Chapter 10 Quiz Information

Managerial Accounting, 3e (Braun/Tietz)Chapter 10 Performance Evaluation 2014

1) There are two types of responsibility centers.Answer: FALSEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

2) Responsibility accounting performance reports compare budgets with actual results for each responsibility center.Answer: TRUEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

3) Goal congruence is a system for evaluating the performance of each responsibility center and its manager.Answer: FALSEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

4) A profit center is a responsibility center in which a manager is accountable for costs only.Answer: FALSEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

5) Product lines are generally considered profit centers.Answer: TRUEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

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6) Most companies consider divisions to be investment centers.Answer: TRUEDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

7) Management by exception directs management's attention to important differences between actual and budgeted amounts.Answer: TRUEDiff: 1LO: 10-1EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

8) Investigating significant variances from a budget to assign responsibility is an example of management by exception.Answer: TRUEDiff: 1LO: 10-1EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

9) Small companies tend to use decentralized decision making.Answer: FALSEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

10) Companies that decentralize split their operations into different divisions or operating units.Answer: TRUEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


11) Decentralization allows top management to concentrate on long-term strategic planning.Answer: TRUEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

12) Decentralization allows top management to hire workers with expert knowledge for each business unit.Answer: TRUEDiff: 2LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

13) Decentralization may duplicate a company's costs since each business unit may, for example, have its own purchasing department.Answer: TRUEDiff: 2LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

14) Goal incongruence frequently exists in decentralized organizations.Answer: TRUEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

15) Duplication of costs is a disadvantage of decentralized organizations.Answer: TRUEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


16) The accounting department for a convenience store chain is likely to be considered a cost center.Answer: TRUEDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

17) The local Burger King restaurant is likely to be considered to be a revenue center.Answer: FALSEDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

18) Goal congruence is more likely to be achieved at a centralized organization rather than a decentralized organization.Answer: TRUEDiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

19) In a(n) ________ center, managers are accountable for both revenues and costs.A) costB) profitC) equityD) investmentAnswer: BDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

20) All of the following are responsibility centers exceptA) cost center.B) profit center.C) investment center.D) equity center.Answer: DDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

21) A manager is only accountable for expenses in a(n) ________ center.A) cost B) revenueC) profitD) investment Answer: A


Diff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

22) The success of a(n) ________ is measured not only by its income, but also by relating that income to its invested capital.A) cost centerB) investment centerC) profit centerD) revenue centerAnswer: BDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

23) Management by ________ is the practice of directing executive attention to important deviations from budgeted amounts.A) controlB) objectiveC) exceptionD) analysisAnswer: CDiff: 1LO: 10-1EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


24) Which term below best fits "a part, segment, or subunit of a company whose manager is accountable for specified activities"?A) Operating budgetB) Master budgetC) Sensitivity analysis D) Responsibility centerAnswer: DDiff: 1LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

25) The human resources department for Kohl's Department Stores would most likely be classified as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: ADiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

26) Troy Company budgeted $12 million for customer service costs, but actually spent only $10 million. Which of the following statements is the best course of action for management to take in this instance?A) Management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.B) Because this $2 million variance is favorable, management does not need to investigate further. C) Management will investigate this $2 million unfavorable variance to try to identify and correct the problem.D) Management should not investigate every major variance, especially the unfavorable ones.Answer: ADiff: 1LO: 10-1EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


27) Information technology has made many tasks easier, but not all tasks. Which of the following tasks performed by managers requires more critical thinking skills than the others because it is not as dependent upon information technology?A) Sensitivity analysisB) Analyzing and investigating the root causes of variances in responsibility center reportsC) Rolling up individual units' budgets into the companywide budget D) Preparing responsibility center performance reports that identify variances between actual and budgeted revenues and costsAnswer: BDiff: 1LO: 10-1EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

28) Which of the following is a disadvantage of decentralization?A) Unit managers may not understand the big picture of the company.B) Management does not have time to concentrate on long-term strategic planning. C) Unit managers have decreased motivation and retention.D) Managers receive training and experience to allow advancement in the organization.Answer: ADiff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

29) The maintenance department at Continental Airlines is likely to be classified as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: ADiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


30) The security department for a department store chain is likely to be classified as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: ADiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

31) Lubrizol is a chemical company that specializes in producing lubricants. Lubrizol was acquired in 2011 for $9 billion by investment holding company Berkshire Hathaway. Lubrizol is likely to be classified as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: BDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

32) The reservations department for a car rental chain is likely to be classified as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: DDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


33) The convenience store owned by a national convenience store chain is likely to be classified as a(n)A) cost center.B) investment center.C) revenue center. D) profit center.Answer: DDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

34) An amusement park's games department which reports revenues and expenses is likely to be classified as a(n)A) profit center.B) investment center.C) cost center. D) revenue center.Answer: ADiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

35) The human resources department for a steel manufacturer is likely to be classified as a(n)A) investment center.B) cost center.C) profit center.D) revenue center.Answer: BDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

36) A potential disadvantage of decentralization is which of the following?A) BenchmarkingB) Provides trainingC) Provides feedbackD) Duplication of costsAnswer: DDiff: 2LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

37) A potential advantage of decentralization is which of the following?A) BenchmarkingB) Promotes goal congruence and coordinationC) Provides trainingD) Provides feedback


Answer: CDiff: 2LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

38) The Crest division of Procter & Gamble is most likely treated as a(n)A) investment center.B) cost center. C) profit center.D) revenue center.Answer: ADiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

39) Pizza Hut, a division of Yum! Brands, is most likely treated as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: BDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

40) The production line at Morningstar Farms is most likely treated as a(n)A) investment center. B) cost center.C) profit center.D) revenue center.Answer: BDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

41) Honda's East Liberty Auto Plant where Honda cars are built is most likely treated as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: ADiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


42) The central reservation office at MegaBus is most likely treated as a(n)A) cost center.B) investment center.C) revenue center.D) profit center. Answer: CDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

43) The regional sales department for Xerox copiers is most likely treated as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: DDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

44) A product line at PepsiCo (such as the Pepsi Max product line) is most likely treated as a(n)A) cost center.B) profit center.C) investment center. D) revenue center.Answer: BDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

45) The Corn Flakes product line at Kellogg is most likely treated as a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: CDiff: 2LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

46) The manager of the Northeast sales region at General Mills would be in charge of a(n)A) cost center.B) investment center.C) revenue center.D) profit center.Answer: CDiff: 1


LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

47) The subscription sales manager for The New York Times would be in charge of a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: DDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

48) The manager of the corporate division of Anthropologie (a retail clothing chain) would be in charge of a(n)A) investment center.B) cost center. C) profit center.D) revenue center.Answer: ADiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

49) The CEO of Banana Republic, a division of The Gap, Inc. would be in charge of a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: BDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

50) The manager of a local CVS drugstore would be in charge of a(n)A) cost center.B) investment center.C) revenue center. D) profit center.Answer: DDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

