final exam ch.11 questions

Question 1

Contribution income statements are used to measure the performance of:
A. Bost centers.
B. Both cost centers and profit centers.
C. Both cost centers and investment centers.
D. Both profit centers and investment centers.

Answer 1

D. Both profit centers and investment centers.

Question 2

Residual income:
A. Is the return on investment (ROI) percentage multiplied by average operating assets.
B. Is the net operating income earned above a certain minimum required return on sales.
C. Is the net operating income earned above a certain minimum required return on average operating assets.
D. Will always be greater than zero.

Answer 2

C. Is the net operating income earned above a certain minimum required return on average operating assets.

Question 3

Consider the following three conditions:

I. An increase in sales
II. An increase in operating assets
III. A reduction in expenses

Which of the above conditions provide a way in which a manager can improve return on investment?
A. Only I
B. Only I and II
C. Only I and III
D. Only II and III

Answer 3

C. Only I and III

Question 4

A company that is seeking to increase ROI should attempt to decrease:
A. Sales.
B. Turnover.
C. Margin.
D. Average operating assets.

Answer 4

D. Average operating assets.

Question 5

All profit centers are responsibility centers, but not all responsibility centers are profit centers.

True
False

Answer 5

True

Question 6

Inspection Time is generally considered to be non-value-added time.

True
False

Answer 6

True

Question 7

Operating assets include cash, accounts receivable, and inventory but not any depreciable fixed assets.
True
False

Answer 7

False

Question 8

A disadvantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.
True
False

Answer 8

False