Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 10, Problem 5DQ
In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of operating income?
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In a decentralized company in which the divisions are organized as investment centers, how could a dicision be considered the least profitable even though it earned the largest amount of income from operations?
5. In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations?
6. How does using the return on investment facilitate comparability between divisions of decentralized companies?
Differentiate between a cost center, profit center, and investment center.
What is the major shortcoming of using operating income as a performance measure for investment centers?
Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment?
In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income?
Does the concept of decentralization--top managers allowing middle and lower-level managers to make decisions--have application to God's plan for us? In other words, does God make decisions for us or does he allow us to make decisions in our own lives? Is this good or bad?
How does using the return on investment facilitate comparability between divisions of decentralized companies?
Chapter 10 Solutions
Managerial Accounting
Ch. 10 - Differentiate between centralized and...Ch. 10 - Differentiate between a profit center and an...Ch. 10 - Prob. 3DQCh. 10 - What is the major shortcoming of using operating...Ch. 10 - In a decentralized company in which the divisions...Ch. 10 - How does using the return on investment facilitate...Ch. 10 - (a) Explain how return on investment might lead a...Ch. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - When using the negotiated price approach to...
Ch. 10 - Budgetary performance for cost center Vinton...Ch. 10 - Support department allocations The centralized...Ch. 10 - Prob. 3BECh. 10 - Profit margin, investment turnover, and ROI Briggs...Ch. 10 - Residual income The Commercial Division of Galena...Ch. 10 - Prob. 6BECh. 10 - Budget performance reports for cost centers...Ch. 10 - The following data were summarized from the...Ch. 10 - For each of the following support departments,...Ch. 10 - Prob. 4ECh. 10 - Service department charges In divisional income...Ch. 10 - Varney Corporation, a manufacturer of electronics...Ch. 10 - Horton Technology has two divisions, Consumer and...Ch. 10 - Rocky Mountain Airlines Inc. has two divisions...Ch. 10 - Championship Sports Inc. operates two divisionsthe...Ch. 10 - Prob. 10ECh. 10 - The operating income and the amount of invested...Ch. 10 - Prob. 12ECh. 10 - The condensed income statement for the Consumer...Ch. 10 - The Walt Disney Company (DIS) has four business...Ch. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Materials used by the Instrument Division of...Ch. 10 - Prob. 18ECh. 10 - GHT Tech Inc. sells electronics over the Internet....Ch. 10 - Profit center responsibility reporting for a...Ch. 10 - Prob. 3PACh. 10 - Effect of proposals on divisional performance A...Ch. 10 - Divisional performance analysis and evaluation The...Ch. 10 - Prob. 6PACh. 10 - Prob. 1PBCh. 10 - Prob. 2PBCh. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Divisional performance analysis and evaluation The...Ch. 10 - Prob. 6PBCh. 10 - Prob. 1MADCh. 10 - Prob. 2MADCh. 10 - Papa Johns International, Inc. (PZZA), operates...Ch. 10 - Panera Bread Company (PNRA) operates over 2,000...Ch. 10 - Prob. 5MADCh. 10 - Prob. 1TIFCh. 10 - Prob. 2TIFCh. 10 - Prob. 3TIFCh. 10 - The three divisions of Yummy Foods are Snack...Ch. 10 - Prob. 5TIFCh. 10 - Prob. 1CMACh. 10 - Prob. 2CMACh. 10 - Prob. 3CMACh. 10 - Morrisons Plastics Division, a profit center,...
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- How does using the return on investment facilitate comparability between divisions of decentralized companies?arrow_forwardIn a business where the divisions are organized as investment centers, discuss how a division that generates the largest dollar amount of profit among all divisions, could be considered the least profitableamong all divisions?arrow_forwardWhat are the instances that the return of investment of a division is significantly larger than the return of investment of the entire company? And, why?arrow_forward
- Which of the following is not an objective or potential advantage of transfer pricing? A) A realistic measurement of performance of each division B) A reduction in goal congruence between divisions and overall company C) More autonomy and motivation for divisional managers D) The maximisation of company profitsarrow_forwardWhich of the following statements is NOT a benefit of return on investment (ROI) as a measure of the financial performance of divisions? a. It is a relative measure and allows divisions of different sizes to be compared b. The percentage calculated can be compared with the return required by investors. c. The performance of a division can be tracked over time (since a percentage is calculated). d. It can provide a disincentive to invest, or force the sale of assets, in order to better the return.arrow_forwardHow does using the return on investment facilitate comparability between divisions of decentralized companies?arrow_forward
- (a) Explain how return on investment might lead a divisional manager to reject new investments that could be profitable for the company as a whole. (b) How can this disadvantage be overcome?arrow_forwardUpper management of a growing company has decided its organization is too large to operate as one unit. In fact, some in upper management believe parts of the company are not as profitable as they should be. They have decided to create different segments of the company based on similar groups of products manufactured and have appointed managers of each of these segments. Which of the following would be a good reason for upper management to make this decision? 1. Each segment manager can be held responsible for income generated by segment assets. II. Duplication of work across the organization will decline. III. Segment managers have better information to make decisions than upper management. IV. Upper management can build future leaders by developing segment managers' decision-making skills. V. Communication across the company will be strengthened. O All statements (I-V) are good reasons II, III, IV O I, II, IV, V O I, III, IV OLILVarrow_forwardIn a decentralized accounting system, a company that gives a manager responsibility over revenues, costs, and investment in assets is organized as what type of responsibility center? Group of answer choices cost center profit center investment center none of thesearrow_forward
- If a division has negative net operating income, the company's profits might not increase even if the division is discontinued. O True O Falsearrow_forwardWhich of the following items would most likely not be incorporated into calculation of a division’s investment base when using the residual income approach for performance measurement and evaluation? Division accounts payable when division management exercises control over the amount of short term credit used Division inventories when division management exercises control over the inventory levels Fixed assets employed in divisions operations Land being held by the division as a site for a new plantarrow_forwardWhy are companies divided into departments for the purpose of management control? Is it possible to evaluate a cost center's profitability? Explain.arrow_forward
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