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MANAGEMENT ACCTG PART II

MIDTERM 2nd Quiz

THEORIES and PROBLEM SOLVING: Write the letter of your answer before each number.

1. The format for internal reports in a responsibility accounting system is prescribed by

a. Management
b. The Philippine Institute of Certified Public Accountants
c. Generally accepted accounting principles
d. The Board of Accountancy

2. To be effective, the criteria used to evaluate the performance of Boss, a manager of a

responsibility center, should
a. Be known and understood by Boss
b. Include only those factors that are controllable by Boss
c. Not be influenced by actions taken by the other managers in the firm
d. All of the above

3. The segment margin of the Foot Spray Division of the Foot Care, Inc. should not include
a. Fixed selling cost of the division
b. Central administration cost allocated to the division
c. Net sales of the division
d. Variable selling cost of the division

4. The following selected data pertain to the belt division of Allen Corp. for last year:
Sales $500,000
Average operating assets $200,000
Net operating income $80,000
Turnover 2.5
Minimum required return 20%
How much is the return on investment? (M)
a. 40% c. 20%
b. 16% d. 15%

5. Harstin Corporation has provided the following data:

Sales $625,000
Gross margin 70,000
Net operating income 50,000
Stockholders' equity 90,000
Average operating assets 250,000
Residual income 20,000
The return on investment for the past year was: (M)
a. 28%. c. 36%.
b. 20%. d. 8%.

6. When managers of subunits throughout an organization strive to achieve the goals set by top
management, the result is:
a. goal congruence.
b. planning and control.
c. responsibility accounting.
d. delegation of decision making.
7. If the investment turnover increased by 20% and ROS decreased by 30%, the ROI would (M)
a. Increase by 20%. c. Increase by 4%.
b. Decrease by 16%. d. None of the above.

8. REB Service Co. is a computer service center. For the month of May 1995, REB had the
following statistics:
Sales $450,000
Operating income 25,000
Net profit after taxes 8,000
Total assets 500,000
Shareholders equity 200,000
Cost of capital 6%
Based on the above information, which one of the following statements is correct? REB has a
a. ROI of 4% c. ROI of 1.6%
b. Residual income of $(5,000) d. Residual income of $(22,000)

9. James Webb is the general manager of the Industrial Park Division, and his performance is
measured using the residual income method. Webb is reviewing the following forecasted
information for the division for next year.

Category Amount
(thousands)

Working capital $ 1,800

Revenue 30,000

Plant and equipment 17,200

To establish a standard of performance for the divisions manager using the residual income
approach, four scenarios are being considered. Scenario 1 assumes an imputed interest charge
of 15% and a target residual income of $2,000,000. Scenario 2 assumes an imputed interest
charge of 12% and a target residual income of $1,500,000. Scenario 3 assumes an imputed
interest charge of 18% and a target residual income of $1,250,000. Scenario 4 assumes an
imputed interest charge of 10% and a target residual income of $2,500,000.
Which of the scenarios assumes the lowest maximum cost? (M)
a. Scenario 1. c. Scenario 3.
b. Scenario 2. d. Scenario 4.

10. Z Division of XYZ Corp. has the following information for 2002:
Assets available for $1,800,000
Target rate of return 10%
Residual income $270,000
What was Z Division's return on investment for 2002? (M)
a. 15% c. 25%
b. 10% d. 20%

11. Which of the following is not an example of a responsibility center?

a. Cost center.
b. Revenue center.
c. Profit center.
d. Contribution center.
12. A manufacturer's raw-material purchasing department would likely be classified as a:
A. cost center.
B. revenue center.
C. profit center.
D. investment center.

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle
Division's single product follow:
Unit selling price $50
Unit variable cost $30
Total fixed costs $200,000
Average operating assets $750,000
Minimum required rate of return 12%

13. If Axle sells 16,000 units per year, the return on investment should be: (M)
a. 12%. c. 16%.
b. 15%. d. 18%.

14. If Axle sells 15,000 units per year, the residual income should be: (M)
a. $30,000. c. $50,000.
b. $100,000. d. $10,000.

15. Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve
this, Axle should sell how many units per year? (M)
a. 14,500. c. 18,250.
b. 16,750. d. 19,500.

16. Division A had the following information:

Asset base in Division A $800,000
Net income in Division A $100,000
Operating income margin for Division A 20%
Target ROI 15%
Weighted-average cost of capital 12%
What is EVA for Division A?
a. $120,000 c. $4,000
b. $96,000 d. $(20,000)

17. McKenzie Oil had $440,000 in operating income before interest and taxes in the last year.
McKenzie is in the 40% tax bracket. If capital employed by McKenzie was equal to $300,000,
and the company's weighted-average after-tax cost of capital is 15%, what is McKenzie's
Economic Value Added?
A. $131,000 C. $198,000
B. $140,000 D. $220,000

The following information was taken from the segmented income statement of Restin, Inc., and the
company's three divisions:
Los Bay Central
Restin, Angeles Area Valley
Inc. Division Division Division
Revenues $750,000 $200,000 $235,000 $325,000
Variable operating expenses 410,000 110,000 120,000 180,000
Controllable fixed expenses 210,000 65,000 75,000 70,000
Noncontrollable fixed expenses 60,000 15,000 20,000 25,000
In addition, the company incurred common fixed costs of $18,000.

18. Bay Area's segment profit margin is:

A. $14,000.
B. $18,000.
C. $20,000.
D. $40,000.

19. The profit margin controllable by the Central Valley segment manager is:
A. $32,000.
B. $44,000.
C. $50,000.
D. $75,000.

20. Assuming use of a responsibility accounting system, which of the following amounts should be
used to evaluate the performance of the Los Angeles division manager?
A. $4,000.
B. $8,000.
C. $10,000.
D. $25,000.