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Exam 6: Performance Measurement in Decentralized Organizations

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Question 61

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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 greater than 12%.

A) True
B) False

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Question 62

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A disadvantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

A) True
B) False

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Question 63

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Cabal Products is a division of a major corporation. Last year the division had total sales of $10,040,000, net operating income of $582,320, and average operating assets of $4,000,000. The company's minimum required rate of return is 14%. -The division's margin is closest to:

Which of the following performance measures will decrease if the minimum required rate of return increases?

Residual income is the net operating income that an investment center earns above the minimum required return on the investment in fixed assets.

The West Division of Frede Corporation had average operating assets of $700,000 and net operating income of $120,800 in December. The minimum required rate of return for performance evaluation purposes is 16%. -What was the Consumer Products Division's minimum required return in August?

A cost center is not a responsibility center.

Financial data for Redstone Company for last year appear below: The company paid dividends of $32,200 last year. The "Investment in Balsam Company" on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Redstone has set a minimum required return of 25%. What was the company's residual income last year?

For the past year, Allargando Company recorded sales of $500,000 and average operating assets of $250,000. What is the margin that Allargando Company needed to earn in order to achieve an ROI of 12%?

The Jenkins Division recorded operating data as follows for the past year: -For the past year, the turnover used in ROI calculations was:

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

During the most recent month at Luinstra Corporation, queue time was 4.5 days, inspection time was 0.8 day, process time was 1.9 days, wait time was 5.1 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.

Last year the Uptown Division of Gorcen Enterprises had sales of $300,000 and a net operating income of $24,000. The average operating assets at Uptown last year amounted to $120,000. -At Uptown the turnover used to calculate ROI last year was:

Daab Products is a division of a major corporation. The following data are for the most recent year of operations: -The division's residual income is closest to:

Consider the following three conditions: I. An increase in sales II) An increase in operating assets III) A reduction in expenses Which of the above conditions provide a way in which a manager can improve return on investment?