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121. Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 60% b. 50% c. 30% d. 15% 122. Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 50% b. 40% c. 20% d. 10% 123. The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows: Project Investment Controllable Margin ROI Phoenix $120,000 $30,000 25% Chicago $540,000 $50,000 9.25% The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division’s ROI? a. Both the Phoenix and Chicago options b. Only the Phoenix option c. Only the Chicago option d. Neither the Phoenix nor the Chicago options 124. Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%. Sales $ 1,400,000 Controllable margin 160,000 Total average assets 4,000,000 Fixed costs 100,000 What is the ROI for the year? a. 4% b. 35% c. 6% d. 1.5% 125. Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project? a. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return. b. No, the return is less than the required rate of 9%. c. Yes, ROI still exceeds the cost of capital. d. No, ROI will decrease to 7%. 1 26. Grown Industries reported the following items for 2013: Income tax expense $ 60,000 Contribution margin 200,000 Controllable fixed costs 80,000 Interest expense 40,000 Total operating assets 650,000 How much is controllable margin? a. $200,000 b. $120,000 c. $60,000 d. $20,000 127. Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin’s average operating assets be when its return on investment is 10%? a. $600,000 b. $660,000 c. $400,000 d. $340,000 128. An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center’s average operating assets were $800,000. How much is the return on investment? a. 25% b. 175% c. 50% d. 75% 129. Rhein Manufacturing recorded operating data for its auto accessories division for the year. Sales $750,000 Contribution margin 150,000 Total direct fixed costs 90,000 Average total operating assets 400,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant? a. 45.0% b. 22.5% c. 15.0% d. 12.0% 130. The current controllable margin for Henry Division is $93,000. Its current operating assets are $300,000. The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000. If the equipment is purchased, what will happen to the return on investment for Henry Division? a. An increase of 16.1% b. A decrease of 13.3% c. A decrease of 3.3% d. A decrease of 7.2% \131. Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. Sales $1,000,000 Controllable margin 180,000 Total average assets 600,000 Fixed costs 60,000 How much is ROI for the year? a. 10% b. 17% c. 20% d. 30% 132. Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division? a. An increase of 0.5% b. A decrease of 0.5% c. A decrease of 3.5% d. It will remain unchanged. 133. Benet Division of United Refinery Company’s operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division’s ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project? a. No, since ROI will be lowered. b. Yes, since ROI will increase. c. Yes, since additional sales always mean more customers. d. No, since a loss will be incurred. 134. The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets? a. $150,000 b. $750,000 c. $2,400,000 d. $12,000 135. Naples, Inc. recorded operating data for its shoe division for the year. Sales $750,000 Contribution margin 135,000 Total fixed costs 90,000 Average total operating assets 300,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant? a. 25% b. 18% c. 45% d. 12% 136. A distinguishing characteristic of an investment center is that a. revenues are generated by selling and buying stocks and bonds. b. interest revenue is the major source of revenues. c. the profitability of the center is related to the funds invested in the center. d. it is a responsibility center which only generates revenues. 137. A measure frequently used to evaluate the performance of the manager of an investment center is a. the amount of profit generated. b. the rate of return on funds invested in the center. c. the percentage increase in profit over the previous year. d. departmental gross profit. 138. Return on investment is calculated by dividing a. contribution margin by sales. b. controllable margin by sales. c. contribution margin by average operating assets. d. controllable margin by average operating assets. 139. Which one of the following will not increase return on investment? a. Variable costs are increased b. An increase in sales c. Average operating assets are decreased d. Variable costs are decreased 140. If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period? a. 15% b. 25% c. 45% d. 60% 141. Which statement is true? a. An investment center is responsible for revenues and expenses, as well as earning a return on assets. b. An investment center is only responsible for its investments. c. An investment center is only responsible for revenues and expenses. d. A profit center is evaluated using contribution margin, while an investment center is evaluated using ROI. 142. The denominator in the formula for return on investment calculation is a. investment center controllable margin. b. dependent on the specific type of profit center. c. investment center average operating assets. d. sales for the period. 