CHAPTER 12 FINANCIAL CONTROL TRUE/FALSE 1 ) Financial control involves the use of financial procedures to assess organizational and management performance. a. True w. False installment payments on your Financial measures identify precisely what is wrong with an organization, not simply provide a transmission that some thing needs attention. a. Authentic b. Phony 3. Economic measures can easily highlight dropping sales and profits in an organization, nevertheless only non-financial measures may identify why this is occurring. a. Accurate b. Phony 4. Effectively chosen non-financial measures predict and help to describe financial leads to an organization.. Authentic b. False 5. Within a centralized organization, front-line employees are conditioned to respond to changes in the business environment. a. Authentic b. False 6. The amount of decentralization within an organization reflects the company trust in their employees and also other factors. a. True b. False 7. When an organization moves to decentralized decision making, control moves from results control to job control. a. True m. False eight. For a company to be successful, activities within product sales, manufacturing, and customer service need to be coordinated.. True b. Bogus 9. Agencies use non-financial control to provide a summary measure of how well their systems of operations control will work. a. Accurate b. Phony 10. Correctly chosen nonfinancial measures assume and explain financial outcomes. a. True b. Fake 11. An assistance department, including human resources, needs to be evaluated as being a revenue center. a. True b. Bogus 12. A major problem faced simply by cost centers is determining jointly received revenues. a. True b. False 13. A profit middle is like a completely independent business. a. True b. False 14.
The overall performance measures chosen should influence the employees’ decision-making patterns. a. True b. Bogus 15. Pertaining to the portion manager to become properly examined, common costs should be invested in the various portions, even if an arbitrary portion is required. a. True n. False of sixteen. Contribution perimeter is the best way of measuring the controllable contribution of a profit middle toward company profit. a. True b. False 18. If a manufacturer product line was eliminated, forecasted annual corporate profits in the short run would decrease by the quantity of that item line’s net gain.. True w. False 18. In general, managers are motivated to affect generated profits when these revenues happen to be included in their particular performance procedures. a. Accurate b. Phony 19. Conventional segment perimeter income transactions clearly catch the online effects among responsibility centers. a. Authentic b. Bogus 20. A significant goal of transfer prices is to inspire the decision manufacturer to act in the organization’s needs. a. True b. Phony 21. Transfer prices depending on actual costs provide zero incentive towards the supplying division to control costs. a. Accurate b.
Fake 22. If perhaps external market segments exist, then simply cost-based copy prices are definitely the most appropriate. a. True m. False 3. Negotiated copy prices, and for that reason production decisions, may reflect the negotiating skills of the parties instead of economic things to consider. a. Accurate b. Bogus 24. Return on investment (ROI) promotes segment managers to reject all capital projects with returns higher than the company’s expense of capital. a. True w. False twenty-five. The most broadly accepted definition of productivity is a ratio of output above input. a. True w. False dua puluh enam.
The economic measure, financial value added assess income relative to the level of expense required. a. True m. False 27. A sole ratio benefit is generally not so useful. a. True n. False twenty eight. The net revenue margin percentage for Wal-Mart, a discount shop, is approximately 3%. This is low compared to Microsoft’s 20% net profit margin ratio, and for that reason, indicates Wal-Mart is a poor investment. a. True b. False 30. In general, a deep discount retail store, such as K-mart, can be expected to have got a greater inventory turnover percentage than an automotive dealer. a. The case b. Bogus 30.
Generally speaking, a financial debt ratio of 60% signifies lower economic risk when compared to a debt ratio of many of these. a. The case b. Fake MULTIPLE DECISION 31. Way of measuring financial control highlight: a. falling earnings b. poor quality c. high prices deb. unsatisfactory assistance 32. Each of the following happen to be reasons that financial control may be an ineffective scorecard EXCEPT that: a. it fails to identify the causes or individuals of performance b. it focuses on economic measures although ignoring additional important advantages of performance c. it targets long-term instead of short-term functionality measures d. t can be an aggregate, rather than a comprehensive measure of functionality 33. Performance measures pertaining to financial control include all the following APART FROM: a. reduced cycle times b. ROI ( return on investment) and economic value added c. profit d. cost 34. Which with the following assertions is BOGUS regarding monetary and non-financial measures of performance? a. non-financial actions may help to anticipate and explain financial results. m. Financial procedures include combination measures. c. non-financial procedures may help to distinguish the causes of economic results.. Economical measures are lead indications of long term success. thirty-five. In a central organization: a. local-division managers have higher control over their business portions b. you will find few deviations from the standardised way of doing things c. front-line workers are conditioned to respond to modifications in our business environment d. decisions are made by managers the majority of familiar with the difficulties and options 36. In a decentralized organization: a. local-division managers need to receive higher approval for the majority of business decisions b. ompany-wide standard working procedures are common c. local-division managers come with an opportunity to gain decision-making knowledge d. decisions are made by senior business owners 37. A decentralized firm does every one of the following BESIDES it: a. encourages regional success instead of organizational accomplishment b. train locomotives employees in skills essential for decision making c. assigns responsibility to front-line employees d. adapts for the local organization environment 32. All of the next are accurate of responsibility centers EXCEPT that they: a. perate such as a small business w. promote the interests with the larger corporation c. put together activities to responsibility centers d. work best used in a centralized organization 39. One of the most likely reaction to decentralization is always to give local-division managers the responsibility for: a. evaluating ideal goals w. allocating joint costs c. operating decisions d. financial control 45. All of the next would likely be classified as cost centers except: a. Maintenance office at community grocery store. b. your university’s computer center. X-ray division of hospital d. All the above happen to be cost centers. 41. A local unit can be evaluated as a profit center but the business office handles many areas of the operation. If local-unit performance is definitely poor, it may well reflect: a. poor company decisions w. poor local decisions c. conditions that no one can control d. All the above are correct. 42. Measuring efficiency based on price per device will stimulate performance that includes keeping __________ under control. a. only costs m. costs and on-time delivery c. costs and the volume of flaws d. only quality 43.
