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Exam 11: Performance Measurement in Decentralized Organizations

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Question 51

Multiple Choice

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Babak Industries is a division of a major corporation. Last year the division had total sales of $19,560,000, net operating income of $1,877,760, and average operating assets of $6,000,000. The division's margin is closest to:

A) 31.3%
B) 9.6%
C) 30.7%
D) 40.3%

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

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Question 52

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Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's return on investment (ROI) is closest to:

A) 24.0%
B) 31.62%
C) 3.0%
D) 7.2%

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

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Question 53

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A balanced scorecard consists of a report showing a performance measure such as ROI or residual income for all of the divisions in a company that generate profits.

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

Kingcade Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: The manufacturing cycle efficiency (MCE) was 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 net operating income for Year 1 was:

Financial data for Beaker Company for last year appear below: The company paid dividends of $2,100 last year. The "Investment in Cedar 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 Beaker Company has set a minimum required return of 20%. What was the company's residual income last year?

Ibale Industries is a division of a major corporation. The following data are for the latest year of operations: Required: What is the division's residual income?

Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. The company's minimum required rate of return is 8%. Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line? $\begin{array}{lll} & \text { Carolina } & \text { Sanders } \\\text { A) } & \text { accept } & \text { reject } \\\text { B) } & \text { reject } & \text { accept } \\\text { C) } & \text { accept } & \text { accept } \\\text { D) } & \text { reject } & \text { reject }\end{array}$

The Tipton Division of Dudley Company reported the following data last year: The division's net operating income last year was:

A cost center is a responsibility center.

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

Tennill Inc. has a $1,400,000 investment opportunity with the following characteristics: $\begin{array}{lc}\text { Sales } & \$ 4,480,000 \\\text { Contribution margin ratio } & 40 \% \text { of sales } \\\text { Fixed expenses } & \$ 1,657,600\end{array}$ The ROI for this year's investment opportunity considered alone is closest to:

Return on investment (ROI) equals margin multiplied by sales.

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 and otherwise performs the same as last year, the combined ROI for the entire company will be closest to:

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

The performance measures on a balanced scorecard tend to fall into four groups: financial measures, customer measures, internal business process measures, and learning and growth measures.

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 return on investment (ROI) is closest to:

Which of the following would be considered an operating asset in return on investment computations?

An advantage 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.