
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 10: DIVISIONAL PERFORMANCE MEASUREMENT

Multiple Choice

c 1. Both ROI and RI can be used for performance evaluation of


a. cost centers.
b. profit centers.
c. investment centers.
d. all of the above.

b 2. The best transfer price is usually


a. actual cost plus a percentage markup.
b. a reliable market price.
c. budgeted full cost plus a percentage markup.
d. budgeted variable cost plus a percentage markup.

d 3. This year Division A made sales to Division B at a higher transfer price than was used last year. All other things equal, which of the
following is true?
a. A's profit this year should be about the same as last year.
b. B's profit this year should be about the same as last year.
c. The company's total profit should be higher this year than last year.
d. The company's total profit should be about the same this year as last year.

b 4. Goal congruence is especially relevant to all of the following EXCEPT


a. setting transfer prices for an artificial profit center.
b. quoting prices for outside customers of an investment center.
c. selecting costs to be included in performance reports.
d. setting transfer prices for an investment center.

d 5. For a division, ROI


a. is usually less than ROI for the company as a whole.
b. eliminates the distortion that cost allocation can produce in other measures of performance.
c. usually cannot be computed if divisional assets are valued at their replacement costs.
d. is a performance measure inferior, for some purposes, to residual income.

a 6. Divisional ROI is usually


a. higher than that for the company as a whole.
b. lower than that for an outside company operating in the same industry.
c. lower than return on sales for the division.
d. lower than that for the enterprise as a whole.

c 7. Divisional profits should


a. exclude revenues and expenses related to dealings with other divisions within the same enterprise.
b. be computed so that the total profits of all the divisions equals the total profit for the company.
c. be based on the principle of controllability.
d. be based on cash flows rather than accrual basis accounting.

c 8. Divisional profit
a. is computed in essentially the same way as is income for the company as a whole.
b. should include a deduction for an appropriate share of the company's common costs.
c. normally includes the results of intracompany sales.
d. is not affected by depreciation methods.

d 9. Using replacement costs for assets in computing ROI and RI


a. is prohibited because it violates generally accepted accounting principles.
b. will increase both ROI and RI for a division.
c. is unfair to divisional managers.
d. is less popular than the use of book values in those computations.

c 10. Using residual income for evaluating performance


a. penalizes managers whose segments have low ROIs.
b. penalizes managers of relatively large segments.
c. encourages managers to maximize dollars of profit after a required ROI has been achieved.
d. encourages managers to maximize ROI for the company.

c 11. Which item is usually NOT relevant to a decision by a divisional manager to reduce a transfer price to meet a price offered to another
division by an outside supplier?
a. Opportunity cost.
b. Variable manufacturing costs.
c. Fixed divisional overhead.
d. The price offered by the outside supplier.

c 12. Division A earns $6,000 on an investment of $36,000. On an investment of $84,000, Division B earns $12,000. Which of the following is
true?
a. Division A's profits are too low.
b. If there are further costs that are common to both divisions, the total company's ROI is probably greater than 15%.
c. If the minimum desired ROI is 10%, Division A's residual income is lower than that of Division B.
d. ROI for Division B is greater than ROI for Division A.

d 13. Which equation describes ROI? (I = investment, S = sales, and


N = income)
a. S/I
b. S/I x N
c. S/I x S/N
d. N/S x S/I

a 14. Which equation describes residual income? (I = investment, N = income, and K = minimum required ROI)
a. N - (K x I)
b. (K x I) - N
c. N/I - K
d. (K x I) - (N/I)

c 15. If Division C has a 10% return on sales, income of $10,000, and an investment turnover of 4 times, its sales are
a. $10,000.
b. $40,000.
c. $100,000.
d. $400,000.

b 16. If Division C has a 10% return on sales, income of $10,000, and an investment turnover of 4 times, divisional investment is
a. $10,000.
b. $25,000.
c. $40,000.

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