A cost centre is a organization segment: a. that usually evaluates employee efficiency by evaluating the center’s actual costs with concentrate on or standard costs pertaining to the amount and type of work b. through which interperiod price comparisons could be misleading if the output level and production mix will be constant c. that usually contains individual shops within a department-store chain d. that should be examined solely on its capability to control and reduce costs forty-four. All of the subsequent are true of a income center EXCEPT that it: a. controls assistance quality and units marketed. controls the acquisition expense of the product or service marketed c. might control cost, product mix, and marketing activities d. may fees sales and marketing costs 45. The moment responsibility centers are cared for as profit centers: a. the part manager has responsibility pertaining to pricing and product collection, but not for purchasing and promo b. the organization office makes most of the working and pricing decisions c. the information technology group of a manufacturing company would typically be cared for as a income center g. here are usually problems associated with assigning with each other earned revenues 46. A fully-owned additional of a multinational firm reports return on investment several times a year. This is an example of: a. a revenue centre b. a cost center c. an investment middle d. money center forty seven. Segment margin includes: a. all costs traceable to the segment m. the segment’s share of allocated corporate costs c. the segment’s share of allocated bound to happen costs m. All of the above are appropriate. 48. Managers of cost centers are responsible for: a. costs and investments. n. evenues and costs. c. costs, profits, and purchases. d. costs. 49. Portion margin is definitely calculated the following: a. Profits less versatile costs. b. Revenues fewer expenses. c. Revenues much less direct costs. d. Profits less changing costs. 40. Caution must be taken when ever interpreting a segment margin income statement because: a. revenues could possibly be based on transfer prices b. the active effects amongst responsibility centers are generally not evidently captured c. expenses could possibly be a result of very subjective allocation of jointly received costs d. All of the over are right. 51.
Resources might be invested in individual price centers: a. based on the square footage every cost middle uses b. based on the number of employees used by each individual middle c. only if the portion serves several decision-making purpose d. by no means, because it is a non-cash expense that should certainly not be allotted THE FOLLOWING INFO APPLIES TO CONCERNS 52 THROUGH 55. The management curator for the Ortega Organics has ready the following segmented income statement for the most current year. ProduceFish MeatSundriesTotal Sales$60, 000$100, 000$40, 000$200, 500
Variable expenses36, 00065, 00020, 000121, 1000 Contribution margin24, 00035, 00020, 00079, 1000 Other costs18, 00021, 500 8, 00047, 000 Part margin6, 00014, 00012, 00032, 000 Given avoidable costs 2, 1000 3, 1000 3, 0008, 000 Portion income4, 00011, 0009, 00024, 000 Allotted corporate costs 7, 000 7, 000 7, 00021, 000 Business profit$(3, 000)$ 4, 000$ 2, 000$ 3, 000 52. In the event the Produce department had been eliminated prior to this coming year, the company could have reported: a. greater business profits w. the same amount of corporate revenue c. fewer corporate income d. resulting profits cannot be determined 53.
If the Fish Meat division had been discontinued, the initial effect on company profits is a decrease of: a. $35, 000 b. $14, 000 c. $11, 500 d. $4, 000 54. Assume that the Sundries department has been ceased and long lasting capacity from the company has had time to change. The expected long-term a result of this action upon annual corporate profits would be a decrease of: a. $20, 000 b. $12, 000 c. $9, 1000 d. $2, 000 55. Assume a marketing campaign could increase income for any with the products by $15, 1000. To maximize corporate profits, the __________ division should receive the advertising us dollars.
Assume the cost of the marketing campaign is less than the revenues that generates. a. Sundries b. Fish Various meats c. Produce d. From the information provided, the correct products cannot be identified. 56. If a company registers to the controllability principle, it would be far better evaluate products management upon: a. contribution margin n. corporate earnings c. segment income g. segment margin 57. The main goal of transfer costs is to: a. motivate your decision maker to do something in the organization’s best interests m. obtain a excessive transfer value for the supplying device c. btain a high copy price intended for the obtaining unit deb. agree on an amount for external sales 49. All of the next are the case of market-based transfer prices EXCEPT that they: a. can lead to goods/services becoming purchased externally b. offer an independent valuation c. are present for all transferred products and services g. provide the right economic incentives 59. All of the following are true of cost-based copy prices Only that they: a. provide no incentive for the supplying section to control costs when real costs are used b. ay use normal costs to assist maintain functioning efficiency c. promote the optimal level of transactions for the entire organization g. don’t give proper advice when operating capacity is definitely constrained sixty. The MOST very likely result of a negotiated copy price is that it: a. takes away the ultimate responsibility of the producing transfer price from the two parties m. may indicate the family member negotiating abilities of the two parties c. generally results in transferring more than the optimum number of units m. reflects purely economic factors 1 . A great administered transfer price: a. is most frequently used for occasional transactions n. retains the accountability of both parties c. reflects natural economic considerations d. offers an arbitrary circulation of profits and costs between the responsibility centers THE NEXT INFORMATION PERTAINS TO QUESTIONS sixty two THROUGH sixty five. The Jordan Company companies only one kind of shoe and has two divisions, the only Division as well as the Assembly Department. The Sole Section manufactures bottoms and then sells them to mount Division, which will completes the shoes and offers them to retailers.
The market price for the Assembly Division to purchase a pair of feet is $20. Fixed costs are every pair at 100, 500 units. Feet costs every pair of feet are: Direct materials$4 Direct labor$3 Adjustable overhead$2 Department fixed costs$1 Assemblys costs per accomplished pair of shoes happen to be: Direct materials$5 Direct labor$1 Variable overhead$1 Division set costs$9 62. If the cost-based transfer price are 180% of variable costs, what is the transfer value per pair of soles from the Sole Section to the Assemblage Division? a. $14. 45 b. $12. 60 c. $16. 20 d. $28. 80 63.
Calculate and compare the in general corporate net gain between Situation A and Scenario B if the Set up Division sells 100, 1000 pairs of boots for $60 per pair to customers. Scenario A: Negotiated copy price of $15 every pair of feet Scenario N: Market-based transfer price a. $500, 1000 more net gain under Scenario A w. $500, 1000 of net income using Scenario B c. $100, 500 of net gain using Situation A deb. None from the above is proper. 64. Suppose the copy price for the pair of bottoms is 180% of complete costs in the Sole Split and 75, 000 of soles happen to be produced and transferred to the Assembly Division.
The only Divisions working income is: a. $800, 000 w. $900, 500 c. $1, 280, 500 d. $1, 800, 500 65. In the event the Assembly Department sells 100, 000 pairs of shoes at a price of $60 a couple to consumers, what is the operating income of both equally divisions jointly? a. $4, 400, 500 b. $3, 400, 1000 c. $3, 000, 1000 d. indeterminable 66. Challenges of applying investment centers include each of the problems connected with profit centers plus all of the following APART FROM: a. how you can identify the assets used by each purchase center b. how to designate the responsibility to get jointly-used resources such as uildings c. the right way to determine the cost of the possessions used by every single investment center d. what method to value to depreciate the assets 67. All of the pursuing equations represent return on investment (ROI) EXCEPT: a. efficiency by productivity w. operating cash flow / expenditure c. returning on revenue x products on hand turnover m. (operating cash flow / sales) x (sales / investment) 68. To find out where to produce improvements in productivity, managers might do all of the subsequent EXCEPT: a. calculate the ratio of output over input n. ompare returning on product sales to a competitor’s return in sales c. use craze analysis g. compare the asset yield ratio just for this accounting period to an industry norm 69. Return on investment (ROI) can be elevated by: a. increasing revenue b. lowering operating possessions c. decreasing operating profits d. reducing asset proceeds 70. The MAJOR criticism of using return on investment (ROI) pertaining to financial control is that that: a. gives managers a motivation to deny projects with an ROI greater than you’re able to send required level of return but less than the department’s current ROI b. sually uses the blended price of capital as the mandatory rate of return c. encourages competition among section managers m. is a measure of overall performance 71. Assume an organization’s cost of capital is 8% and Department A currently contains a 12% revenue (ROI). The manager of Department A, who is examined on ROI, would MOST likely accept a great investment that is expected to return: a. more than 8% b. a lot more than 12% c. more than 8% but below 12% g. less than 12% THE FOLLOWING DETAILS APPLIES TO QUERIES 72 THROUGH 74. Randall Company makes and distributes outdoor perform equipment.
