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Exam 11: Performance Measurement in Decentralized Organizations

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Question 1

True/False

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Inspection Time is generally considered to be value-added time.

A) True
B) False

Correct Answer

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False

Question 2

Multiple Choice

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The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1. The turnover for Year 1 was:

A) 1.2
B) 1.5
C) 3.0
D) 4.0

E) A) and B)
F) A) and D)

Correct Answer

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B

Question 3

True/False

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A manufacturing cycle efficiency (MCE) ratio of less than 1.00 is desirable because this is the ratio of non-value-added time to throughput time.

Eady Wares is a division of a major corporation. The following data are for the latest year of operations: Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income?

The West Division of Cecchetti Corporation had average operating assets of $240,000 and net operating income of $42,200 in August. The minimum required rate of return for performance evaluation purposes is 19%. What was the West Division's residual income in August?

Queue time is considered non-value-added time.

A segment of a business responsible for both revenues and expenses would be called:

The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1. The sales for Year 2 were:

Net operating income is income before interest and taxes.

Robichau Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 20%. If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:

Haney Fabrication is a division of a major corporation. Last year the division had total sales of $21,560,000, net operating income of $1,897,280, and average operating assets of $7,000,000. The company's minimum required rate of return is 16%. Required: What is the division's return on investment (ROI)?

Braymiller Inc. has a $1,600,000 investment opportunity with the following characteristics: $\begin{array}{lc}\text { Sales } & \$ 4,000,000 \\\text { Contribution margin ratio } & 30 \% \text { of sales } \\\text { Fixed expenses } & \$ 1,040,000\end{array}$ The turnover for this investment opportunity is closest to:

A manufacturing cycle efficiency (MCE) of less than one is impossible.

Chavin Company had the following results during August: net operating income, $220,000; turnover, 5; and ROI 25%. Chavin Company's average operating assets were:

Rotan Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: The manufacturing cycle efficiency (MCE) was closest to:

BR Company has a contribution margin of 40%. Sales are $312,500, net operating income is $25,000, and average operating assets are $200,000. What is the company's return on investment (ROI) ?

The following data pertain to Turk Company's operations last year: Turk's return on investment for the year was:

The following data has been provided for a company's most recent year of operations: The residual income for the year was 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?

Willing 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 residual income? 2. What is the residual income of this year's investment opportunity? 3. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall residual income this year? 4. If Westerville's CEO earns a bonus only if residual income for this year exceeds residual income for last year, would the CEO pursue the investment opportunity?