Professional Documents
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MULTIPLE CHOICE
21. A report that measures financial and nonfinancial performance measures for various
organization units in a single report is called a(n)
a. balanced scorecard.
b. financial report scorecard.
c. imbalanced scorecard.
d. unbalanced scorecard.
24. Does operating income best measure a subunit's financial performance? This question
is considered part of which step in designing an accounting-based performance
measure?
a. Choose performance measures that align with top management's financial goals.
b. Choose the time horizon of each performance measure.
c. Choose a definition for each performance measure.
d. Choose a measurement alternative for each performance measure.
25. Should assets be defined as total assets or net assets? This question is considered part of
which step in designing an accounting-based performance measure?
a. Choose performance measures that align with top management's financial goals.
b. Choose the time horizon of each performance measure.
c. Choose a definition for each performance measure.
d. Choose a measurement alternative for each performance measure.
29. The return on investment is usually considered the most popular approach to
incorporating the investment base into a performance measure because
a. it blends all the ingredients of profitability into a single percentage.
b. once determined, there is no need to use it with other measures of performance.
c. it is similar to the company's price earnings ratio in that a corporation's return on
investment appears every day in The Wall Street Journal.
d. of both (a) and (c).
Answer: a Difficulty: 2 Objective: 3
30. Return on investment can be increased by
a. increasing operating assets.
b. decreasing operating assets.
c. decreasing revenues.
d. both (b) and (c).
32. During the past twelve months, the Zenith Corporation had a net income of $39,200.
What is the return on investment if the amount of the investment is $280,000?
a. 10%
b. 12%
c. 14%
d. 16%
33. The Alpha Beta Corporation had the following information for 20x3:
Revenue $ 900,000
Operating expenses 670,000
Total assets 1,150,000
What is the return on investment?
a. 10%
b. 20%
c. 25%
d. 78.2%
Answer: b Difficulty: 2 Objective: 3
$230,000/$1,150,000 = 20%
34. Wacker Company has two regional offices. The data for each is as follows:
Maryland New York
Revenues $ 580,000 $ 596,000
Operating assets 4,800,000 9,000,000
Net operating income 2,016,000 2,400,000
What is the Maryland Division's return on investment?
a. 0.42
b. 0.54.
c. 0.96.
d. 4.12.
Answer: a Difficulty: 1 Objective: 3
$2,016/$4,800 = 0.42%
35. Thacker Company has two regional offices. The data for each is as follows:
Maryland New York
Revenues $ 580,000 $ 596,000
Operating assets 4,800,000 9,000,000
Net operating income 2,016,000 4,860,000
What is the return on investment for the New York Division?
a. 0.42.
b. 0.54
c. 0.96
d. 4.12
Answer: b Difficulty: 1 Objective: 3
$4,860/$9,0000= 54%
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 36 THROUGH 38.
The Cybertronics Corporation reported the following information for its Cyclotron Division:
Revenues $1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
36. What is the Cyclotron Division's investment turnover ratio?
a. 2.00
b. 3.33
c. 2.50
d. 0.80
Answer: a Difficulty: 2 Objective: 3
$1,000,000/$500,000 = 2
37. What is the Cyclotron Division's return on sales?
a. 0.2
b. 0.4
c. 0.5
d. 0.6
Answer: b Difficulty: 2 Objective: 3
$1,000,000 - $600,000 = $400,000; $400,000/$1,000,000 = 0.40
38. What is the Cyclotron Division's return on investment?
a. 0.2
b. 0.4
c. 0.5
d. 0.8
Answer: d Difficulty: 2 Objective: 3
$400,000 / $500,000 = 0.8
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 39 THROUGH 43.
The top management at Munchie Company, a manufacturer of computer games, is attempting
to recover from a flood that destroyed some of their accounting records. The main computer
system was also severely damaged. The following information was salvaged:
Alpha Division Beta Division Gamma Division
Sales $2,500,000 (a) $1,150,000
Net operating income $1,500,000 $650,000 $ 575,000
Operating assets (b) (c) $ 766,667
Return on investment 0.25 0.15 (d)
Return on sales (e) 0.10 0.5
Investment turnover (f) (g) 1.5
39. What were the sales for the Beta Division?
a. $4,333,333
b. $5,952,380
c. $6,500,000
d. $7,151,800
40. What is the value of the operating assets belonging to the Alpha Division?
a. $4,333,333
b. $6,000,000
c. $6,500,000
d. $7,151,800
41. What is the value of the operating assets belonging to the Beta Division?
a. $4,333,333
b. $5,952,380
c. $6,500,000
d. $7,151,800
44. Costs recognized in particular situations that are not recognized by accrual accounting
procedures are
a. opportunity costs.
b. imputed costs.
c. cash accounting costs.
d. none of the above.
49. What are the respective residual incomes for the North and South Divisions?
a. $30,000 and $50,000
b. $150,000 and $30,000
c. $150,000 and $50,000
d. $50,000 and a negative $150,000
Answer: c Difficulty: 2 Objective: 4
North = $750,000 - (0.1) $6,000,000 = $150,000
South = $550,000- (0.1) $5,000,000 = $50,000
50. Which division has the best return on investment and which division has the best
residual income figure, respectively?
a. North, North
b. South, South
c. North, South
d. South, North
Answer: a Difficulty: 2 Objective: 4
51. After-tax operating income minus the after-tax weighted-average cost of capital
multiplied by total assets minus current liabilities equals
a. return on investment.
b. residual income.
c. economic value added.
d. weighted-average cost of capital.
52. The after-tax average cost of all the long-term funds used by a corporation equals
a. economic value added.
b. return on investment.
c. return on equity.
d. weighted-average cost of capital.
53. A negative feature of defining investment by excluding the portion of total assets
employed that are financed by short-term creditors is
a. current liabilities are sometimes difficult to define.
b. short-term debt is always more expensive to finance than long-term debt.
c. this method encourages managers to use an excessive amount of short-term debt.
d. this method encourages managers to use an excessive amount of long-term debt.
Operating Current
Income Assets Liabilities
St. Louis $ 960,000 $ 4,000,000 $ 200,000
Cedar Rapids $1,200,000 $ 8,000,000 $ 600,000
Wichita $2,040,000 $12,000,000 $1,200,000
ASSETS INCOME
Book value Current value Book value Current value
Bleach $225,000 $300,000 $150,000 $155,000
Cleanser $450,000 $250,000 $100,000 $105,000
58. What are Bleach's and Cleanser's return on investment based on current values,
respectively?
a. 0.22; 0.67
b. 0.42; 0.52
c. 0.52; 0.42
d. 0.67; 0.22
Answer: c Difficulty: 2 Objective: 6
Current ROI:
Bleach: $155,000 / $300,000 = 0.52
Cleanser: $105,000 / $250,000 = 0.42
59. What are Bleach's and Cleanser's residual incomes based on book values, respectively?
a. $116,250; $32,500
b. $110,000; $67,500
c. $67,500; $110,000
d. $37,500; $116,250
Answer: a Difficulty: 2 Objective: 6
Book value RI:
Bleach: $150,000 - ($225,000 x 0.15) = $116,250
Cleanser: $100,000 - ($450,000 x 0.15) = $32,500
60. The cost today of purchasing an asset identical to the one currently held is called
a. an actual cost.
b. a current cost.
c. a dual cost.
d. a fixed cost.
64. A problem with rewarding managers only on the basis of residual income
a. is that residual income is difficult to measure.
b. is that on occasion the items in the residual income calculation are not
quantifiable.
c. is that residual income can depend on items over which the manager has little
control.
d. include all of the above.