A year ago sales had been $2, 400, 000, functioning income was $600, 1000, and the assets used were $3, 000, 000. seventy two. Return on sales, the efficiency element of return on investment (ROI), is: a. 20% w. 80% c. 25% g. 125% 73. Asset proceeds, the output component of return on investment (ROI), is definitely: a. 20% b. 80% c. 25% d. 125% 74. The return on investment (ROI) is: a. 20% w. 80% c. 25% d. 125% 75. Economic value added: a. promotes segment managers to accept only new capital projects with a return on investment (ROI) that exceed the current RETURN ON INVESTMENT b. f $50, 1000 indicates the segment attained $50, 500 for the organization c. of $10, 000 indicates the segment’s actual earnings (adjusted for biasing effects of accounting conservatism) surpass the company’s expense of capital by simply $10, 1000 d. is regarded as an inferior way of evaluating expense center overall performance 76. The written text discusses just how Quaker Oats used financial value added to evaluate the practice of trade loading, a practice of loading the supply collection with merchandise to previous several months. This kind of application of financial value added might focus on: a. omparing the profit changes caused by trade launching with changes in customer satisfaction b. the effect about partners inside the distribution funnel caused by leaving trade packing c. the in prices caused by trade loading g. comparing the huge benefits and costs of transact loading with all the required expenditure in products on hand 77. A measure of businesses efficiency generally divides: a. output simply by input b. standard income by standard costs c. sales simply by cost of merchandise sold deb. sales by investment 79. All of the following are true regarding efficiency EXCEPT: a. hat an example of raw materials productivity may be the weight of the final product to the fat of the unprocessed trash b. that one of the most widely approved definition of efficiency is the proportion of operating income more than sales c. that an example of machine production is a devices output hourly d. machine productivity is an efficient method of relating process benefits with financial results 79. Assume a great organization’s expense of capital is definitely 10% and Division X has functioning income of $1. 5 million and uses $10 million of capital. The economic value added for Split X is usually: a. 100, 000 m. $150, 500 c. $500, 000 deb. $850, 1000 80. All of the following are true relating to common size statements Only that they: a. help to determine trends within a company’s balance sheet components with time b. enable a comparison of balance sheet pieces of similar organizations c. express balance sheet products as a percent of total assets g. express salary statement quantities as a percent of net income 81. The written text showed that Nortel’s sales fell more than 40% among 2000 and 2001, however the cost of sales as a common-size percentage improved dramatically since: a. evenues were slipping at a faster rate than Nortel could shed fixed costs n. assets bought were purchased for more than book value c. intangible resources decreased because of the write-down or perhaps write-off of countless bad investments d. prevalent stockholders’ collateral increased to reflect the financing of investments 82. Financial proportions derived from a company’s economical statements: a. need to be when compared with other information, for instance a company’s ratios from prior years, being useful w. on their own, provide enough information pertaining to decision producers to make well-informed decisions c. ust use amounts in the same economical statement deb. have a set formula so there may be consistency in calculations plus they can be easily compared to ratios of competition 83. Which of the next statements applies regarding success ratios? a. The current ratio measures a company’s capability to meet immediate obligations ” a success ratio. b. A return in assets of 15% indicates that for every dollar used assets, the business is producing 15 mere cents in net income. c. In case the industry typical for the web profit perimeter ratio was10%, then a organization ratio of 5% will be considered favorable. d.
A decreasing pattern for the return upon common collateral ratio is known as favorable. 84. Which from the following assertions is true regarding asset use (productivity) proportions? a. The dividend payout ratio indicates the percentage of net gain paid out in dividends ” a production ratio. b. A total asset turnover of 2. 0 implies that for every dollar used assets, the business is generating $2 in net income. c. If the market average to get the products on hand turnover ratio is 4x, then a company’s inventory yield ratio of 6 times indicates a business is turning over inventory faster than the industry normal.
This would be deemed favorable. m. A lessening trend pertaining to accounts receivable turnover indicates receivables will be being collected in fewer days and is considered favorable. 85. Which of the following statements holds true regarding fluidity ratios? a. The debt percentage measures the proportion of assets financed by personal debt ” a liquidity rate. b. The existing ratio steps the ability to satisfy all financial debt obligations ” both short-run and long-term. c. A decreasing craze for free income indicates a powerful cash position and an improved ability to satisfy current commitments. d.
