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Exam 10: Performance Measurement in Decentralized Organizations

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Question 31

True/False

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Residual income is the difference between net operating income and the product of average operating assets and the minimum rate of return.

A) True
B) False

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Question 32

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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) ?

A) 12.5%
B) 62.5%
C) 8.0%
D) 64.0%

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

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Question 33

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Navern Corporation manufactures and sells custom home elevators.From the time an order is placed until the time the elevator is installed in the customer's home averages 90 days.This 90 days is spent as follows: What is Navern's manufacturing cycle efficiency (MCE) for its elevators?

Ranallo 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: 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? 11.What was last year's residual income? 12.What is the residual income of this year's investment opportunity? 13.If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall residual income this year? 14.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?

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.

The ROI for this year's investment opportunity considered alone is closest to:

Under a responsibility accounting system, fewer expenses are charged against managers the higher one moves upward in an organization.

If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum required rate of return of 8%, what decision would be preferred by Edith Carolina and Michael Sanders?

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:

What was the West Division's minimum required return in August?

The ROI for this year's investment opportunity considered alone is closest to:

The division's residual income is closest to:

Which of the following will not result in an increase in return on investment (ROI) , assuming other factors remain the same?

The division's margin is closest to:

Last year's residual income was closest to:

For the past year, the turnover used in ROI calculations was:

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.

Bungert Inc.reported the following results from last year's operations: The company's minimum required rate of return is 12% and its average operating assets were $8,000,000.Last year's residual income was closest to:

If a strategy is not working, it should become evident on the balanced scorecard when some of the predicted effects don't occur.

Vandenheuvel 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: