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Exam 10: Decentralized Performance Evaluation

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Question 21

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King Corp.has revenues of $1,500,000 resulting in an operating income of $105,000.Average invested assets total $750,000,and the hurdle rate is 6%.Calculate the residual income if sales increase by 10% and the profit margin and invested assets remain constant.

A) $115,500
B) $45,000
C) $0
D) $70,500

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

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Question 22

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Profit margin can be calculated as

A) Sales revenue/average invested assets
B) Operating income/sales revenue
C) Operating income/average invested assets
D) Average invested assets/sales revenue

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

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Question 23

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The balanced scorecard attempts to focus managers' attention on more than just financial measures.The balanced scorecard considers measures of long-term success,not just short-term financial results.

The responsibility center in which the manager does not have responsibility and authority over revenues is

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail is operating at capacity,what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

The most common method of evaluating a profit center manager is the segmented income statement.The segmented income statement separates costs that are within the profit center manager's control,so it is a valuable tool for evaluating a profit center manager.

Tiffany Company has two divisions,Gold and Silver.Gold produces a unit that Silver could use in its production.Silver currently is purchasing 50,000 units from an outside supplier for $25.Gold is operating at less than full capacity and has variable costs of $13.50 per unit.The full cost to manufacture the unit is $20.Gold currently sells 450,000 units at a selling price of $27.If an internal transfer is made,variable shipping and administrative costs of $1 per unit could be avoided.How much will Silver save by not purchasing from outside if a transfer price of $22.50 is agreed upon?

Return on investment is calculated as the return on the segment's assets divided by the value of those assets.ROI = Operating income/Average invested assets;operating income is a measure of return on the segment's assets.

Investment turnover can be calculated as

Which of the following is a disadvantage of decentralization?

Evergreen Corp.has two divisions,Fern and Bark.Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs,plus the cost of the widget,to manufacture.Fern's variable costs are $60 per widget,and fixed manufacturing costs are applied at a rate of $36 per widget.Widgets sell on the open market for $105 each.Evergreen's policy is that internal transfers will be made at variable cost plus 20%.If Bark purchases the widgets from Fern,what will be the transfer price?

Estate has an ROI of 16% based on revenues of $400,000.The residual income is $14,000 and the investment turnover is 2.What is the hurdle rate?

In a decentralized organization,lower-level managers are given a great deal of autonomy in decision-making.In a decentralized organization,decision-making authority is spread throughout the organization.

Almond,Inc.uses a balanced scorecard.One of the measures on the scorecard is the change in stock price.Which balanced scorecard perspective would this measure most likely fit into?

Which of the following is not an advantage of decentralization?

Investment turnover is defined as the ratio of sales revenue to average invested assets.This is the formula for investment turnover.

Coral has a profit margin of 16% based on revenues of $400,000 and an investment turnover is 2.What is the residual income when the cost of capital is 10%?

Residual income can be calculated as

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the minimum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at less than full capacity,what would be the maximum transfer price Tulip would pay internally?