Return on investment

1. Gibson Company has tow production departments, Mixing and Finishing, served by a maintenance department. Bugeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $4.00. Other relevant data is as follows:

Mixing Finishing
Long-run capacity 18,000 12,000
availability*
Budgeted* 12,000 10,500
Actual* 15,000 9,000

* in labor hours

Actual maintenance department costs were $36,000 fixed and $10,000 variable. The amount fo variable maintenance costs allocated to the Mixing Department should be ______________.

A. $ 62,5000
B. $72,000
C. $48,000
D. $60,000

The answer is B

2. Hammacher, Inc. has two departments, Get and Go. Relevant information is presented below:

Get Budgeted Sales $400,000 $2,000,000
Actual Sales $300,000 $2,100,000
Total advertising expense is $300,000

If the allocation base is changed from the budgeted sales to actual sales, the amount allocated to the Get Department will __________.

Decrease by $25,000
Decrease by $12,500
Increase by $12,500
Increase by $25,000

The answer is Decrease by $25,000

3. The following information is availale for the Super View Company:

Sales $250,000
Invested Capital $156,250
ROI 10%

What is the return of the sales?

10.00 percent
6.25 percent
1.0 percent
none of the listed

The answer is none of the listed

4. To create a management control system that meets the organization's needs, designers and need to consider all of the following EXCEPT ___________.

existing constraints
external reporting requirements
internal controls
costs versus benefits

The answer is external reporting requirements

5. The term "cost center" is used indiscriminately to describe centers that may or may not be assigned responsibility for the capital investment.

True or False

The answer is False

6. The following infromation pertains to Voyager Company:

Total assets $50,000
Total current liabilities $10,000
Total expenses $60,000
Total liabilities $15,000
Total revenues $80,000
IF invested capital is defined as total assets, a project earning an ROT of 12 percent should be:

rejected
accepted
rejected if the desired rate of return is less than 12 percent
rejected if the cost of capital is greater than 12 percent

The answer is accepted

7. A well-designed management control system ignores non-financial objectives and focuses on financial objectives to develop and report measures of performance.

True or false

The answer is False

8. The following information pertains to Voyager Company.

Total assets $50,000
Total current liabilities $10,000
Total expenses $60,000
Total liabilities $15,000
Total revenue $80,000

If the invested capital is defined as total assets, the return on investment is

160 percent
40 percent
57 percent
25 percent

The answer is 40 percent

9. Why is decentralization likely to increase a firm's costs?

A. Information costs rise as responsibility reports are needed
B. Managers duplicate services that might be less expensive if centralized
C. Neither managers duplicates services that might be less expensive if centralizes nor information costs rises as responsibility reports are needed. Decentralized reduces costs.
D. Managers duplicate services that might be less expensive if centralized and information costs rise as responsibility reports are needed.

The answer is C