The times-interest-earned ratio may not be a great indicator of the organization’s capacity to pay curiosity since fascination is paid out with cash and not cash flow. 86. Which in turn of the pursuing statements holds true regarding economic leverage ratios? a. Come back on prevalent equity is a solvency percentage. b. THE 1. 5 debt-to-equity ratio signifies a greater portion of a business assets happen to be being loaned with collateral rather than with debt. c. If the sector average to get the debt ratio is 60 per cent, then a business ratio of 90% signifies the portion of total assets financed by financial debt is more than the average pertaining to the sector.. A lowering trend pertaining to the debt-to-equity ratio signifies greater economic risk. 87. Using the information below, returning on common equity equates to: |BALANCE LINEN |December 23, 2007 | |Accounts payable |$10, 000 | |Bonds payable |$50, 000 | |Common inventory |$15, 000 | Maintained earnings |$25, 000 | |INCOME DECLARATION |For 12 months ended December 31, 2007 | |Net income |$10, 000 | a. 10% b. 25% c. 11% d. 67% 88. Utilize information under to select the proper response: Cash |$ twenty, 000 | |Accounts receivable |$ 30, 000 | |Inventory |$ 50, 000 | |Equipment, net |$300, 000 | |Accounts payable |$ 40, 000 | |Bonds payable (long-term) |$ 160, 500 | |Common stock |$ 60, 1000 | |Retained earnings |$ 140, 1000 | a. The quick ratio equals 0. twenty-five. b. The latest ratio equals 0. 15. c. The debt ratio equates to 20%. g. The debt-to-equity ratio equates to 100%. 89. Two companies are identical aside from the fact that Company G uses the double-declining-balance way of depreciation and Company S i9000 uses the straight-line way of depreciation. Believe this is the 1st year of business pertaining to both companies. For Company D, the ratio that is to be greater is: a. the current ratio m. the net earnings margin ratio c. he total property turnover rate d. the dividend yield ratio 90. Acton Firm and Baxter Company happen to be identical only that Acton Firm uses the LIFO products on hand costing method and Baxter Company uses the FIFO inventory costing method. Within a period of rising prices, the ratio that is to be greater pertaining to Acton Company is: a. the current percentage b. the inventory proceeds ratio c. the net earnings margin ratio d. the accounts receivable turnover ratio 91. All of the following happen to be limitations to ratio examination EXCEPT that: a. information to calculate the ratios will come from two different financial statements m. ratios are based on historical effects c. ompanies choose different accounting techniques for depreciation and inventory priced at d. model may be challenging due to the a result of unknown economic or competitive forces EXERCISE/PROBLEM 92. For each and every of the following activities, characteristics, and applications, identify whether or not they are found within a (C)entralized firm, a (D)ecentralized organization, or perhaps (Both) types of agencies. (C / D as well as Both)a. Freedom for managers at decrease organizational amounts to make decisions (C / D / Both)b. Best suited to organizations inside stable conditions (C / D / Both)c. Higher responsiveness to users’ needs (C / D / Both)d.
Utilize the most efficient systems (C as well as D / Both)e. Optimum constraints and minimum liberty for managers at lowest levels (C / D / Both)f. Maximization of advantages over costs (C / D / Both)g. Minimization of copy functions (C / M / Both)h. Standard working procedures (C / M / Both)i. Requires rely upon employees by any means levels (C / Deb / Both)j. Primarily job control rather than results control 93. The management scrivener for the basic Skateboard Business has well prepared the following segmented income declaration for each of its three product lines.
ChackoOmegadonFieferTotal Sales$400, 000$250, 000$350, 000$1, 000, 1000 Variable expenses260, 000150, 000190, 000600, 1000 Contribution margin140, 000100, 000160, 000400, 1000 Other costs 20, 500 30, 000 20, 1000 70, 000 Segment margin120, 00070, 000140, 000330, 000 Allocated avoidable costs 40, 000 40, 000 twenty, 000 70, 000 Portion income90, 00040, 000120, 000250, 000 Allotted corporate costs 50, 500 50, 000 50, 000150, 000 Business profit$40, 000$(10, 000)$70, 000$100, 000 Essential: a. Will you recommend dropping the Omegadon product line? How come or really want to? b. In the event the Chacko product line had been stopped, the initial effect on company profits is a decrease of what amount? c.
Assume that the Fiefer product line has been stopped and long-term capacity has already established time to adapt. The forecasted long-term a result of this action in annual corporate and business profits is a decrease of what amount? g. Assume that an advertising campaign could increase earnings for any of the products by simply $15, 1000. To maximize corporate profits, which usually product line will get the advertising dollars? Why? e. How would you change the format in the segment margin statement above to make that more understandable? 94. For every single of the following, identify whether it BEST relates to (M)arket-based, (C)ost-based, (N)egotiated, (A)dministered, or (All) types of copy pricing. (M / C / D / A / All)a. Bargaining among selling nd buying products (M as well as C as well as N as well as A as well as All)b. Goal and provides the proper economic offers (M as well as C / N as well as A as well as All)c. 145% of complete costs (M / C / And / A / All)d. Avoids confrontation and generally applied when a purchase occurs regularly (M / C as well as N as well as A / All)e. Internal product transactions are required (M / C / N / A / All)f. Prices listed in a control journal (M / C / D / A / All)g. Prices tend not to reflect real economic factors nor accountability considerations (M / C / D / A / All)h.
Goal is to motivate decision makers to act in the organization’s best interest (M / C / D / A / All)i. Provide simply no incentive to the supplying split (M as well as C as well as N as well as A / All)j. Demonstrates support of the controllability theory 95. The Crandon Mill has two divisions. The Cutting Section prepares hardwood at its sawmills. The Assembly Department prepares the cut wood into done wood to get the furniture industry. During the year, the Trimming Division prepared 60, 000 cords of wood for a cost of $660, 1000. All the lumber was utilized in the Assembly Split where further operating costs of $6 per power cord were received. The six hundred, 000 boardfeet of finished wood had been sold for $2, 500, 000. Required: a.
