Fundementals Of Cost Accounting Seventh Edition-McGraw Hill- ACCT521 CH 14 QUESTIONS Week 7

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When developing performance measures, considerations include Blank______. Multiple select question. whether the measure ensures that managers who perform above standards will receive a bonus whether managers are taking actions that improve reported performance but are detrimental to organizational performance correct whether the measure is consistent with the manager's decision authority incorrect whether the measure reflects the results of actions that improve organizational performance correct Correct Answer  whether managers are taking actions that improve reported performance but are detrimental to organizational performance  whether the measure is consistent with the manager's decision authority  whether the measure reflects the results of actions that improve organizational performance Divisional income statements Blank______. Multiple select question. may use firmwide averages for some accounts incorrect may ignore income taxes incorrect must be prepared using GAAP are internal performance measures correct Correct Answer  may use firmwide averages for some accounts  may ignore income taxes  are internal performance measures

Advantages of using after-tax divisional income as a performance measure include the Blank______. Multiple select question. the results of decisions affecting revenues and costs are summarized correct ease of comparing division of different sizes Reason: The measure makes it difficult to compare divisions of different sizes. income computation matches the way the firm's income is computed correct measure fully reflects the manager's decision authority Reason: The measure does not fully reflects the manager's decision authority which is a disadvantage of this method. Correct Answer  the results of decisions affecting revenues and costs are summarized  income computation matches the way the firm's income is computed Given the following information, calculate the gross margin ratio. Sales $275,0 00 Cost of goods sold $150,0 00 Operating income $65,00 0 After-tax income $45,50 0 Multiple choice question. 45.45% correct Reason: ($275,000 – $150,000) ÷ $275,000 = 45.45% 54.55%

Reason: ($275,000 – $150,000) ÷ $275,000 = 45.45% 23.64% Reason: ($275,000 – $150,000) ÷ $275,000 = 45.45% 43.33% Reason: ($275,000 – $150,000) ÷ $275,000 = 45.45% Correct Answer 45.45% Operating income divided by sales is the formula for the operating Blank 1 Blank 1 operating , Correct Unavailable margin Blank 2 Blank 2 margin , Correct Unavailable ratio. (Enter only one word per blank.) Correct Answer  Blank 1: operating  Blank 2: margin Which of the following are true of developing performance measures? Multiple select question. In developing performance measures, we must consider whether the measures reflect the results of actions that improve the performance of the organization. incorrect The only effective performance measurement systems are those that perfectly align the manager’s and organization’s interests. Reason: No performance measurement system perfectly aligns the manager’s and organization’s interests. Systems designers must be aware of possibly dysfunctional decisions that managers might make. correct

In developing performance measures, we must consider actions managers might be taking that improve reported performance but are actually detrimental to organizational performance. correct Correct Answer  In developing performance measures, we must consider whether the measures reflect the results of actions that improve the performance of the organization.  Systems designers must be aware of possibly dysfunctional decisions that managers might make.  In developing performance measures, we must consider actions managers might be taking that improve reported performance but are actually detrimental to organizational performance. Which of the following are true of divisional income statements? Multiple select question. Common bases for organizing firms are geographical responsibility units and product lines. correct Taxes are a required component of divisional income statements. They are subject to compliance with GAAP. Divisional income statements are internal performance measures. correct Correct Answer  Common bases for organizing firms are geographical responsibility units and product lines.  Divisional income statements are internal performance measures. Disadvantages of using divisional income as a performance measure include the Blank______. Multiple select question. measure does not fully reflect the manager's decision authority correct computation is the same as income for the firm Reason: This is an advantage.

results of decisions affecting revenues and costs are summarized Reason: This is an advantage. difficulty in measuring divisions of different sizes correct Correct Answer  measure does not fully reflect the manager's decision authority  difficulty in measuring divisions of different sizes After-tax income divided by sales is the formula for the profit Blank 1 Blank 1 profit , Correct Unavailable margin Blank 2 Blank 2 margin , Correct Unavailable ratio. (Enter only one word per blank.) Correct Answer  Blank 1: profit  Blank 2: margin (Sales minus cost of goods sold) divided by sales is the formula for the gross Blank 1 Blank 1 gross , Correct Unavailable margin Blank 2 Blank 2 margin , Correct Unavailable ratio. (Enter only one word per blank.) Correct Answer  Blank 1: gross  Blank 2: margin or profit After-tax income divided by divisional assets is the formula for return Blank 1 Blank 1 return , Correct Unavailable on investment Blank 2 Blank 2 investment , Correct Unavailable. (Enter only one word per blank.)

Correct Answer  Blank 1: return  Blank 2: investment or investments Given the following information, calculate the operating margin ratio. Sales $275,0 00 Cost of goods sold $150,0 00 Operating income $65,00 0 After-tax income $45,50 0 Multiple choice question. 43.33% Reason: $65,000 ÷ $275,000 = 23.64% 45.45% incorrect Reason: $65,000 ÷ $275,000 = 23.64% 23.64% Reason: $65,000 ÷ $275,000 = 23.64% 16.55% Reason: $65,000 ÷ $275,000 = 23.64% Correct Answer 23.64% When developing performance measures, considerations include Blank______.

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