Question

Which of the following is not an operating asset?

Multiple Choice

• Cash

• Inventory

• Plant equipment

• Common stock

Companies often decentralize their operations by

Multiple Choice

• geographic area.

• product line.

• customer base.

• All of the above.

Which of the following is not an advantage of decentralization?

Multiple Choice

• Top management is relieved of many short run decisions and can spend more time on long run decisions.

• Lower level managers receive more managerial experience earlier in their careers.

• Decisions are made by the most experienced managers in the organization.

• Managers are often more satisfied with their jobs and are usually more motivated.

All other things the same, which of the following would increase residual income?

Multiple Choice

• Increase in average operating assets.

• Decrease in average operating assets.

• Increase in minimum required return.

• Increase in minimum required return.

Sebastian, an investment center manager in RKH Corporation, is trying to boost the current period’s return on investment. Which of the following actions will achieve that goal?

Multiple Choice

• Purchasing a new piece of equipment on the last day of the fiscal year.

• Raising commission rates for salespeople from 3% to 4%.

• Delaying preventive maintenance on existing equipment until next year.

• All of the above will increase the current period’s ROI.

The Consumer Products Division of Goich Corporation had average operating assets of $550,000 and net operating income of $44,000 in May. The minimum required rate of return for performance evaluation purposes is 12%.

What was the Consumer Products Division's minimum required return in May?

Multiple Choice

• $5,280

• $44,000

• $71,280

• $66,000

Answer 1

1. Which of the following is not an operating asset?

Common stock (Common stock is part of equity, it is not an asset.)

2. Companies often decentralize their operations by:

All of the above (Any of the three, geographic area, product line, or customer base may be used as a base to decentralize operations.)

3. Which of the following is not an advantage of decentralization?

Decisions are made by the most experienced managers in the organization.

4. All other things the same, which of the following would increase residual income?

Decrease in average operating assets.

5. Which of the following actions will achieve that goal?

Delaying preventive maintenance on existing equipment until next year.

6. What was the Consumer Products Division's minimum required return in May?

$550,000 x 12% = $66,000