QN: Which of the following statements regarding investment centers is incorrect?

Question

QN: Which of the following statements regarding investment centers is incorrect?
Multiple Choice
1)A manager of an investment center is responsible for the investment of capital, but not revenues or expenses.
2)Investment centers are commonly found at the higher levels of an organization chart.
3)A manager of an investment center should be accountable for assets, liabilities, earnings.
4)Return on investment and residual income are tools used to assess managers of an investment center.

QN: Which of the following statements regarding cost centers is incorrect?
Multiple Choice
1)Cost centers are units within a business that incur expense, but do not have responsibility for generating revenue.
2)Cost centers tend to be found at upper levels on a company's organization chart.
3)A manager of a cost center has less responsibility than a manager in an investment center.
4)Cost center managers are evaluated on their ability to control costs and keep within budget.

QN:True or False: The preferred method for establishing transfer prices for transactions between divisions of the same firm is to base the transfer price on some form of competitive market price.

QN: The New Products Division, of Testar Company, has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements is accurate?
Multiple Choice
1)The new product is acceptable because it will yield an ROI that is higher than the target ROI and will yield residual income of $40,000.
2)The new product will yield residual income of $45,000.
3)The new product will decrease the company wide ROI.
4)The new product is unacceptable because it will yield an ROI that is lower than the target ROI.

Explanation / Answer

ANSWER

1. Incorrect statement regarding investment center-

-A manager of an investment center is responsible for the investment of capital, but not revenues or expenses.

Investment center is a responsibility center where manager is accountable for investments , revenues as well as of expenses.

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