51) The store manager for the Dick's Sporting Goods location in Columbus, Ohio, is in charge of a(n)


A) cost center.B) investment center.C) profit center.D) revenue center.Answer: CDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

52) The manager of the accounting department at Adidas would be in charge of a(n)A) investment center. B) cost center.C) profit center.D) revenue center.Answer: BDiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

53) The manager of the truck maintenance department at FedEx would be in charge of a(n)A) cost center.B) investment center.C) profit center.D) revenue center.Answer: ADiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

54) The manager of the Walt Disney World Studios (a corporate division) would be in charge of a(n)A) investment center.B) cost center. C) profit center.D) revenue center.Answer: ADiff: 1LO: 10-1EOC: E10-17AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

55) Describe the four types of responsibility centers. Give a specific example of each of the four types of responsibility centers.Answer: 1. Cost center: In a cost center, managers are accountable for costs only. 2. Revenue center: In a revenue center, managers are accountable primarily for revenues. Many times, revenue centers are sales territories.3. Profit center: In a profit center, managers are accountable for both revenues and costs and, therefore, profits.


4. Investment center: In an investment center, managers are accountable for investments, revenues, and costs. Investment centers are generally large divisions of a corporation.

Student examples will vary. Diff: 2LO: 10-1EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


56) List and describe reasons why a company might choose to decentralize.Answer: 1. Frees top management's time─by delegating responsibility for daily operations to unit managers, top management can concentrate on long-term strategic planning and higher-level decisions that affect the entire company.2. Supports use of expert knowledge─decentralization allows top management to hire the expertise each business unit needs to excel in its specific operations. 3. Improves customer relations─unit managers focus on just one segment of the company; therefore, they can maintain close contact with important customers. 4. Provides training─decentralization also provides unit managers with training and experience necessary to become effective top managers. 5. Improves motivation and retention─empowering unit managers to make decisions increases managers' motivation and retention and improves job performance and satisfaction.Diff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

57) Discuss potential problems associated with decentralization.Answer: 1. Duplication of costs─decentralization may cause the company to duplicate certain costs or assets.2. Problems achieving goal congruence─goal congruence occurs when unit managers' goals align with top management's goals. Decentralized companies often struggle to achieve goal congruence. Unit managers may not fully understand the big picture of the company. Diff: 1LO: 10-1EOC: S10-3AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

58) Responsibility accounting performance reports capture the financial performance of cost, revenue and profit centers.Answer: TRUEDiff: 1LO: 10-2EOC: E1-18AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

59) A performance report compares expected revenues and expenses against budgeted figures for each responsibility center.Answer: FALSEDiff: 1LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

60) The difference between actual results and budgeted amounts is called decentralization.Answer: FALSEDiff: 2LO: 10-2


EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

61) Cost center performance reports typically focus on the static budget variance.Answer: FALSEDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

62) Management by exception is used to determine which variances to investigate.Answer: TRUEDiff: 2LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

63) Revenue center performance reports are reports that list variances.Answer: TRUEDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

64) Management by exception saves management time by dictating that managers pay attention to only unfavorable variances.Answer: FALSEDiff: 1LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

65) A profit center will show revenues and costs.Answer: TRUEDiff: 1LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

66) All favorable variances are investigated when using management by exception.Answer: FALSEDiff: 1LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

67) Which type of variance causes operating income to be lower than budgeted?A) Favorable varianceB) Neutral variance


C) Unfavorable varianceD) Reverse varianceAnswer: CDiff: 2LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

68) Management by exception would dictate that the manager investigate which of the following variances?A) Variances which are less than a certain dollar amount or percentageB) Variances which are greater than a certain dollar amount or percentageC) All unfavorable variancesD) All favorable and unfavorable variancesAnswer: BDiff: 2LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

69) The performance report for a ________ would typically include revenues and costs.A) cost centerB) sales centerC) profit centerD) revenue center Answer: CDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


70) A performance report for a ________ compares only actual revenues and budgeted revenues.A) revenue centerB) cost center C) investment centerD) All of the aboveAnswer: ADiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

71) With ________, managers look at the size of the variances between actual results and budgeted amounts in order to determine which variances should be investigated.A) management by varianceB) management by budgetC) management by decision D) management by exceptionAnswer: DDiff: 2LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

72) The ________ is the difference in dollars between amounts in the static budget and the flexible budget.A) flexible budget varianceB) static budget varianceC) sales volume varianceD) actual varianceAnswer: CDiff: 2LO: 10-2EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting


73) Which of the following causes the difference between amounts in the static budget and the flexible budget for a revenue center?A) The cost of salesB) The number of units sold differs from planned sales levelsC) The selling price per unit D) Both the selling price and the number of units soldAnswer: BDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

74) Favorable sales volume variance for revenues is caused by which of the following?A) Actual net income for the subunit is greater than budgeted net income.B) Actual sales in dollars are greater than the master budget sales in dollars.C) The flexible budget sales in dollars are greater than the static budget sales in dollars.D) Actual sales in dollars are less than the static budget sales in dollars.Answer: CDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

75) The performance evaluation of cost centers is typically based on which of the following?A) Sales volume varianceB) Flexible budget varianceC) Return on investment (ROI)D) Return on assets (ROA)Answer: BDiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

76) The performance evaluation of a profit center is typically based on itsA) flexible budget variance.B) static budget variance. C) return on investment.D) return on assets.Answer: ADiff: 2LO: 10-2EOC: E10-27AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

77) Rider Company had the following financial results for last month. Which type of responsibility center do these financial results reflect?

Gretzel SubunitActual Flexible

Budget

Flexible Budget

Variance% of Variance

(U or F)


(U or F)Direct materials $ 30,000 $ 28,000 $ 2,000 U 7.14% UDirect labor 15,000 14,000 1,000 U 7.14% UIndirect labor 25,000 22,000 3,000 U 13.64% UUtilities 12,000 10,000 2,000 U 20.0% UDepreciation 25,000 25,000 0 0Repairs andMaintenance 4,000 5,000 1,000 F 20.00% FTotal $111,000 $104,000 $ 7,000 U 6.73% U

A) Cost centerB) Profit centerC) Investment centerD) Revenue center Answer: ADiff: 3LO: 10-2EOC: E10-27AACSB: Analytical ThinkingLearning Outcome: Discuss responsibility accounting


78) Corbin Company had the following financial results for last month. What type of responsibility center do these financial results reflect?

One store ActualFlexible Budget

Flexible Budget

Variance(U or F)

% of Variance(U or F)

Revenues $220,000 $200,000 $ 20,000 F 10.00% FOperating Expenses 80,000 70,000 10,000 U 14.29% UIncome from operations before service dept. charges 140,000 130,000 10,000 F 7.69% FService department charges 40,000 40,000 0 0Income from operations 100,000 90,000 10,000 F 11.11% F

A) Revenue centerB) Investment center C) Profit centerD) Cost Answer: CDiff: 3LO: 10-2EOC: E10-27AACSB: Analytical ThinkingLearning Outcome: Discuss responsibility accounting

79) Elaina Company had the following financial results for last month. What type of responsibility center do these results reflect?