143. In the formula for ROI, idle plant assets are a. included in the calculation of controllable margin. b. included in the calculation of operating assets. c. excluded in the calculation of operating assets. d. excluded from total assets. 144. In computing ROI, land held for future use a. will hurt the performance measurement of an investment center’s manager. b. is important in evaluating the performance of a profit center manager. c. is included in the calculation of operating assets. d. is considered a nonoperating asset. 145. Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made: Project A – Annual controllable margin = $24,000, operating assets = $400,000 Project B – Annual controllable margin = $60,000,operating assets = $550,000 Which project should be funded? a. Both projects b. Project A c. Project B d. Neither project 146. If an investment center has a $90,000 controllable margin and $1,200,000 of sales, what average operating assets are needed to have a return on investment of 10%? a. $120,000 b. $210,000 c. $900,000 d. $1,200,000 147. Which of the following valuations of operating assets is not readily available from the accounting records? a. Cost b. Book value c. Market value d. Both cost and market value a148. The following information is available for Halle Department Stores: Average operating assets $600,000 Controllable margin 60,000 Contribution margin 150,000 Minimum rate of return 8% How much is Halle’s residual income? a. $102,000 b. $540,000 c. $12,000 d. $48,000 a149. What is the goal of residual income? a. To maximize the amount of costs which are controllable b. To maximize profits c. To maximize the total amount of residual income d. To maximize controllable margin a150. Which one of the following is a correct statement about residual income? a. Its goal is to maximize profits of an investment center. b. It is less effective for evaluating investment centers than ROI. c. It is the ratio of controllable margin to the minimum rate of return on average operating assets. d. It evaluates performance by comparing the return of an investment center with the company’s minimum rate of return. a151. Which one of the following does not impact the amount of residual income? a. Contribution margin b. Net income c. Sales d. Controllable costs a152. For what purpose do companies calculate residual income? a. To determine whether decentralization is possible or not b. To motivate managers through possible termination c. To evaluate management performance d. To measure company profits a153. Lew Co. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company’s operating assets total $800,000, and its required return is 10%. How much is the residual income? a. $120,000 b. $20,000 c. $80,000 d. $320,000 a154. Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income? a. $416,000 b. $84,000 c. $584,000 d. $512,000 a155. The performance of the manager of Ottawa Division is measured by residual income. Which of the following would decrease the manager’s performance measure? a. Decrease in required rate of return b. Increase in amount of return on investment desired c. Increase in sales d. Increase in contribution margin 156. Which of the following would notbe considered an aspect of budgetary control? a. It assists in the determination of differences between actual and planned results. b. It provides feedback value needed by management to see whether actual operations are on course. c. It assists management in controlling operations. d. It provides a guarantee for favorable results. 157. A static budget is usually appropriate in evaluating a manager’s effectiveness in controlling a. fixed manufacturing costs and fixed selling and administrative expenses. b. variable manufacturing costs and variable selling and administrative expenses. c. fixed manufacturing costs and variable selling and administrative expenses. d. variable manufacturing costs and fixed selling and administrative expenses. 158. A static budget report is appropriate for a. fixed manufacturing costs. b. fixed selling and administrative expenses. c. variable selling and administrative expenses. d. both fixed manufacturing costs and fixed selling and administrative expenses. =159. Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $4,000 unfavorable b. $4,000 favorable c. $12,000 unfavorable d. $16,000 favorable 160. To develop the flexible budget, management takes all of the following steps except identify the a. activity index and the relevant range of activity. b. variable costs and determine the budgeted variable cost per unit. c. fixed costs and determine the budgeted fixed cost per unit. d. All of these options are steps in developing the flexible budget.

121. Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the controllable margin was $600,000, the ROI was

a. 60%

b. 50%

c. 30%

d. 15%

122. Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI was

a. 50%

b. 40%

c. 20%

d. 10%

123. The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows:

Project Investment Controllable Margin ROI

Phoenix $120,000 $30,000 25%

Chicago $540,000 $50,000 9.25%

The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division’s ROI?

a. Both the Phoenix and Chicago options

b. Only the Phoenix option

c. Only the Chicago option

d. Neither the Phoenix nor the Chicago options

124. Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%.

Sales $ 1,400,000

Controllable margin 160,000

Total average assets 4,000,000

Fixed costs 100,000

What is the ROI for the year?

a. 4%

b. 35%

c. 6%

d. 1.5%

 

125. Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project?

a. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.

b. No, the return is less than the required rate of 9%.

c. Yes, ROI still exceeds the cost of capital.

d. No, ROI will decrease to 7%.

1 26. Grown Industries reported the following items for 2013:

Income tax expense $ 60,000

Contribution margin 200,000

Controllable fixed costs 80,000

Interest expense 40,000

Total operating assets 650,000

How much is controllable margin?

a. $200,000

b. $120,000

c. $60,000

d. $20,000

127. Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin’s average operating assets be when its return on investment is 10%?

a. $600,000

b. $660,000

c. $400,000

d. $340,000

128. An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center’s average operating assets were $800,000. How much is the return on investment?

a. 25%

b. 175%

c. 50%

d. 75%

 

129. Rhein Manufacturing recorded operating data for its auto accessories division for the year.

Sales $750,000

Contribution margin 150,000

Total direct fixed costs 90,000

Average total operating assets 400,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

a. 45.0%

b. 22.5%

c. 15.0%

d. 12.0%

130. The current controllable margin for Henry Division is $93,000. Its current operating assets are $300,000. The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000. If the equipment is purchased, what will happen to the return on investment for Henry Division?

a. An increase of 16.1%

b. A decrease of 13.3%

c. A decrease of 3.3%

d. A decrease of 7.2%

\131. Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%.

Sales $1,000,000

Controllable margin 180,000

Total average assets 600,000

Fixed costs 60,000

How much is ROI for the year?

a. 10%

b. 17%

c. 20%

d. 30%

132. Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?

a. An increase of 0.5%

b. A decrease of 0.5%

c. A decrease of 3.5%

d. It will remain unchanged.

 

133. Benet Division of United Refinery Company’s operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division’s ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

a. No, since ROI will be lowered.

b. Yes, since ROI will increase.

c. Yes, since additional sales always mean more customers.

d. No, since a loss will be incurred.

134. The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets?

a. $150,000

b. $750,000

c. $2,400,000

d. $12,000

135. Naples, Inc. recorded operating data for its shoe division for the year.

Sales $750,000

Contribution margin 135,000

Total fixed costs 90,000

Average total operating assets 300,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

a. 25%

b. 18%

c. 45%

d. 12%

136. A distinguishing characteristic of an investment center is that

a. revenues are generated by selling and buying stocks and bonds.

b. interest revenue is the major source of revenues.

c. the profitability of the center is related to the funds invested in the center.

d. it is a responsibility center which only generates revenues.

137. A measure frequently used to evaluate the performance of the manager of an investment center is

a. the amount of profit generated.

b. the rate of return on funds invested in the center.

c. the percentage increase in profit over the previous year.

d. departmental gross profit.

 

138. Return on investment is calculated by dividing

a. contribution margin by sales.

b. controllable margin by sales.

c. contribution margin by average operating assets.

d. controllable margin by average operating assets.

139. Which one of the following will not increase return on investment?

a. Variable costs are increased

b. An increase in sales

c. Average operating assets are decreased

d. Variable costs are decreased

140. If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?

a. 15%

b. 25%

c. 45%

d. 60%

141. Which statement is true?

a. An investment center is responsible for revenues and expenses, as well as earning a return on assets.

b. An investment center is only responsible for its investments.

c. An investment center is only responsible for revenues and expenses.

d. A profit center is evaluated using contribution margin, while an investment center is evaluated using ROI.

