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| 1 | |
In which type of responsibility center is the manager held responsible for the center's profit and also for the center's capital invested to earn the profit? |
| | A) | Cost center |
| | B) | Investment center |
| | C) | Revenue center |
| | D) | Profit center |
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| 2 | |
When is goal congruence achieved? |
| | A) | When managers of subunits throughout the organization strive to achieve goals set up by top management |
| | B) | When managers of subunits strive to achieve goals that will benefit their particular subunits |
| | C) | When managers of subunits are directed toward achieving goals for their subunits |
| | D) | When responsibility-accounting systems give managers of subunits complete autonomy. |
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| 3 | |
Which of the following is a broad managerial approach consistent with an emphasis on obtaining goal congruence? |
| | A) | Management by crisis |
| | B) | Management by objectives |
| | C) | Management through goal congruence |
| | D) | Just-in-time philosophy |
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| 4 | |
Return on investment (ROI) is defined as which of the following? |
| | A) | Sales revenue/Invested capital |
| | B) | Income/Invested capital |
| | C) | Invested capital/Income |
| | D) | Income/Sales revenue |
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| 5 | |
The return on investment (ROI) is 12%, and the invested capital is $500,000. What is the income? |
| | A) | $60,000 |
| | B) | $80,000 |
| | C) | $12,000 |
| | D) | $15,000 |
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| 6 | |
Which of the following equations will yield capital turnover? |
| | A) | Income/Invested capital |
| | B) | Sales revenue/Invested capital |
| | C) | Invested capital/Income |
| | D) | Income/Sales revenue |
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| 7 | |
Which of the following equations will yield sales margin? |
| | A) | Income/Invested capital |
| | B) | Sales revenue/Invested capital |
| | C) | Invested capital/Income |
| | D) | Income/Sales revenue |
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| 8 | |
Which of the following can be used to calculate the return on investment (ROI)? |
| | A) | Income/Invested capital |
| | B) | Sales margin x Capital turnover |
| | C) | Invested capital/Income |
| | D) | Both (A) and (B) |
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| 9 | |
The income is $44,000, the sales revenue is $440,000, and the return of investment (ROI) is 10%. What is the invested capital? |
| | A) | $484,000 |
| | B) | $4,400,000 |
| | C) | $440,000 |
| | D) | $400,000 |
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| 10 | |
The current income of the subunit is $42,000. Its current invested capital is $280,000. If the sales margin is increased to 8% and the capital turnover remains constant at 3, what will be the subunit's new return on investment (ROI)? |
| | A) | 24% |
| | B) | 15% |
| | C) | 45% |
| | D) | 21% |
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| 11 | |
The current income for a subunit is $36,000 on sales revenues of $360,000. Its current invested capital is $200,000. The subunit's invested capital will be reduced $20,000, and the reduction will not change the subunits' income or sales revenues. If the reduction in invested capital occurs, what will be the new return on investment (ROI) for the subunit? |
| | A) | 20% |
| | B) | 19.08% |
| | C) | 22% |
| | D) | 16% |
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| 12 | |
Which of the following is a formula for computing residual income for an investment center? |
| | A) | Profit – (Invested capital x Imputed interest rate) |
| | B) | Profit – (Invested capital x Capital turnover) |
| | C) | Profit – Budgeted net income |
| | D) | Profit – (Invested capital x sales margin) |
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| 13 | |
The difference between computing residual income and the return on investment (ROI) is that the formula for residual income includes a third piece of data. Which of the following is that piece of data? |
| | A) | Life of the investment |
| | B) | Imputed interest rate |
| | C) | Age of the investment |
| | D) | Inflation rate |
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| 14 | |
The current profit for a subunit is $36,000. Its current invested capital is $200,000. The subunit is considering purchasing for $20,000 equipment that will increase annual profit by an estimated $2,800. The firm's cost of capital is 12%. If the equipment is purchased, what will be the increase in residual income of the subunit? |
| | A) | $2,800 |
| | B) | $16,000 |
| | C) | $400 |
| | D) | 4% |
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| 15 | |
Which of the following statements is true? |
| | A) | ROI can undermine goal congruence. |
| | B) | Residual income distorts comparison between investment centers of different sizes. |
| | C) | Residual income does not provide a perfect measure of investment center performance. |
| | D) | All of the above are true. |
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| 16 | |
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What is the economic value added (EVA)? |
| | A) | $60,000 |
| | B) | $3,200 |
| | C) | $6,000 |
| | D) | $50,000 |
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| 17 | |
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To the nearest tenth, what is the weighted-average cost of capital (WACC)? |
| | A) | 13.0% |
| | B) | 6.4% |
| | C) | 7.2% |
| | D) | 6.6% |
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| 18 | |
