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Exam 11: Performance Measurement in Decentralized Organizations

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Question 21

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Shrewsbury Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%. -Last year's residual income was closest to:

A) $504,000
B) ($56,000)
C) $544,000
D) ($475,200)

E) All of the above
F) None of the above

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Question 22

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

A) $250,000
B) $125,000
C) $100,000
D) $75,000

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

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Question 23

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Condren Inc.reported the following results from last year's operations: At the beginning of this year,the company has a $1,000,000 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:

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.

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

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?

Financial measures tend to be lag indicators that report on the results of past actions.

Dacker Products is a division of a major corporation. The following data are for the most recent year of operations: -The division's return on investment (ROI) is closest to:

Worley Inc.reported the following results from last year's operations: At the beginning of this year,the company has a $1,000,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 17%. Required: 1.What was last year's residual income? 2.If the company pursues the investment opportunity and otherwise performs the same as last year,what will be the overall residual income this year? 3.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?

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%. -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?

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.

The Hum Division of the Ho Company reported the following data for last year: -The residual income for the Hum Division last year was:

Rotan Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: -What is the manufacturing cycle efficiency?

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

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

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 residual income is closest to:

Net operating income is income before interest and taxes.

Haney Fabrication is a division of a major corporation.Last year the division had total sales of $21,560,000,net operating income of $1,897,280,and average operating assets of $7,000,000.The company's minimum required rate of return is 16%. Required: What is the division's return on investment (ROI)?

Schapp Corporation keeps careful track of the time required to fill orders.The times recorded for a particular order appear below: The throughput time 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?