28. Residual income is a better measure for performance evaluation of an investment center manager than return on

nvestment because

a. The problems associated with measuring the asset base are eliminated

b. Desirable investment decisions will not be neglected by high-return divisions

c. Only the gross book value of assets needs to be calculated

d. The arguments about the implicit cost of interest are eliminated

29. Mr. Sy is the general manager of the XXX Division, and his performance is measured using the residual income method.

Mr. Sy is reviewing the following forecasts for his division for the next year:

Category Amounts

Working capital P 1,800,000

Revenue 30,000,000

Plant and equipment 17,200,000

If the imputed interest charge is 15% and Mr. Sy wants to achieve a residual income of P 2,000,000, what will costs

have to be in order to achieve the targeted residual income?

a. P 9,000,000 c. P 25,150,000

b. P 10,800,000 d. P 25,690,000

30. Lead Company presented the following information:

Units to be sold 50,000 units

Total costs of the units P 550,000

Fixed capital investments P 1,000,000

Variable capital on sales 20%

What would be the selling price in order to produce a 20% return on investment?

a. P 15.652 c. P 16.525

b. P 15.256 d. P 15.625

31. The following information is available for the wholesale products division of Aluminum Company:

Net operating profit before interests and taxes P 30,000,000

Depreciation expense 10,000,000

Change in net working capital 5,000,000

Capital expenditures 4,000,000

Invested capital (total assets - current liabilities) 50,000,000

Weighted-average cost of capital 10%

Tax rate 40%

What is the economic value added (EVA) for the division?

a. P 25,000,0000 c. P 13,500,000

b. P 18,000,0000 d. P 13,000,000

32. Myrrh Co. reported these data at year-end:

Pre-tax operating income P 4,000,000 Current liabilities P 2,000,000

Current assets 4,000,000 Long-term liabilities 5,000,000

Long-term assets 16,000,000 Tax Rate 25%

Assuming a weighted average cost of capital (WACC) of 9%, what is Myrrh Company's economic value-added (EVA)?

a. P 1,380,000 c. P 1,830,000

b. P 1,620,000 d. P 3,000,000

33. In theory, what is the optimal method for establishing a transfer price?

a. Flexible budget cost c. Budgeted cost with or without a markup

b. Incremental cost d. Market price

34. The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)

a. Production center c. Cost center

b. Investment center d. Profit cente