What are the possibilities of the bases used for determining a division's invested capital? |
| | A) | Total assets |
| | B) | Total productive assets |
| | C) | Total assets less current liabilities |
| | D) | All of the above |
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| 19 | |
Which of the following is TRUE about using net book value or gross book value as the measurement for invested capital? |
| | A) | The fact that accelerated depreciation methods increase ROI, residual income, and EVA over time is an advantage to using net book value to measure invested capital. |
| | B) | Using net book value to measure invested capital is consistent with the definition of income and is therefore an advantage of using net book value to measure invested capital. |
| | C) | The depreciation methods used are arbitrarily chosen, and thus are an advantage to using the net book value to measure invested capital. |
| | D) | Using gross book value is consistent with the balance sheet prepared for external reporting purposes and is an advantage of using gross book value to measure invested capital. |
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| 20 | |
What are the payments of cash to managers who achieve or exceed specific performance benchmarks called? |
| | A) | Cash bonuses. |
| | B) | Pay for performance. |
| | C) | Merit pay. |
| | D) | Any of the above. |
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| 21 | |
Which is the formula for the general transfer-pricing rule? |
| | A) | Transfer price = Additional outlay costs + Opportunity cost |
| | B) | Transfer price = Actual variable costs + Opportunity cost |
| | C) | Transfer price = External market price - Opportunity cost |
| | D) | Transfer price = External market price - Additional outlay costs |
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| 22 | |
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All of the product of Division One can be sold in the external market at $11.25 per batch. The product can be transferred to Division Two and sold by Division Two for $13.00 per batch. What is the transfer price? |
| | A) | $ 8.50 |
| | B) | $13.00 |
| | C) | $ 8.00 |
| | D) | $11.25 |
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| 23 | |
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Division One has excess capacity. The external market price is $10.00 per batch. The product can be transferred to Division Two and sold by Division Two for $12.00 per batch. What is the transfer price? |
| | A) | $ 8.50 |
| | B) | $10.00 |
| | C) | $ 8.00 |
| | D) | $12.00 |
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| 24 | |
Which of the following conditions exits under perfect competition? |
| | A) | The market price depends on the quantity sold by any one producer. |
| | B) | A single producer or group of producers can affect the market price by varying availability of produce. |
| | C) | The market price depends on the production decisions of the producer. |
| | D) | The market price is independent of the quantity sold by any one producer. |
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| 25 | |
Which of the following transfer pricing techniques will cause dysfunctional decision-making behavior? |
| | A) | General transfer pricing |
| | B) | Transfers based on external market prices |
| | C) | Transfers based on variable costs |
| | D) | Transfers based on full cost |
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| 26 | |
Risk aversion, the reluctance of managers to accept or take risks, would include which of the following? |
| | A) | Using the market price as the transfer price of the selling subunit. |
| | B) | Undermining divisional autonomy. |
| | C) | Including opportunity cost in the transfer price. |
| | D) | Managers avoiding risk as a trade off for gaining incentives. |
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| 27 | |
Internal control systems are designed to prevent major lapses in responsible behavior. Which of the following types of irresponsible activity would be classified as fraud? |
| | A) | Misstating an organization's financial records. |
| | B) | Illegal political campaign contributions. |
| | C) | Theft or misuse of an organization's resources. |
| | D) | Using company facilities for a political 'pep' rally. |
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| 28 | |
Internal control systems are designed to prevent major lapses in responsible behavior. Which of the following types of irresponsible activity would be classified as corruption? |
| | A) | Misstating an organization's financial records. |
| | B) | Illegal political campaign contributions. |
| | C) | Theft or misuse of an organization's resources. |
| | D) | Using company facilities for a political 'pep' rally. |
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| 29 | |
Internal control systems are designed to prevent major lapses in responsible behavior. Which of the following types of irresponsible activity would be classified as financial misrepresentation? |
| | A) | Misstating an organization's financial records. |
| | B) | Illegal political campaign contributions. |
| | C) | Theft or misuse of an organization's resources. |
| | D) | Using company facilities for a political 'pep' rally. |
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| 30 | |
Internal control systems are designed to prevent major lapses in responsible behavior. Which of the following types of irresponsible activity may be classified as unauthorized action? |
| | A) | Misstating an organization's financial records. |
| | B) | Illegal political campaign contributions. |
| | C) | Theft or misuse of an organization's resources. |
| | D) | Using company facilities for a political 'pep' rally. |
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