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Exam 10: Performance Measurement in Decentralized Organizations

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Question 51

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The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000.The corporation requires a return on investment of 18%. Required: a.Calculate the company's return on investment (ROI)and residual income (RI). b.Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950.Would it be in the best interests of the company to make this investment? c.Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950.If the division planning to make the investment currently has a return on investment of 20% and its manager is evaluated based on the division's ROI, will the division manager be inclined to request funds to make this investment? d.Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950.If the division planning to make the investment currently has a residual income of $50,000 and its manager is evaluated based on the division's residual income, will the division manager be inclined to request funds to make this investment?

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a.Return on investment = Net operating i...

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Question 52

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Lumsden Inc.has a $1,200,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 7%.The residual income for this year's investment opportunity is closest to:

A) $120,000
B) $36,000
C) $0
D) $84,000

E) None of the above
F) A) and B)

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Question 53

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Mike Corporation uses residual income to evaluate the performance of its divisions.The company's minimum required rate of return is 14%.In January, the Commercial Products Division had average operating assets of $970,000 and net operating income of $143,700.What was the Commercial Products Division's residual income in January?

All other things equal, which of the following would increase a division's residual income?

Wolley Inc.reported the following results from last year's operations: At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%. Required: 1.What was last year's margin? (Round to the nearest 0.1%.) 2.What was last year's turnover? (Round to the nearest 0.01.) 3.What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 4.What is the margin related to this year's investment opportunity? (Round to the nearest 0.1%.) 5.What is the turnover related to this year's investment opportunity? (Round to the nearest 0.01.) 6.What is the ROI related to this year's investment opportunity? (Round to the nearest 0.1%.) 7.If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.) 8.If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.) 9.If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.) 10.If Westerville's chief executive officer earns a bonus only if the ROI for this year exceeds the ROI for last year, would the CEO pursue the investment opportunity? Would the owners of the company want the CEO to pursue the investment opportunity?

A profit center is responsible for generating revenue, but it is not responsible for controlling costs.

The division's turnover is closest to:

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations?

A change in sales has no effect on margin and turnover.

Last year's return on investment (ROI) was closest to:

Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures only if managers are confident that the performance measures are easily manipulated by those being evaluated.

Suppose Deed Corporation evaluates managerial performance using return on investment.Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division.What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?

Chiodini Inc.has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales.The ROI for this year's investment opportunity considered alone is closest to:

The division's return on investment (ROI) is closest to:

Schlarbaum Corporation's management keeps track of the time it takes to process orders.During the most recent month, the following average times were recorded per order: Required: a.Compute the throughput time. b.Compute the manufacturing cycle efficiency (MCE). c.What percentage of the production time is spent in non-value-added activities? d.Compute the delivery cycle time.

Move time is considered non-value-added time.

What was the Consumer Products Division's residual income in May?

The residual income for this year's investment opportunity when considered alone is closest to:

Verbeke Inc.reported the following results from last year's operations: Last year's turnover was closest to:

If the residual income for the year was $9,000, the minimum required rate of return must have been: