9. Which of the following is a performance measure of profit centers?

A. return on investment

B. residual income

C. contribution margin

D. economic value added

10. Which of the following is not a decision that investment center can make?

A. Where to buy the materials

B. Selling price of the product made

C. How much operating assets are used in operation

D. How much funds are invested in stocks

E. How much wages to pay to workers

11. Return on investment is:

A. Margin x Turnover

B. Margin x Variance

C. Turnover x Minimum rate of return

D. Turnover x Residual income

12. Which of the following is not true of residual income?

A. Residual income is the excess of actual income over the minimum required income.

B. Minimum required income is determined by the minimum rate of return required and net

operating assets used.

C. Residual income can mitigate the goal incongruence problem (good projects to the company

May not be undertaken by self-interested divisional managers).

D. Residual income can be used to make performance comparisons among different divisions with

different sizes.

13. The following information is given:

Division Xs current ROI is 20%. This division is evaluated on the basis of ROI.

Division Ys current ROI is 23%. This division is evaluated on the basis of residual income.

The companys headquarters requires 16% as the minimum required rate of return.

There is a project that will generate a 18% ROI. Will these divisions accept the project?

Division X Division Y

A. Yes Yes

B. Yes No

C. No Yes

D. No No

14. The following information is available for Division A of True Company:

Division A
Sales	$3,000,000
Net operating income	150,000
Average operating assets	1,000,000
Minimum required rate of return	12%

Compute:

(a) Margin

(b) Turnover

(c) Return on investment

(d) Residual income

15. The following information is available for Division B of True Company:

Division B
Average operating assets	$5,000,000
Residual income	100,000
Minimum required rate of return	12%

Return on investment is:______%.