If a division's ROI and the minimum required ROI are the same, the division's residual income is
a. positive.
b. zero.
c. negative.
d. none of the above.
a 19. If residual income for Division Q of Company Z is negative, which of the following is true?
a. Q's ROI is less than Z's minimum required ROI.
b. Q's ROI equals Z's minimum required ROI.
c. Q's ROI is higher than Z's minimum required ROI.
d. None of the above.
b 20. Market-based transfer prices are best for
a. the company when the selling division is operating below capacity.
b. the company when the selling division is operating at capacity.
c. the buying division if it is operating at capacity.
d. the buying division.
d 21. The worst transfer-pricing method is to base the prices on
a. market prices.
b. budgeted variable costs.
c. budgeted total costs.
d. actual total costs.
d 22. All other things remaining constant, if a division doubles its investment turnover, its ROI will
a. decrease.
b. remain constant.
c. increase.
d. double.
c 23. Residual income
a. is always the best measure of divisional performance.
b. is not as good a measure of performance as ROI.
c. overcomes some of the problems associated with ROI.
d. cannot be used by divisions that deal with others in the same company.
b 24. If two divisions earn the same ROI and RI, which of the following is true?
a. Their managers must be about equally skillful.
b. Their incomes and investments must be the same.
c. Both divisions are doing as well as they should be.
d. All of the above.
c 25. Which of the following is most likely to be included in calculating divisional profit?
a. Interest on corporate debt.
b. Income taxes.
c. Sales to other divisions within the company.
d. A share of corporate administration expenses.
b 26. If sales increase, while income and investment remain constant, which of the following is true?
a. Investment turnover decreases.
b. ROS decreases.
c. ROI increases.
d. ROI could increase or decrease.
c 27. Compared to a jewelry store, a supermarket has
a. higher margin and higher turnover.
b. higher margin and lower turnover.
c. lower margin and higher turnover.
d. lower margin and lower turnover.
c 28. If income increases while sales and investment remain constant, which of the following is true?
a. Investment turnover increases.
b. ROS decreases.
c. ROI increases.
d. ROI could increase or decrease.
a 29. Which transfer price is ideal for the company when the selling division is at capacity?
a. Market price.
b. Incremental cost.
c. Budgeted full cost.
d. Actual variable cost plus a percentage profit.
c 30. From the standpoint of the company, the important question in transfer pricing is
a. what is fair to the divisions.
b. how to determine the profit of the divisions.
c. whether or not the transfer should take place.
d. when the transfer should be made.
d 31. The ROI of Division A relative to that of Division B can be influenced by
a. the industry in which each division operates.
b. the transfer price used for sales to Division B.
c. the tax structures of the countries in which the divisions operate.
d. all of the above.
c 32. Considering liabilities in computing divisional investment
a. encourages managers of divisions to pay their bills faster.
b. discourages managers of divisions from acquiring long-term financing.
c. raises divisional ROI above what it would otherwise