Determine the operating cash flow for each division if the copy price by Cutting to Assembly are at cost, $11 a wire. b. Decide the functioning income for every division if the transfer price are $9 every cord. c. Since the Cutting Division sells all of it is wood internally to the Assemblage Division, does the manager attention what price is definitely selected? Why? Should the Trimming Division be a cost middle or a profit center within the circumstances? ninety six. Bedtime Bed linens Company makes pillows. The Cover Split makes includes and the Assemblage Division makes the finished cushions. The covers could be sold individually for $5. 00. The pillows sell for $6. 00. The information associated with manufacturing for the most recent year is as comes after: |Cover Section |Assembly Division | | |Manufacturing costs of split |$6, 1000, 000 |$1, 500, 1000 | | |Sales to external get-togethers |$4, 000, 000 |$7, 200, 000 | | |Market worth of protects transferred in the Cover Split to | | |$6, 000, 000 | |the Assembly Split | | | | Required: a.
Compute the operating income for each department and the business as a whole. Use market value while the copy price. m. Are all managers happy with this concept? Explain. ninety-seven. Department income totals one hundred dollar, 000, purchase in the division is $2, 000, 500, and the industry’s cost of capital is 8%. Required: a. Calculate the return on investment (ROI). b. Determine economic value added. c. Presume there is a capital project that requires a one-hundred dollar, 000 expenditure for a $18, 000 return. Would the department supervisor be more more likely to accept the project in the event that department functionality was examined using RETURN or financial value added? So why? 98. |Cash |$ twenty-five, 000 |Accounts receivable |$ 15, 500 | |Inventory |$ sixty, 000 | |Equipment, net |$300, 500 | |Accounts payable |$ 50, 1000 | |Bonds payable (long-term) |$180, 1000 | |Common stock |$ 40, 1000 | |Retained earnings |$ 130, 500 | Required: Use the information above to calculate the following ratios: a. the speedy ratio, m. the current percentage, c. your debt ratio, and d. the debt-to-equity percentage. CRITICAL THINKING/ESSAY 99. What is financial control and how does it relate to non-financial measures? 75. Discuss in least two inefficiencies of economic control. tips. Describe a cost center. What are some of the challenges faced by simply cost centers? 102. What sorts of revenues and costs are used to calculate section margin? 103.
Is part margin an appropriate measure of economic performance pertaining to segment administration? Why? 104. Why are copy prices used? What is a market-based transfer price? 105. A division studies a 24. 5% RETURN ON INVESTMENT, a 9. 6% returning on product sales, and a 2 . 55 asset turnover ratio. How do the supervisor of this division determine whether these results are favorable or not? 106Ratio values standing by themselves possess little to no meaning. Describe in least two different ways to create ratios even more useful. CHAPTER 12 ECONOMIC CONTROL TRUE/FALSE LO11. a LO12. n LO13. a LO14. a LO25. m LO26. a LO27. m LO38. a LO39. m LO310. a LO311. w LO312. n LO313. a LO314. a LO415. m LO416. w LO417. w LO418. a
LO419. n LO520. a LO521. a LO522. m LO523. a LO724. m LO725. a LO726. a LO827. a LO828. w LO829. a LO830. a MULTIPLE CHOICE LO131. a LO132. c LO133. a LO134. g LO235. b LO236. c LO237. a LO238. d LO239. c LO340. c LO341. deb LO342. a LO343. a LO344. b LO345. d LO346. c LO447. a LO448. g LO449. c LO450. g LO451. a LO452. c LO453. a LO454. c LO455. a LO456. m LO557. a LO558. c LO559. c LO560. m LO561. m LO662. c LO663. g LO664. a LO665. m LO766. deb LO767. c LO768. b LO769. n LO770. a LO771. b LO772. c LO773. w LO774. a LO775. c LO776. m LO777. a LO778. n LO779. c LO880. m LO881. a LO882. a LO883. w LO884. c LO885. deb LO886. c LO887. n LO888. m LO889. c
LO890. m LO891. a MULTIPLE DECISION 62. $9 x 1 ) 8 = $16. twenty 63. The web income could be the same under both scenarios. 64. Revenue Costs ($10 x 100, 000) sama dengan $800, 500 Operating cash flow 65. Profits ($60 times 100, 000) Cost ($26 x 90, 000) = $3, 400, 000 Functioning income seventy two. $600, 000 / $2, 400, 500 = 25% 73. $2, 400, 500 / $3, 000, 1000 = 80% 74. $600, 000 / $3, 000, 000 = 20% OR 25% x 80% sama dengan 20% 87. $10, 1000 net income as well as ($15, 000 + $25, 000) prevalent equity sama dengan 25% 88. Debt to equity percentage = total liabilities ($40, 000 + $160, 000) / total equity ($60, 000 + 140, 000) = totally. Quick rate = ($20, 000 & $30, 000) / current liabilities $40, 000 = 1 . 25.