Selle Co. —Subunit XRevenue by Product Actual

FlexibleBudget

VarianceFlexibleBudget

SalesVolume

Variance

Static(Master)Budget

WD-40 $ 630,000 $ 10,000 F $ 620,000 $ 20,000 F $ 600,000WD-60 520,000 30,000 U 550,000 40,000 F 510,000WD-80 125,000 5,000 U 130,000 10,000 U 140,000QD-40 225,000 25,000 F 200,000 40,000 U 240,000QD-60 425,000 5,000 F 420,000 20,000 F 400,000Total $1,925,000 $ 5,000 F $1,920,000 $ 30,000 F $1,890,000

A) Profit center B) Revenue centerC) Investment centerD) Cost centerAnswer: BDiff: 3LO: 10-2EOC: E10-27AACSB: Analytical ThinkingLearning Outcome: Discuss responsibility accounting

80) The duties of an investment center manager are similar to those of a CFO.Answer: FALSEDiff: 2


LO: 10-3EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

81) The duties of an investment center manager are similar to those of a CEO.Answer: TRUEDiff: 2LO: 10-3EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

82) Companies evaluate investment center performance the way they evaluate profit center performance.Answer: FALSEDiff: 2LO: 10-3EOC: S10-1AACSB: Reflective ThinkingLearning Outcome: Discuss responsibility accounting

83) Return on Investment (ROI) is defined as operating income divided by current assets.Answer: FALSEDiff: 2LO: 10-3EOC: S10-7AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

84) The capital turnover is operating income divided by sales.Answer: FALSEDiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


85) Residual Income (RI) equals operating income less minimum acceptable income.Answer: TRUEDiff: 2LO: 10-3EOC: S10-9AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

86) Sales margin is a component of the Return on Investment (ROI) calculation.Answer: TRUEDiff: 2LO: 10-3EOC: E10-23AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

87) The weighted average cost of capital is a component of the Return on Investment (ROI) calculation.Answer: FALSEDiff: 2LO: 10-3EOC: E10-23AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

88) Total assets is used in the denominator when calculating ROI.Answer: TRUEDiff: 1LO: 10-3EOC: S10-7AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

89) Sales margin is calculated as operating income divided by sales.Answer: TRUEDiff: 1LO: 10-3EOC: S10-8AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


90) Capital turnover is calculated as operating income divided by total assets.Answer: FALSEDiff: 1LO: 10-3EOC: E10-23AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

91) The use of return on investment (ROI) as a performance measure may lead managers to reject projects that would be profitable for the company as a whole.Answer: TRUEDiff: 1LO: 10-3EOC: S10-7AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

92) Residual income is the difference between revenues and expenses.Answer: FALSEDiff: 1LO: 10-3EOC: S10-9AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

93) What will happen to return on investment (ROI) if current assets decrease while everything else remains the same?A) ROI will decrease.B) ROI will increase.C) ROI will not be affected.D) We cannot determine the direction of the effect from the information provided.Answer: BDiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


94) If selling and administrative expenses decrease while everything else remains the same, what will happen to return on investment (ROI)?A) ROI will decrease. B) ROI will increase.C) ROI will not be affected.D) We cannot determine the direction of the effect from the information provided.Answer: BDiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

95) If a company must decrease its selling price while all of the company's expenses remain constant, what will happen to return on investment (ROI)?A) ROI will decrease.B) ROI will increase. C) ROI will not be affected.D) We cannot determine the effect from the information provided.Answer: ADiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

96) Using ________ may cause a manager to reject a project that would be profitable for the company as a whole.A) operating income B) residual incomeC) ROID) EVAAnswer: CDiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


97) A manager can increase return on investment (ROI) by doing which of the following?A) Increase operating expenses B) Increase operating assetsC) Decrease salesD) Decrease operating expensesAnswer: DDiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

98) Which of the following financial performance measures can be used to compare potential projects of different sizes?A) ROIB) Residual incomeC) Sales revenueD) Operating incomeAnswer: ADiff: 2LO: 10-3EOC: E10-21AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


99) Assume the Air Conditioning division of the General Appliance Corporation had the following results last year (in thousands). Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%.

Sales $ 10,000,000Operating income 2,000,000Total assets 2,500000Current liabilities 820,000

What is the division's sales margin?A) 80.00%B) 32.80%C) 20.00%D) 400.00%Answer: CExplanation: C) Operating income $2,000,000/Sales $ 10,000,000 = 20%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the division's capital turnover?A) 5.00B) 4.00C) 1.25D) 3.05Answer: BExplanation: B) Sales $ 10,000,000/Total assets 2,500,000 = 4.00Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the division's Return on Investment (ROI)?A) 400.00%B) 20.00%C) 80.00%D) 32.80%Answer: CExplanation: C) Operating income 2,000,000/Total assets 2,500,000 = 80%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the division's Residual Income (RI)?A) $1,625,000B) $1,132,364C) $1,750,000D) $500,000Answer: AExplanation: A) Operating income 2,000,000 Less Minimum acceptable incomeTarget rate of return 15%Total assets × 2,500,000 (375,000)Residual Income 1,625,000Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


103) Ringo Corporation had the following results last year (in thousands). Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%.

Sales $ 20,000,000Operating income 4,000,000Total assets 8,000,000Current liabilities 4,820,000

What is the division's Return on Investment (ROI)?A) 500.00%B) 20.00%C) 50.00%D) 32.80%Answer: CExplanation: C) Operating income 4,000,000/Total assets 8,000,000 = 50%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

104) The Box Manufacturing Division of the Allied Paper Company reported the following results from the past year. Shareholders require a return of 7%. Management calculated a weighted-average cost of capital (WACC) of 5%. Allied's corporate tax rate is 30%.

Sales $ 700,000Operating income $175,000Total assets $1,500000Current liabilities 600,000

What is the division's sales margin?A) 25.00%B) 46.67%C) 11.67%D) 40.00%Answer: AExplanation: A) Operating income $175,000 / Sales $ 700,000 = 25%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the division's capital turnover?A) 0.47B) 4.00C) 8.57D) 2,50Answer: AExplanation: A) Sales $ 700,000 / Total assets 1,500,000 = 0.47Diff: 2LO: 10-3EOC: E10-21AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the division's Return on Investment (ROI)?A) 25.00%B) 11.67%C) 40.00%D) 46.67%Answer: BExplanation: B) Operating income 175,000 / Total assets 1,500,000 = 11.67%Diff: 2LO: 10-3EOC: E10-21AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the division's Residual Income (RI)?A) $70,000B) $77,500C) $100,000D) 126,000Answer: AExplanation: A) Operating income 175,000 Less Minimum acceptable incomeTarget rate of return 7%Total assets × 1,500,000 (105,000)Residual Income 70,000Diff: 2LO: 10-3EOC: E10-21AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


108) The Sunny Division of Miami Corporation reported the following results from the past year. Shareholders require a return of 10%. Management calculated a weighted-average cost of capital (WACC) of 5%. Sunny's corporate tax rate is 30%.


What is the division's Residual Income (RI)?A) $70,000B) $77,500C) $100,000D) $250,000Answer: CExplanation: C) Operating income 250,000 Less Minimum acceptable incomeTarget rate of return 10%Total assets × 1,500,000 (150,000)Residual Income 100,000Diff: 2LO: 10-3EOC: E10-21AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

109) Raymond Corporation has an ROI of 31%, total assets of $6,300,000, and current liabilities of $820,000. What is Raymond Corporation's operating income?A) $25,200B) $2,645,161C) $20,322,581D) $1,953,000Answer: DExplanation: D) Operating income = Total assets × Return on Investments1,953,000 = 6,300,000 × 31%Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


110) Camden Corporation has operating income of $87,000, a sales margin of 15%, and capital turnover of 2.5. The return on investment (ROI) for Camden Corporation would be closest toA) 6%.B) 38%.C) 107%.D) 2%.Answer: BExplanation: B)Operating income/Sales Margin = Sales

87,000/15% = 580,000 Sales/Capital Turnover = Total Assets

580,000/2.5 = 232,000Operating income/Total Assets = ROI

87,000/232,000 = 38%Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

111) Eagle Company has a sales margin of 15%, a target rate of return of 14%, and capital turnover of 2.5. Its operating income is $87,000. The sales in dollars for Eagle Company would be closest toA) $580,000.B) $34,800.C) $13,050.D) $217,500.Answer: AExplanation: A) Operating income $ 86,000Divide by Divided by

Sales margin

SalesDiff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


112) Reardon Enterprises has operating income of $90,000. Its return on investment (ROI) is 40%, while its target rate of return is 15%. The total assets of Reardon Enterprises would be closest toA) $36,000.B) $621,429.C) $225,000.D) $90,000.Answer: CExplanation: C) Operating Income/Total Assets = ROI$90,000/Total Assets = 40%$90,000/40% = $225,000Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

113) Fern Company has a target rate of return of 14%, an ROI of 38%, and capital turnover of 2.5. The sales margin for Fern Company would be closest to A) 6%.B) 15%.C) 95%.D) 35%.Answer: BExplanation: B) Capital Turnover = Sales/Total Assets2.5 = Sales/Total Assets2.5 Total Assets = SalesROI = Operating income/Total Assets38% = Operating income/Total Assets.38 Total Assets = Operating incomeSales margin = Operating income/SalesSales margin = .38 Total assets/2.5 Total assetsSales margin = .15Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


114) For the most recent year, Robin Company reports operating income of $650,000. Robin's sales margin is 10%, and capital turnover is 2.0.

What is Robin's return on investment (ROI)?A) 5%B) 1%C) 100%D) 20%Answer: DExplanation: D) ROI = sales margin × capital turnover20% = 10% × 2.0Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

115) Dove Incorporated has operating income of $650,000, a sales margin of 10%, and a capital turnover rate of 2.0. What amount would Dove report for sales?A) $1,300,000B) $6,500,000C) $65,000D) $325,000Answer: BExplanation: B) Operating income $ 650,000Divide by Divided by

Sales margin

SalesDiff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


116) What are the total assets reported by Sparrow Enterprises if operating income is $650,000, its return on investment (ROI) is 40%, and its target rate of return is 10%?A) $260,000B) $1,625,000C) $6,500,000D) $650,000Answer: BExplanation: B) Operating Income/Total Assets = ROI650,000/Total Assets = 40%650,000/40% = $1,625,000Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

117) Pigeon Forges' stakeholders require a 10% rate of return. The company currently has an ROI of 37% and a capital turnover of 2.0. What is Pigeon's sales margin? A) 74.3%B) 5.0%C) 18.5%D) 20.0%Answer: CExplanation: C) ROI = Sales Margin × Capital Turnover37% = Sales Margin × 2.018.5% = 37% / 2.0Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


118) Golden Corporation has operating income of $336,000, a sales margin of 16%, and capital turnover of 3.0. The return on investment (ROI) for Golden Corporation would be closest toA) 5%.B) 48%.C) 2%.D) 160%.Answer: BExplanation: B) Sales Margin × Capital Turnover = ROI16% × 3 = 48%Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

119) Kleeman Company has a sales margin of 16%, operating income of $336,000, and capital turnover of 3.0. The sales in dollars for Kleeman Company would be closest toA) $ 3,760.B) $ 12,000.C) $1,008,000.D) $2,100,000.Answer: DExplanation: D) Operating income $ 336,000Divide by Divide bySales margin 16%Sales $ 2,100,000

Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


120) Lewis Company has operating income of $336,000. Its return on investment (ROI) is 48%, while its target rate of return is 10%. The total assets of Lewis Company would be closest toA) $33,600.B) $3,360,000.C) $161,280.D) $700,000.Answer: DExplanation: D) ROI = Operating income/Total assetsTotal assets = Operating income/ROI= 336,000/48%= 700,000 Diff: 2LO: 10-3EOC: E10-22AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

121) Dagny Enterprises has a target rate of return of 10%, an ROI of 48%, and capital turnover of 3.0. The sales margin for Dagny Enterprises would be closest toA) 144%.B) 16%.C) 3%.D) 30%.Answer: BExplanation: B) Return on investment 48%Divide by Divide byCapital turnover 3Sales margin 16%



122) The Top Hat Division of Blandon's Fine Menswear had the following results last year (in thousands).

Sales $ 4,500,000Operating income $ 675,000Total assets $ 3,000,000Current liabilities $ 250,000

Management's target rate of return is 12% and the weighted average cost of capital is 9%.

What is the Top Hat Division's sales margin?A) 150.00%B) 22.50%C) 15.00%D) 5.56%Answer: CExplanation: C) Sales margin = Operating income/Sales= 675,000/4,500,000 = 15 %Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the Top Hat Division's capital turnover?A) 6.7B) 4.4C) 1.5D) 18.0Answer: CExplanation: C) Capital turnover = Sales/Total assets= 4,500,000/3,000,000= 1.5Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


Sales $ 4,500,000


Operating income $ 675,000Total assets $ 3,000,000Current liabilities $ 250,000


What is the Top Hat Division's Return on Investment (ROI)?A) 22.50%B) 15.00%C) 150.00%D) 5.56%Answer: AExplanation: A) ROI = Operating income/Total assets= 675,000/3,000,000= 22.5%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards





What is the Top Hat Division's Residual Income (RI)?A) $ 135,000B) $ 405,000C) $ 225,000D) $ 315,000Answer: DExplanation: D) Target Return = Total Assets × Required Return360,000 = 3,000,000 × 12%

Residual Income = Operating Income - Target Return315,000 = 675,000 - 360,000Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


126) Izzy Division of Marine Boats Corporation had the following results last year (in thousands).