142. The denominator in the formula for return on investment calculation is

a. investment center controllable margin.

b. dependent on the specific type of profit center.

c. investment center average operating assets.

d. sales for the period.

143. In the formula for ROI, idle plant assets are

a. included in the calculation of controllable margin.

b. included in the calculation of operating assets.

c. excluded in the calculation of operating assets.

d. excluded from total assets.

 

144. In computing ROI, land held for future use

a. will hurt the performance measurement of an investment center’s manager.

b. is important in evaluating the performance of a profit center manager.

c. is included in the calculation of operating assets.

d. is considered a nonoperating asset.

145. Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made:

Project A – Annual controllable margin = $24,000, operating assets = $400,000

Project B – Annual controllable margin = $60,000,operating assets = $550,000

Which project should be funded?

a. Both projects

b. Project A

c. Project B

d. Neither project

146. If an investment center has a $90,000 controllable margin and $1,200,000 of sales, what average operating assets are needed to have a return on investment of 10%?

a. $120,000

b. $210,000

c. $900,000

d. $1,200,000

147. Which of the following valuations of operating assets is not readily available from the accounting records?

a. Cost

b. Book value

c. Market value

d. Both cost and market value

a148. The following information is available for Halle Department Stores:

Average operating assets $600,000

Controllable margin 60,000

Contribution margin 150,000

Minimum rate of return 8%

How much is Halle’s residual income?

a. $102,000

b. $540,000

c. $12,000

d. $48,000

 

a149. What is the goal of residual income?

a. To maximize the amount of costs which are controllable

b. To maximize profits

c. To maximize the total amount of residual income

d. To maximize controllable margin

a150. Which one of the following is a correct statement about residual income?

a. Its goal is to maximize profits of an investment center.

b. It is less effective for evaluating investment centers than ROI.

c. It is the ratio of controllable margin to the minimum rate of return on average operating assets.

d. It evaluates performance by comparing the return of an investment center with the company’s minimum rate of return.

a151. Which one of the following does not impact the amount of residual income?

a. Contribution margin

b. Net income

c. Sales

d. Controllable costs

a152. For what purpose do companies calculate residual income?

a. To determine whether decentralization is possible or not

b. To motivate managers through possible termination

c. To evaluate management performance

d. To measure company profits

a153. Lew Co. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company’s operating assets total $800,000, and its required return is 10%. How much is the residual income?

a. $120,000

b. $20,000

c. $80,000

d. $320,000

a154. Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

a. $416,000

b. $84,000

c. $584,000

d. $512,000

 

a155. The performance of the manager of Ottawa Division is measured by residual income. Which of the following would decrease the manager’s performance measure?

a. Decrease in required rate of return

b. Increase in amount of return on investment desired

c. Increase in sales

d. Increase in contribution margin

156. Which of the following would notbe considered an aspect of budgetary control?

a. It assists in the determination of differences between actual and planned results.

b. It provides feedback value needed by management to see whether actual operations are on course.

c. It assists management in controlling operations.

d. It provides a guarantee for favorable results.

157. A static budget is usually appropriate in evaluating a manager’s effectiveness in controlling

a. fixed manufacturing costs and fixed selling and administrative expenses.

b. variable manufacturing costs and variable selling and administrative expenses.

c. fixed manufacturing costs and variable selling and administrative expenses.

d. variable manufacturing costs and fixed selling and administrative expenses.

158. A static budget report is appropriate for

a. fixed manufacturing costs.

b. fixed selling and administrative expenses.

c. variable selling and administrative expenses.

d. both fixed manufacturing costs and fixed selling and administrative expenses.

=159. Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

a. $4,000 unfavorable

b. $4,000 favorable

c. $12,000 unfavorable

d. $16,000 favorable

160. To develop the flexible budget, management takes all of the following steps except identify the

a. activity index and the relevant range of activity.

b. variable costs and determine the budgeted variable cost per unit.

c. fixed costs and determine the budgeted fixed cost per unit.

d. All of these options are steps in developing the flexible budget.

 

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