Current proportion = ($20, 000 + $30, 500 + 50 dollars, 000) / current financial obligations $20, 000 = installment payments on your 50. Debt ratio = total debts ($40, 000 + $160, 000) as well as total assets $400, 500 = 50 percent. 89. Accumulated depreciation will probably be greater intended for Company D, resulting in reduced total possessions. Sales divided by a decrease total assets results in a better asset yield ratio pertaining to Company Deb. Asset turnover ratio sama dengan sales as well as total possessions. 90. Expense of sales is definitely greater whenever using LIFO and ending inventory is less when you use LIFO. Consequently , cost of product sales / products on hand will be better for Acton Company. EXERCISE/PROBLEM LO2 ninety two. (C as well as D as well as Both)a. Freedom for managers at reduce organizational amounts to make decisions (C / D / Both)b.
Best suited to organizations within stable surroundings (C / D as well as Both)c. Higher responsiveness to user demands (C / D / Both)d. Use the most efficient technology (C / D / Both)e. Maximum constraints and minimum independence for managers at lowest levels (C / G / Both)f. Maximization of benefits over costs (C / D / Both)g. Minimization of identical functions (C / D / Both)h. Standard functioning procedures (C / D / Both)i. Requires trust in employees by any means levels (C / G / Both)j. Primarily activity control rather than results control LO4 93. a.
No, I would certainly not recommend losing the Omegadon product line as the $70, 000 segment perimeter indicates that the product line adds $70, 500 toward corporate and business costs and profits. As well, segment salary is $40, 000 (positive) which includes every available costs. b. In case the Chacko manufacturer product line were stopped, corporate revenue would quickly decrease by $140, 000, the amount reported for the contribution perimeter. c. In case the Fiefer production were stopped and long-term capacity has had time to change, corporate earnings would lower by $120, 000, the total amount reported to get the section income. d. To maximize company profits, the Feifer production should receive the advertising dollars because it contains a contribution perimeter of approximately 46%, the highest contribution margin in the three product lines. e.
The current segment perimeter statement could possibly be made more understandable in the event the allocated corporate and business costs were only outlined under the organization total line, and they are not part of the computation for each production segment. It truly is obvious that the corporate costs are randomly allocated equally to each products and irrelavent allocations will not aid in making decisions. LO5 94. (M as well as C / N as well as A / All)a. Negotiating between buying and selling units (M / C / D / A / All)b. Objective and provides the proper financial incentives (M / C / And / A / All)c. 145% of full costs (M / C as well as N / A / All)d.
Eliminates confrontation and generally used each time a transaction occurs frequently (M / C / And / A / All)e. Internal product transfers are essential (M / C as well as N / A as well as All)f. Prices listed in a trade diary (M / C as well as N as well as A / All)g. Prices do not echo pure economic considerations neither accountability factors (M as well as C as well as N as well as A / All)h. Aim is to stimulate decision manufacturers to act inside the organization’s best interest (M as well as C as well as N as well as A as well as All)i. Supplies no motivation to the delivering division (M / C / In / A / All)j. Reflects support of the control principle LO3, 6 ninety five. a. |Cutting |Assembly | |Revenue |$660, 000* |$2, 500, 000 | |Cost of services: | | | | Incurred |$ 660, 000 |$ 360, 000 | | Transferred-in | 0 | 660, 000 | | Total |$ 660, 000 |$1, 020, 1000 | | | | | | Operating income |$ zero |$1, 480, 000 | * sixty, 000 wires x $11 = $660, 000 n. |Cutting |Assembly | |Revenue |$540, 000* |$2, 500, 000 | |Cost of service | | | |Incurred |$ 660, 1000 |$ fish hunter 360, 000 | |Transferred-in | 0 | 540, 000 | | Total |$ 660, 500 |$ nine hundred, 000 | | | | | |Operating salary (loss) |$(120, 000) |$1, 600, 000 | * 60, 1000 cords x $9 = $540, 000 c. The manager of Cutting likes you the copy price in the event the division can be described as profit centre but not in case it is a cost middle.
Under the situations, the division probably should be a cost centre and it should not stress about the profit that pretends to create by selling to another division. LO6 96. a. | |Cover Division |Assembly Division |Company | |Revenue: | | | | | External |$ some, 000, 000 |$7, 200, 000 |$11, 200, 000 | | Internal |6, 000, 500 | 0 | 0 | |
Total |$10, 000, 500 |$7, 2 hundred, 000 |$11, 200, 000 | |Cost of goods: | | | | | Incurred |$ 6, 500, 000 |$1, 500, 1000 |$ six, 500, 500 | | Transferred-in | 0 |6, 000, 1000 | 0 | | Total |$ 6, 000, 000 |$7, 500, 1000 |$ 7, 500, 000 | | | | | | |Operating salary (loss) |$ 4, 000, 000 |$ (300, 000) |$ a few, 700, 500 | b. The Assembly administrator is probably not completely happy because the split is showing a loss. The director would probably dispute for a transfer price in something less than market price. Nevertheless , since the marketplace is open and competitive, the industry price could be justified. The division needs to either boost its selling price or decrease its costs if it needs to show a profit. LO7 ninety-seven. a.