What is the Izzy Division's Residual Income (RI)?A) $ 70,000B) $ 400,000C) $ 700,000D) $ 300,000Answer: DExplanation: D) Target Return = Total Assets × Required Return400,000 = 4,000,000 × 10%



127) Pendant Publishing reported the following results for its Textbook Division:

Sales $ 2,200,000Operating income $ 440,000Total assets $ 1,100,000Current liabilities $ 1,000,000

Pendant's target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%.

What is the Textbook Division's sales margin?A) 200.00%B) 20.00%C) 40.00%D) 45.45%Answer: BExplanation: B) Sales margin = Operating income / Sales20% = 440,000 / 2,200,000Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards





What is the Textbook Division's capital turnover?A) 2.2B) 2.5C) 5.0D) 2.0Answer: DExplanation: D) Capital turnover = Sales / Total assets2.0 = 2,200,000 / 1,100,000Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards





What is the Textbook Division's Return on Investment (ROI)?A) 20.00%B) 45.45%C) 40.00%D) 200.00%Answer: CExplanation: C) ROI = Operating income / Total assets40% = 440,000 / 1,100,000Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards





What is the Textbook Division's Residual Income (RI)?A) $275,000B) $276,000C) $330,000D) $110,000Answer: AExplanation: A) Target Return = Total Assets × Required Return165,000 = 1,100,000 × 15%



131) Rivera Publishing reported the following results for its Trade Paperback Division:


Rivera's target rate of return is 12% and the weighted average cost of capital is 10%.

What is the Trade Paperback Division's Return on Investment (ROI)?A) 20.00%B) 50.00%C) 40.00%D) 200.00%Answer: BDiff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

132) Selected financial data for The Portland Porcelain Works Coffee Mug Division is as follows:

Sales $ 2,300,000Operating income $ 414,000Total assets $ 718,750Current liabilities $ 180,000Target rate of return 10%Weighted average cost of capital 8%

What is The Portland Porcelain Works Coffee Mug Division sales margin?A) 57.60%B) 18.00%C) 320.00%D) 7.83%Answer: BExplanation: B) Sales margin = Operating income/Sales= 414,000/2,300,000= 18%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is The Portland Porcelain Works Coffee Mug Division capital turnover?A) 5.6B) 12.8C) 3.2D) 1.7Answer: CExplanation: C) Capital turnover = Sales/Total assets= 2,300,000/718,750= 3.2Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is The Portland Porcelain Works Coffee Mug Division return on investment?A) 57.60%B) 320.00%C) 18.00%D) 7.83%Answer: AExplanation: A) Return on investment = Operating income/Total assets= 414,000/718,750 = 57.60%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is The Portland Porcelain Works Coffee Mug Division residual income?A) $396,000B) $71,875C) $356,500D) $342,125Answer: DExplanation: D) Residual income = Operating income - (Target rate of return*Total assets)= 414,000 - (10% * 718,750)= 414,000 - 71,875= 342,125Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


136) The following data relates to Logan Electric and its Light Bulb Division.

Light Bulb Division sales $ 7,500,000Light Bulb Division operating income $ 750,000Light Bulb Division total assets $ 3,000,000Light Bulb Division current liabilities $ 550,000Corporate target rate of return 15%Corporate weighted average cost of capital 11%Corporate effective tax rate 35%

What is the Light Bulb Division's sales margin?A) 250%B) 10%C) 18.33%D) 25%Answer: BExplanation: B) Sales margin = Operating income/Sales= 750,000/7,500,000 = 10%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the Light Bulb Division's capital turnover?A) 10.0B) 4.0C) 2.5D) 5.5Answer: CExplanation: C) Capital turnover = Sales/Total assets= 7,500,000/3,000,000 = 2.5Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the Light Bulb Division's Return on Investment (ROI)?A) 25%B) 10%C) 250%D) 18.33%Answer: AExplanation: A) Return on investment = Operating income /Total assets= 750,000/3,000,000 = 25 %Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards




What is the Light Bulb Division's Residual Income (RI)?A) $(375,000)B) $420,000C) $218,000D) $300,000Answer: DExplanation: D) Residual income = Operating income - (Target rate of return × Total assets)= 750,000 - (15% × 3,000,000)= 750,000 - 450,000 = 300,000Diff: 3LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


140) The following data relates to Haven Corporation and its Northern Division.

Light Bulb Division sales $ 8,500,000Light Bulb Division operating income $ 950,000Light Bulb Division total assets $ 4,000,000Light Bulb Division current liabilities $ 750,000Corporate target rate of return 15%Corporate weighted average cost of capital 10%

What is the Northern Division's Residual Income (RI)?A) $600,000B) $950,000C) $400,000D) $350,000Answer: DExplanation: D) Residual income = Operating income - (Target rate of return × Total assets)= 950,000 - (15% × 4,000,000)= 950,000 - 600,000 = 350,000Diff: 3LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

141) The Pasta Division of Whole Grain Corporation had sales of $5,500,000 and operating income of $1,375,000 last year. The total assets of the Pasta Division were $2,750,000, while current liabilities were $330,000. Whole Grain Corporation's target rate of return is 12%, while its weighted average cost of capital is 8%. The effective tax rate for the company is 30%.

What is the Pasta Division's sales margin?A) 20.00%B) 25.00%C) 6.00%D) 50.00%Answer: BExplanation: B) Sales margin = Operating income/Sales= 1,375,000/5,500,000 = 25%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the Pasta Division's capital turnover?A) 4.0B) 5.0C) 16.7D) 2.0Answer: DExplanation: D) Capital turnover = Sales/Total assets= 5,500.000/2,750,000 = 2.0Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


What is the Pasta Division's Return on Investment (ROI)?A) 25.00%B) 6.00%C) 50.00%D) 200.00%Answer: CExplanation: C) Return on investment = Operating income/Total assets= 1,375,000/2,750,000 = 50%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the Pasta Division's Residual Income (RI)?A) $1,045,000B) $768,900C) $1,155,000D) $330,000Answer: AExplanation: A) Residual income = Operating income - (Target rate of return × Total assets)= 1,375,000 - (12% × 2,750,000) = 1,375,000 - 330,000 = 1,045,000Diff: 3LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

145) The Southern Division of Amelia Corporation had sales of $6,500,000 and operating income of $1,200,000 last year. The total assets of the Southern Division were $3,000,000, while current liabilities were $450,000. Amelia Corporation's target rate of return is 10%, while its weighted average cost of capital is 6%. The effective tax rate for the company is 30%.

