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Exam 11: Performance Measurement in Decentralized Organizations

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Question 71

Multiple Choice

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Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's margin is closest to:

A) 31.6%
B) 29.4%
C) 38.7%
D) 9.3%

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

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Question 72

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Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is less than 12%.

A) True
B) False

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Question 73

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Vandenheuvel Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: $\begin{array}{lr} & \text { Hours } \\\text { Move time }& 2.4 \\\text { Wait time } & 18.2 \\\text { Queue time } & 6.8 \\\text { Process time } & 1.8 \\\text { Inspection time }&0.3\end{array}$ The manufacturing cycle efficiency (MCE) was closest to:

The following data are for the Akron Division of Consolidated Rubber, Inc.: $\begin{array}{lrr}\text { Sales } & \$ & 750,000 \\\text { Net operating income } & \$ & 45,000 \\\text { Average operating assets } & \$ & 250,000 \\\text { Stockholder's' equity } & \$ & 75,000 \\\text { Residual income } & \$ & 15,000\end{array}$ For the past year, the minimum required rate of return was:

The Casket Division of Saal Corporation had average operating assets of $950,000 and net operating income of $135,200 in January. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 13%. Required: What was the Casket Division's residual income in January?

Serie Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $2,100,000 investment opportunity with the following characteristics: The margin for this year's investment opportunity considered alone is closest to:

All other things the same, an increase in unit sales will normally result in an increase in the return on investment.

Cabell Products is a division of a major corporation. Last year the division had total sales of $25,320,000, net operating income of $1,924,320, and average operating assets of $6,000,000. The company's minimum required rate of return is 10%. The division's turnover is 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.

Parsa Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $1,100,000 investment opportunity with the following characteristics: If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROI for the entire company will be closest to:

Criner Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $1,800,000 investment opportunity with the following characteristics: Required: 1. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 2. 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%.)

The management of International Cookwares believes that delivery performance measures must be improved if the company is to maintain its competitive edge. The following data are considered to be typical of the time to complete orders. $\bullet$ Process time: 4 days $\bullet$ Wait time to the start of production: 15 days $\bullet$ Move time: 3 days $\bullet$ Inspection time: 2 days $\bullet$ Queue time during the production process: 8 days What is the delivery cycle time?

Pinkton Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: $\begin{array}{lr} & \text { Hours } \\\text { Move time } & 3.6 \\\text { Wait time } & 13.3 \\\text { Queue time }& 5.1 \\\text { Process time } & 0.5 \\\text { Inspection time }&0.2\end{array}$ The delivery cycle time was:

Runyon Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 16,800,000 \\\text { Variable expenses } & 12,230,000 \\\text { Contribution margin } & 4,570,000 \\\text { Fixed expenses } & 3,394,000 \\\text { Net operating income } & \$ 1,176,000 \\\end{array}$ The company's average operating assets were $7,000,000. Last year's turnover was closest to:

Salvey Inc. reported the following results from last year's operations: The company's average operating assets were $3,000,000. At the beginning of this year, the company has a $300,000 investment opportunity that involves sales of $480,000, fixed expenses of $100,800, and a contribution margin ratio of 30% of sales. If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROI for the entire company will be 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.

Pankey Inc. has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:

The Tipton Division of Dudley Company reported the following data last year: Tipton Division's average operating assets last year were:

If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, then employees must work harder.

Tanouye Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: $\begin{array}{lr} & \text { Hours } \\\text { Wait time } & 12.7 \\\text { Process time } & 1.6 \\\text { Inspection time } & 0.4 \\\text { Move time } & 2.1 \\\text { Queue time } & 8.8\end{array}$ The throughput time was: