12. Contribution margin would be the most important variable in evaluating the p

Question

12. Contribution margin would be the most important variable in evaluating the performance of:
A. A cost center.
B. A production center.
C. An investment center.
D. A profit center.

13. Which of the following statements
about return on investment (ROI) is false?
A. ROI equals margin divided by investment turnover.
B. ROI is used to measure the performance of investment centers.
C. Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
D. Companies may minimize motivational problems by using original cost instead of book value in the denominator of the ROI formula.

14. Which of the following should not be included in the investment base used to compute residual income?
A. Accounts receivable
B. Inventory
C. Cash
D. Land held for future use

15. Which of the following may be used to establish transfer prices?
A. Standard cost of a product
B. A negotiated price
C. Market price
D. All of these are correct answers.  

Explanation / Answer

12) D. A profit center , Contribution is sales minus variable cost, which covers fixed costs expenses of firm

13) A. ROI equals margin divided by investment turnover , ROI is equal to net income divided by Total Assets employed or shareholder's equity

14) D. Land held for future use , division Investment base includes all total operating assets but assets which are idle or held for future potential use

15) D. All of these are correct answers , All of these may be used to establish transfer prices, but most common method is cost based transfer pricing to establish transfer prices

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