What is the Southern Division's Return on Investment (ROI)?A) 25.00%B) 6.00%C) 40.00%D) 200.00%Answer: CExplanation: C) Return on investment = Operating income/Total assets= 1,200,000/3,000,000 = 40%Diff: 3LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


146) Selected financial data for the Photocopies Division of Elizabeth's Business Machines is as follows:

Sales $ 6,800,000Operating income $ 2,040,000Total assets $ 2,720,000Current liabilities $ 350,000Required rate of return 13%Weighted average cost of capital 8%

What is the Photocopier Division's sales margin?A) 250.00%B) 75.00%C) 5.15%D) 30.00%Answer: DExplanation: D) Sales margin = Operating income / Sales= 2,040,000 / 6,800,000 = 30%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the Photocopier Division's capital turnover?A) 3.3B) 2.5C) 19.4D) 1.3Answer: BExplanation: B) Capital turnover = Sales/Total assets= 6,800,000/2,720,000 = 2.5Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


Sales $ 6,800,000Operating income $ 2,040,000


Total assets $ 2,720,000Current liabilities $ 350,000Required rate of return 13%Weighted average cost of capital 8%

What is the Photocopier Division's return on investment?A) 5.15%B) 30.00%C) 75.00%D) 250.00%Answer: CExplanation: C) Return on investment = Operating income/Total assets= 2,040,000/2,720,000 = 75%Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards



What is the Photocopier Division's residual income?A) $1,686,400B) $353,600C) $1,156,000D) $1,690,000Answer: AExplanation: A) Residual income = Operating income - (target rate of return × Total assets)= 2,040,000 - (13% × 2,720,000)= 2,040,000 - 353,600 = 1,686,400Diff: 2LO: 10-3EOC: E10-23AACSB: Analytical ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

150) The Engine Division of The Cleveland Automotive Corporation had sales of $7,200,000 and operating income of $864,000 last year. The total assets of the Engine Division were $3,200,000 while current liabilities were $800,000. The Cleveland Automotive Corporation's target rate of return is 13% while its weighted average cost of capital is 9%. The effective tax rate for the company is 45%.

Required:


a. Calculate the sales margin.b. Calculate the capital turnover.c. Calculate the return on investment (ROI).d. Calculate the residual income.Answer: Part a:Operating income $ 864,000Divide by Divide bySales $ 7,200,000Sales margin 12.00%

Part b:Sales $ 7,200,000Divide by Divide byTotal assets $ 3,200,000Capital turnover 2.25

Part c:Operating income $ 864,000Divide by Divide byTotal assets $ 3,200,000Return on investment 27.00%

Part d:Total assets $ 3,200,000Target rate of return 13%Target return $ 416,000

Operating income $ 864,000Target return $ (416,000)Residual income $ 448,000


151) The Jazz Division of Heights Recording Corporation had the following results last year.

Sales $10,000,000Operating income $ 2,200,000Total assets $4,000,000Current liabilities $ 2,500,000

Management's target rate of return is 12% and the weighted average cost of capital is 9%. Its effective tax rate is 40%.

Required:

a. Calculate the return on investment (ROI).


b. Calculate the residual income.Answer: Part a:Operating income $ 2,200,000Divide by Divide byTotal assets $4,000,000Return on investment 55.00%

Part b:Total assets $4,000,000Target rate of return 12%Target return $ 480,000

Operating income $ 2,200,000Target return $ (480,000)Residual income $ 1,720,000


152) A flexible budget is a budget prepared for multiple volume levels.Answer: TRUEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


153) A flexible budget is a budget prepared for a different level of volume than that which was originally anticipated.Answer: TRUEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

154) Another name for a static budget is a flexible budget.Answer: FALSEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

155) In a flexible budget, total fixed costs do not change as production volume changes.Answer: TRUEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

156) The flexible budget total cost formula applies only to a specific relevant range.Answer: TRUEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

157) Flexible budgets are budgets that summarize cost and revenue information for a single volume level.Answer: FALSEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


158) Both the static budget and the flexible budget used for performance evaluation are developed before the period of actual production.Answer: FALSEDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

159) The difference between the actual revenues and expenses and the master budget is known as aA) capital budget variance.B) flexible budget variance.C) static budget variance.D) master budget variance.Answer: DDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

160) The ________ is best for managers to use in order to plan revenues and expenses at different sales volumes.A) flexible budgetB) capital budgetC) static budgetD) master budgetAnswer: ADiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

161) With regard to a static budget instead of a flexible budget, which of the following is true?A) A static budget is adjusted for changes in the level of sales activity.B) A static budget is a budget that stays the same from one period to the next.C) A static budget is prepared for only one level of sales activity.D) A static budget is also known as a fixed budget.Answer: CDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


162) The ________ is a budget based on multiple levels of projected sales or production.A) standard budget B) flexible budgetC) static budgetD) fixed budget Answer: BDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

163) With regard to flexible budgets, which of the following statements is true?A) They are prepared for one level of sales volume.B) Managers use them to help plan for uncertainties.C) They are prepared by the accounting department on an annual basis.D) They are designed to estimate revenues only.Answer: BDiff: 1LO: 10-4EOC: S10-15AACSB: Reflective ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


164) Summer Nights sells bottles of bug spray for $6.50 each. Variable costs are $3.00 per bottle, while fixed costs are $44,000 per month for volumes up to 30,000 bottles of spray and $54,000 per month for volumes above 30,000 bottles of spray. The flexible budget would reflect monthly operating income for 19,000 bottles of lotion and 24,000 bottles of lotion of what dollar amounts?A) $79,500 and $40,000, respectivelyB) $22,500 and $40,000, respectivelyC) $123,500 and $156,000, respectively D) $12,500 and $102,000, respectivelyAnswer: BExplanation: B) Flexible Budget Level 1 output Level 2 outputOutput units 19,000 24,000

Revenue $123,500 $156,000 (# of units × selling price) (19,000 × 6.50) (24,000 × 6.50)

Variable Costs $57,000 $72,000 (# of units × variable cost per unit) (19,000 × 3.00) (24,000 × 3.00)

Fixed expenses $44,000 $44,000 Total expenses $101,000 $116,000

(57,000 + 44,000) (72,000 + 44,000)

Operating income $22,500 $40,000(123,500 - 101,000) (156,000 - 116,000)

Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


165) A graph of a flexible budget formula reflects fixed costs of $45,000 per month and total costs of $100,000 at a volume of 5,000 units. Assuming the relevant range is 1,000 to 20,000 units, the graph would reflect total monthly costs at 15,000 units of what dollar amount?A) $210,000B) $100,000C) $345,000D) $165,000Answer: AExplanation: A) Total costs $100,000 Fixed costs $(45,000) Variable costs $55,000 Initial volume 5,000 Variable cost per unit 11 = 55,000 / 5,000

Variable cost per unit 11 Target units 15,000 Variable costs at target volume 165,000 = 15,000 × 11Fixed costs + 45,000 Total costs at target volume $210,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

