Overview
Chapter 11 Quiz (Choose the best answer)
- The goals established by a responsibility center manager should be all of the following, EXCEPT:
- those that promote the long-term interests of the larger organization.
- independent of the other responsibility centers.
- Which of the following is the most appropriate measure used to evaluate the performance of an investment center?
- Costs relative to a budget.
- Profits relative to a budget.
- Return on investment relative to a budget.
- Revenues relative to a budget.
- Which of the following is FALSE regarding decentralization?
- Decision-making authority is delegated to frontline decision makers.
- Employees can identify customer tastes and requirements quickly.
- Decentralization is more suited to organizations in stable environments.
- Decentralized organizations are more adaptive.
- Which of the following is NOT one of the four main approaches to transfer pricing?
- Revenue based transfer pricing
- Market-based transfer pricing
- Administrative transfer pricing
- Negotiated transfer pricing
- Managers of revenue centers are least likely to control:
- sales price.
- mix of stock carried.
- promotional activities.
- purchase of capital equipment.
- Probably the most significant problem in applying the controllability principle is that:
- many revenues and costs are jointly earned.
- it applies only to very large responsibility centers.
- it is virtually impossible to determine the manager’s responsibilities.
- it applies only to very small responsibility centers.
- Braker Industries is a division of a major corporation. Data concerning the most recent year appears below:
Sales $17,340,000
Net Income $1,500,000
Investment $6,000,000
The division’s return on investment is closest to ____________. - 9%
- 25%
- 289%
- 400%
- Segment margin reports should be interpreted with caution for all of the following reasons EXCEPT:
- they may include an arbitrary allocation of common fixed costs.
- they reflect many assumptions that disguise underlying issues.
- they may rest on subjective revenue and cost allocation assumptions.
- the revenue figures reflect important assumptions and allocations that may be misleading.
- The biggest problem with cost-based transfer prices is:
- they require too much negotiation.
- they are very difficult to put in place.
- they are based on application of simple rules.
- there are too many cost possibilities and many will not provide the correct economic signal.
- If Manus Division’s income is 12% of sales, capital employed is $4,000,000, the cost of capital is 10%, and sales revenue is $10,000,000, then Manus Division’s residual income is:
- $800,000.
- $600,000.
- $520,000.
- $320,000.
Solutions to Chapter 11 Quiz
- d
- c
- c
- a
- d
- a
- b
- a
- d
- a
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