Advantages of centralized organizations

. Advantages of centralized organizations include include increased expertise at each division, quicker decisions, better use of time at top management levels, and increased motivation of division managers. True False 2. A segment responsible for costs, revenues, and investment in assets is called an investment center. True False 3. Economic Value Added is the dollar amount of division operating profit in excess of the division’s cost of acquiring capital to purchase its operating assets. True False 4. The Return on Equity measure provides an assessment of how effectively each division is using operating assets to produce operating income. True False 5. ROI can be calculated using two separate measures: operating profit margin and asset turnover (ROI = Operating profit margin x Asset turnover). True False 6. Excluding allocated overhead has the effect of increasing ROI for each division manager and holds each division manager responsible only for expense amounts that are controllable. True False 7. Manford Inc. has two divisions – Refrigerators and Dish Washer. Manford Company Segmented Income Statements For the Current Fiscal Year Ended December 31 Refrigerator Dish Washer Division Division Sales $10,576 $5,600 Cost of goods sold 4,873 2,024 Gross margin Allocated overhead (from corporate) 938 712 Selling and administrative expenses 868 376 Operating income Income tax expense (45%) 1,740 736 Net income $ $ Using the segmented income statements, what is the profit margin ration for the Refrigerator Division? Answer tonearest two decimal places without any commas or words (e.g. 1.25 increase or 125%). Enter a negative number as -10 not (10). ________?__________ Response Feedback: profit margin ration = net income / sales 8. Manford Inc. has two divisions – Refrigerators and Dish Washer. Manford Company Segmented Income Statements For the current Fiscal Year Ended December 31 Refrigerator Dish Washer Division Division Sales $10,467 $5,882 Cost of goods sold 4,810 2,249 Gross margin Allocated overhead (from corporate) 911 653 Selling and administrative expenses 819 412 Operating income Income tax expense (45%) 1,823 665 Net income $ $ Assume the Refrigerator Division has average operating assets totaling $24,766 for the year. What is the division’s return on investment? Answer to nearest two decimal places without any commas or words (e.g. 1.25 not 1.25 increase or 125%). Enter a negative number as -10 not (10). __________?_______ Response Feedback: division return on investment = operating income / average total assets 9. Manford Inc. has two divisions – Refrigerators and Dish washer. Manford Company Segmented Income Statements For the Current Fiscal Year Ended December 31 Refrigerator Dish Washer Division Division Sales $10,054 $5,980 Cost of goods sold 4,243 1,702 Gross margin Allocated overhead (from corporate) 871 646 Selling and administrative expenses 860 409 Operating income Income tax expense (45%) 1,801 705 Net income $ $ Assume the Refrigerator Division has average operating assets totaling $6,543 for the year and the company’s cost of capital rate is 13 percent. what is the residual income for the Refrigerator division? Answer to nearest whole dollar without any commas, decimal points, or words (e.g. 1000 not 1,000.00 or increase 1000). Enter a negative number as -10 not (10). _______?_________ Response Feedback: division residual income = division operating income – (average division assets x company’s cost of capital) 10. Katsen Company can sell its products to an external market for $182 per unit. The division’s variable manufacturing costs are $56 per unit and fixed manufacturing costs are $15 per unit. If the division is operating at full capacity, what would be the opportunity cost of selling internally? _______?_______ Response Feedback: The opportunity costs would be sales price – variable costs.

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