RETURN is 10% ($200, 000 department income / $2, 000, 500 investment in the department). w. Economic value added is $40, 000. c. By acknowledging the suggested project, the department’s RETURN ON INVESTMENT will be decreased by zero. 1% to 9. 9%. The section manager being evaluated about ROI will most likely reject the $200, 000 investment proposal even though the expenditure exceeds you’re able to send 8% expense of capital. New ROI of 9. 9% = $218, 000 section income as well as $2, two hundred, 000 investment in the portion. By accepting the recommended project, the economic value added will be elevated to $42, 000, a growth of $2, 000. The department director being assessed on monetary value added will most likely choose to acknowledge the nvestment since it increases economic useful for the department. New economic value added is $42, 000. LO8 98. a. Quick rate = ($25, 000 & $15, 000) / current liabilities 50 dollars, 000 sama dengan 0. 80 b. Current ratio sama dengan ($25, 500 + $15, 000 + $60, 000) / current liabilities 50 dollars, 000 sama dengan 2 . 00. c. Personal debt ratio = total debts ($50, 000 + $180, 000) / total assets $400, 1000 = 57. 5%. m. Debt-to-equity rate = total liabilities ($50, 000 + $180, 000) / total equity ($40, 000 + $130, 000) = 135. 3%. CRITICAL THINKING/ESSAY LO1 99. Precisely what is financial control and how does it relate to non-financial measures?
Answer: Financial control involves the usage of financial procedures to assess corporation and supervision performance. Economical measures provide a signal that something is wrong, while non-financial measures identify what is incorrect. For example , slipping sales, a financial measure, signifies that something happens to be wrong. However , the dropping sales may result from poor quality, poor service, or substantial prices, which would be identified by the nonfinancial measures from the organization. LO1 100. Discuss at least two issues of financial control. Solution: First, financial control focuses on monetary measures that do not evaluate other significant attributes such as product quality, employee pleasure, and customer service.
Because these elements and others are crucial to the organization’s long-term accomplishment, they also must be measured and monitored. Economic control procedures the effect in the overall standard of performance and ignores the performance attained on a more in depth level. Because of this, financial control does not advise how to increase performance, yet only serves as a signal of potential complications and options. Financial control is oriented to immediate performance and it just considers how well the corporation has performed this one fourth or this coming year. This preoccupation with short-term success can be debilitating mainly because little attention gets focused on long-term improvement. LO3 information. Describe an expense center.
Exactly what some of the challenges faced by cost centers? Solution: Cost centers are responsibility centers in which managers and other staff control only the costs from the product or service provided. A cost center cannot impact revenues or maybe the level of expenditure Problems faced by expense centers are the significant behavioral effects of setting standards and interpreting variances on staff who may try to misrepresent performance potential and performance results. Measures aside from financial actions of cost may need to become evaluated as well in order to get an obvious picture of the cost center’s efficiency. LO4 102. What types of income and costs are used to determine segment margin?
Solution: The revenues utilized to compute section margin incorporate those immediately traceable for the segment. Also included is the segment’s allocation of jointly-earned earnings and revenues earned from the other responsibility centers that may be based on transfer rates. The costs used to compute part margin include those directly traceable towards the segment. There is also the segment’s allocation of jointly-incurred costs and costs of items received internally from other responsibility centers that may be based upon transfer rates. Only those costs which might be considered underneath the control of the segment manager should be included. LO4 ciento tres. Is portion margin a suitable measure of monetary performance pertaining to segment supervision? Why?
Option: Yes, costly appropriate measure because each of the revenues and costs accustomed to compute part margin are directly traceable to the section and are essentially under the control of the portion manager. Segment income is likewise a valuable measure of performance because it considers every costs that might be avoided without the segment. LO5 104. Why are transfer prices used? What exactly market-based copy price? Answer: Transfer prices are used in house to value goods and services offered (transferred) by one division to another. The aim of transfer prices is to encourage the decision developer to act inside the organization’s best interests.
A market-based transfer cost transfers those goods from division to another at all their current market value. LO7 105. A division reports a 24% RETURN, a on the lookout for. 6% return on sales, and a 2 . fifty five asset proceeds ratio. How could the administrator of this division determine if these answers are favorable or perhaps not? Solution: Meaning can be added when ever ratios will be compared to past performance and trends will be revealed. Likewise, ratios may be compared to sector averages and ratios of comparable agencies. To keep percentages in correct perspective, a background check to a company’s exterior environment ought to include information about standard economic conditions, political situations and personal climate, and industry view.
The trends or relative differences help to determine if the division is doing well and provide indicators of where to consider potential concerns and opportunities. LO8 106. Ratio ideals standing by themselves have almost no meaning. Describe at least two different methods to make ratios more useful. Solution: (1) Meaning can be added when ever ratios happen to be compared to past performance and trends are revealed. (2) To add meaning, compare percentages to various other relevant data such as industry averages and ratios of peer firms. (3) To hold ratios in proper perspective, a criminal court records search into a industry’s external environment should include information regarding general economic conditions, personal events and political climate, and market outlook.