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Exam 11: Performance Measurement in Decentralized Organizations

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Question 1

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The use of return on investment (ROI)as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.

A) True
B) False

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True

Question 2

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Residual income can be used most effectively in comparing the performance of divisions of different size.

A) True
B) False

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Question 3

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Bonilla Inc. has a $700,000 investment opportunity with the following characteristics: -The ROI for the investment opportunity is closest to:

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:

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

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: -Last year's margin was closest to:

Fabbri 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 return on investment (ROI)? b.What is the division's residual income?

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

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

Tennill Inc.has a $1,400,000 investment opportunity with the following characteristics: The ROI for this year's investment opportunity considered alone is closest to:

Boespflug Inc.has a $1,000,000 investment opportunity that involves sales of $900,000,fixed expenses of $225,000,and a contribution margin ratio of 30% of sales.The margin for this investment opportunity is closest to:

Schurz Corporation's management reports that its average delivery cycle time is 26.7 days,its average throughput time is 10.0 days,its manufacturing cycle efficiency (MCE)is 0.22,its average move time is 0.6 day,and its average queue time is 6.7 days. Required: a.What is the wait time? b.What is the process time? c.What is the inspection time?

The Hum Division of the Ho Company reported the following data for last year: -What was the West Division's minimum required return in August?

During the most recent month at Schwab Corporation,queue time was 7.8 days,inspection time was 0.3 day,process time was 1.3 days,wait time was 9.7 days,and move time was 0.7 day. 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.

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

Gabbe Industries is a division of a major corporation.Last year the division had total sales of $8,910,000,net operating income of $962,280,and average operating assets of $3,000,000.The company's minimum required rate of return is 10%. 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)?

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: -If the company pursues the investment opportunity and otherwise performs the same as last year,the combined margin for the entire company will be closest to:

Canedo Inc.reported the following results from last year's operations: At the beginning of this year,the company has a $700,000 investment opportunity with the following characteristics: If the company pursues the investment opportunity and otherwise performs the same as last year,the combined turnover for the entire company will be closest to:

ROI and residual income are tools used to evaluate managerial performance in investment centers.

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?