166) Platz Company makes chairs. The budgeted selling price is $45 per chair, the variable rate is $15 per chair and budgeted fixed costs are $40,000 per month. What is the budgeted operating income for 3,200 chairs sold in a month?A) $88,000B) $96,000C) $56,000D) $144,000Answer: CExplanation: C) Revenue (# of units × selling price per unit) 3,200 × 45 = $144,000 Variable Costs (# of units × variable cost per unit) 3,200 × 15 = $48,000 Fixed costs $40,000 Total expenses 48,000 + 40,000 = $88,000 Operating income 144,000 - 88,000 = $56,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


167) Peddlin' Pete's Cycles sells its entry-level bicycles for $400 each. Its variable cost is $250 per bicycle. Fixed costs are $35,000 per month for volumes up to 1,200 bicycles. Above 1,200 bicycles, monthly fixed costs are $55,000. What is the budgeted operating income at a level of 900 bicycles per month?A) $100,000B) $135,000C) $325,000D) $ 80,000Answer: AExplanation: A) Revenue (# of units × selling price per unit) 900 × 400 = $360,000 Variable Costs (# of units × variable cost per unit) 900 × 250 = $225,000 Fixed expenses $35,000 Total expenses $260,000 = 225,000 + 35,000Operating income 360,000 - 260,000 = $100,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

168) Peddlin' Pete's Cycles sells its entry-level bicycles for $400 each. Its variable cost is $250 per bicycle. Fixed costs are $35,000 per month for volumes up to 1,200 bicycles. Above 1,200 bicycles, monthly fixed costs are $55,000. What is the budgeted operating income at a level of 1,300 bicycles per month?A) $195,000B) $465,000C) $140,000D) $160,000Answer: CExplanation: C) Revenue (# of units × selling price per unit) 1,300 × 400 = $520,000 Variable Costs (# of units × variable cost per unit) 1,300 × 250 = $325,000 Fixed expenses $55,000 Total expenses 325,000 + 55,000 = 380,000Operating income 520,000 - 380,000 = 140,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


169) Southern Instruments makes calculators for business applications. The budgeted selling price is $120 per calculator, the variable rate is $98 per calculator and budgeted fixed costs are $150,000 per month. What is the budgeted operating income for 15,000 calculators sold in a month?A) $330,000B) $1,620,000C) $1,800,000D) $180,000Answer: DExplanation: D) Revenue (# of units × selling price per unit) 15,000 × 120 = $1,800,000 Variable Costs (# of units × variable cost per unit) 15,000 × 98 = $1,470,000 Fixed costs $150,000 Total expenses 1,470,000 + 150,000 = $1,620,000 Operating income 1,800,000 - 1,620,000 = $180,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

170) Davis Corporation manufactures and sells portable radios. The radio sells for $35 per unit and its variable costs per unit are $30. Fixed costs are $64,000 per month for sales volumes up to 32,000 radios. If more than 32,000 radios are sold, the fixed costs will be $83,000. The flexible budget would reflect what monthly operating income for a sales volume of 41,000 radios?A) $141,000B) $122,000 C) $1,435,000D) $205,000Answer: BExplanation: B) Output units 41,000

Revenue (# of units × selling price) 41,000 × 35 =$1,435,000 Variable Costs (# of units × variable cost per unit) 41,000 × 30 = $1,230,000 Fixed expenses $83,000 Total expenses 1,230,000 + 83,000 = $1,313,000 Operating income 1,435,000 - 1,313,000 = $122,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


171) Sound Design sells its computer speakers for $115 per set. Its variable cost is $75 per set of speakers. Fixed costs are $80,000 per month for volumes up to 2,400 sets of speakers. Above 2,400 sets, monthly fixed costs are $115,000. What is the budgeted operating income (loss) at a sales level of 2,300 sets of speakers per month?A) Operating loss of $23,000B) Operating income of $92,000C) Operating income of $12,000D) Operating income of $184,500Answer: CExplanation: C) Revenue (# of units × selling price per unit) 2,300 × 115 =$264,500 Variable Costs (# of units × variable cost per unit) 2,300 × 75 = $172,500 Fixed expenses $80,000 Total expenses 172,500 + 80,000 = $252,500 Operating income 264,500 - 252,500 = $12,000Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

172) Sound Design sells its computer speakers for $115 per set. Its variable cost is $75 per set of speakers. Fixed costs are $80,000 per month for volumes up to 2,400 sets of speakers. Above 2,400 sets, monthly fixed costs are $115,000. What is the budgeted operating income (loss) at a sales level of 2,600 sets of speakers per month?A) Operating loss of $11,000B) Operating income of $104,000C) Operating income of $24,000D) Operating income of $184,000Answer: AExplanation: A) Revenue (# of units × selling price per unit) 2,600 × 115 =$299,000 Variable Costs (# of units × variable cost per unit) 2,600 × 75 = $195,000 Fixed expenses $115,000 Total expenses 195,000 + 115,000 = 310,000 Operating income 299,000 - 310,000 = (11,000)Diff: 2LO: 10-4EOC: E10-26AACSB: Analytical ThinkingLearning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets


173) Civic Corporation provided the following partially completed monthly flexible budget. Complete the flexible budget.

Answer:



174) Thomas Corporation sells a unit of its product for $12.00, resulting in a contribution margin of $7.00 per unit. Fixed costs are budgeted at $50,000 per quarter for volumes up to 12,000 units and $80,000 for volumes exceeding 12,000 units.

Prepare the flexible budget for the next quarter for volume levels of 11,000, 13,000, and 16,000 units.Answer: Sales revenue per unit $12.00Contribution margin per unit $7.00Variable expenses per unit $5.00

Level 1 Volume

Level 2 Volume

Level 3 Volume

Units 11,000 13,000 16,000Sales revenue (units × revenue per unit) $132,000 $156,000 $192,000Variable expenses (units × variable expenses per unit) $55,000 $65,000 $80,000Fixed expenses (if volume limit is exceeded then higher fixed expenses, if not exceeded then lower level of fixed expenses) $50,000 $80,000 $80,000Total expenses (variable expenses + fixed expenses) $105,00 $145,000 $160,000Operating income (Sales revenue - total expenses) $27,000 $11,000 $32,000



175) A company's flexible budget for 93,000 units of production showed sales of $300,000; variable costs of $150,000; and fixed costs of $90,000. What net operating income would you expect the company to earn if it produces and sells 98,000 units? (Assume 98,000 units is in the relevant range.)Answer: $68,065

Sales at flexible budget production level $300,000Flexible budget production level 93,000Sales price per unit $3.2258New level of sales 98,000Total sales at new level of sales $316,129

Variable costs $150,000Flexible budget production level 93,000Variable cost per unit $1.612New level of sales 98,000Total variable costs at new level of sales $158,0642

Total sales at new level of sales $316,129Total variable costs at new level of sales $158,065Fixed costs $90,000Net income at new level of sales $68,064


176) The balanced scorecard considers only financial performance measures.Answer: FALSEDiff: 1LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

177) Financial performance measures are known as lag indicators. A lag indicator is a performance measure that predicts future performance.Answer: FALSEDiff: 1LO: 10-5EOC: E10-29AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

178) Customer satisfaction, operational efficiency, and employee excellence are often measured as part of the balanced scorecard approach.Answer: TRUEDiff: 1LO: 10-5EOC: E10-30


AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

179) The ultimate purpose of the balanced scorecard is to give management a balanced view of the company's performance.Answer: TRUEDiff: 1LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

180) KPI in the Balanced Scorecard stands for Knowledge Profitability Index.Answer: FALSEDiff: 1LO: 10-5EOC: S10-13AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

181) Operations is one factor of the financial perspective of the Balanced Scorecard.Answer: FALSEDiff: 1LO: 10-5EOC: S10-13AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

182) All four perspectives must always be included on each individual company's balanced scorecard.Answer: FALSEDiff: 1LO: 10-5EOC: S10-13AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


183) The four perspectives of the balanced scorecard include all of the following exceptA) financial.B) customer.C) cost.D) learning and growth.Answer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

184) The number of on-time deliveries would be an example of measuring which perspective?A) CustomerB) Financial C) Internal businessD) Learning and growthAnswer: ADiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

185) Employee satisfaction would be an example of measuring which perspective?A) FinancialB) CustomerC) Learning and growthD) Internal business Answer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


186) The number of repeat customers would be an example of measuring which perspective?A) CustomerB) Financial C) Internal businessD) Learning and growthAnswer: ADiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

187) The number of new services offered during the period would be an example of measuring which perspective?A) FinancialB) CustomerC) Internal businessD) Learning and growthAnswer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

188) Company growth rates (compared to industry growth rates) would be an example of measuring which perspective?A) FinancialB) CustomerC) Internal businessD) Learning and growthAnswer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


189) The number of rework units would be an example of measuring which perspective?A) FinancialB) CustomerC) Internal businessD) Learning and growthAnswer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

190) The results of a customer survey about customer experiences with the company's services would be an example of measuring which perspective?A) FinancialB) CustomerC) Internal businessD) Learning and growthAnswer: BDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

191) Total hours of continuing professional education taken by employees would be an example of measuring which perspective?A) FinancialB) CustomerC) Internal businessD) Learning and growthAnswer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


192) The number of new products developed would be an example of measuring which perspective?A) FinancialB) CustomerC) Learning and growth D) Internal businessAnswer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

193) The percentage of market share would be an example of measuring which perspective?A) FinancialB) Internal business C) CustomerD) Learning and growthAnswer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

194) The percentage of products with schematics and detailed operating instructions available within the company's information system for use by customer service representatives would be an example of measuring which perspective?A) FinancialB) CustomerC) Learning and growth D) Internal businessAnswer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


195) The number of defects found during the manufacturing process would be an example of measuring which perspective?A) Internal businessB) CustomerC) FinancialD) Learning and growthAnswer: ADiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

196) The ________ approach recognizes that both financial and operational performance measures should be considered when evaluating company performance.A) financial and operational B) total C) completeD) balanced scorecardAnswer: DDiff: 1LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

197) The ________ perspective from the balanced scorecard helps managers answer the question, "How do we look to shareholders?"A) financial B) internal business C) customer D) learning and growth Answer: ADiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


198) The ________ from the balanced scorecard focuses on continuing to improve and create value.A) internal business perspective B) learning and growth perspectiveC) customer perspectiveD) financial perspectiveAnswer: BDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

199) The ________ from the balanced scorecard focuses on determining if customers are satisfied.A) internal business perspectiveB) learning and growth perspective C) customer perspectiveD) financial perspectiveAnswer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

200) The ________ from the balanced scorecard focuses on determining the company's "climate for action."A) internal business perspective B) learning and growth perspectiveC) customer perspectiveD) financial perspectiveAnswer: BDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


201) Return on investment and revenue growth would be examples ofA) internal business perspective. B) customer perspective.C) financial perspective.D) learning and growth perspective.Answer: CDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

202) The number of employee suggestions implemented and percentage of the sales force with access to real-time inventory levels would be examples of theA) financial perspective.B) learning and growth perspective.C) internal business perspective.D) customer perspective.Answer: BDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

203) The number of warranty claims would be an example of theA) financial perspective.B) customer perspective.C) learning and growth perspective. D) internal business perspective.Answer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


204) Customer satisfaction ratings would be an example of theA) customer perspective.B) financial perspective. C) internal business perspective.D) learning and growth perspective.Answer: ADiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

205) Cash flows from operations and gross margin growth would be examples of theA) customer perspective. B) financial perspective.C) internal business perspective.D) learning and growth perspective.Answer: BDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards

206) New product development time would be an example of theA) financial perspective.B) customer perspective.C) learning and growth perspective.D) internal business perspective.Answer: DDiff: 2LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


207) List the four areas of a balanced scorecard. Describe each area. Define "key performance indicator" (KPI). Give an example of a KPI for each balanced scorecard area

Answer: 1. Financial Perspective─The financial perspective helps managers answer the question, how do we look to shareholders? The ultimate goal of a company is to generate income for its owners. The financial perspective focuses management's attention on KPIs that assess financial objectives such as revenue growth and cost cutting. Some commonly used KPIs include sales revenue growth, gross margin growth, and return on investment.2. Customer Perspective─The customer perspective helps managers evaluate the question, how do customers see us? Customers are typically concerned with four specific product or service attributes: (1) the product's price, (2) the product's quality, (3) the sales service quality, and (4) the product's delivery time (the shorter the better). Some commonly used KPIs include average customer satisfaction rating, percentage market share, increase in number of customers, number of repeat customers, and rate of on-time deliveries.3. Internal Business Perspective─The internal business perspective helps managers address the question, at what business processes must we excel to satisfy customer and financial objectives? The answer to that question incorporates three factors: (1) innovation, (2) operations, and (3) post-sales service. In addition to customer satisfaction ratings, the customer perspective is often measured using KPIs such as number of new products developed, new product development time defect rate, manufacturing lead time, yield rate, number of warranty claims received, and average repair time. 4. Learning and Growth Perspective─The learning and growth perspective helps managers assess the question, can we continue to improve and create value? The learning and growth perspective focuses on three factors: (1) employee capabilities, (2) information system capabilities, and (3) the company's "climate for action." The learning and growth perspective measures employees' skills, knowledge, motivation, and empowerment. KPIs typically include hours of employee training, employee satisfaction, employee turnover, and number of employee suggestions implemented.

Note: Student examples may vary. Yes, it will varyDiff: 3LO: 10-5EOC: E10-30AACSB: Reflective ThinkingLearning Outcome: Discuss and calculate various performance measures used by management such as ROI, residual income, and balanced scorecards


Chapter 10 Quiz Information

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