Exam 10: Decentralized Performance Evaluation

The Marine Division of Pacific Corp. has average invested assets of $110,000,000. Sales revenue of $50,250,000 results in an operating income of $9,967,000. The hurdle rate is 7%. a. Calculate the return on investment. b. Calculate the profit margin. c. Calculate the investment turnover. d. Calculate the residual income.

Segment margin and profit margin are identical terms

A ________________ is the amount that one division charges when it sells goods or services to another division within the same company.

Almond, Inc. uses a balanced scorecard. One of the measures on the scorecard is the average age of raw materials inventory. Which balanced scorecard perspective would this measure most likely fit into?

Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units from an outside supplier for $50. Parsley is operating at less than full capacity and has variable costs of $27 per unit. The full cost to manufacture the unit is $38. Parsley currently sells 450,000 units at a selling price of $54. If an internal transfer is made, variable shipping and administrative costs of $2 per unit could be avoided. What would be the minimum transfer price?

Which of the following is not something that should be compiled for each dimension of the balanced scorecard?

Palm Inc. has a profit margin of 15% and an investment turnover of 2. Sales revenue is $800,000. What is the amount of average invested assets?

Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 25,000 units from an outside supplier for $24 per unit. Polk is currently operating at less than its full capacity of 600,000 units and has variable costs of $12 per unit. The full cost to manufacture the unit is $18. Polk currently sells 450,000 units at a selling price of $25.50 per unit. a. What will be the effect on Avery Company's operating profit if the transfer is made internally? b. What is the minimum transfer price from Polk's perspective? c. What is the maximum transfer price from Bishop's perspective?

Spring Corp. has two divisions, Daffodil and Tulip. Daffodil produces a gadget that Tulip could use in its production. Tulip currently purchases 100,000 gadgets for $12.50 on the open market. Daffodil's variable costs are $6 per widget while the full cost is $9.35. Daffodil sells gadgets for $13 each. If Daffodil is operating at less than full capacity, what would be the maximum transfer price Tulip would pay internally?

In what type of organization is decision-making authority spread throughout the organization?

Calculate the missing values:

The balanced scorecard approach, which includes a broad set of financial and non-financial performance indicators is not compatible with sustainability accounting

Swan Company has two divisions, Hill and Paradise. Hill produces a unit that Paradise could use in its production. Paradise currently is purchasing 5,000 units from an outside supplier for $56. Hill is operating at less than full capacity and has variable costs of $30.80 per unit. The full cost to manufacture the unit is $43.40. Hill currently sells 450,000 units at a selling price of $61.60. How much profit will Hill receive from the transfer if a transfer price of $42 is agreed upon?

Which of the following is not a limitation of return on investment?

Appletree Co. focuses on sustainability metrics in conjunction with its core operations: producing and selling fruit. Match each of the following environmental and sustainability metrics with each of the four dimensions of the balanced scorecard. a. Crop yield (number of apples) per tree b. The number of repeat customers c. The number of employees who attend educational events focused on environmental and sustainability topics d. Level of carbon emissions from automatic pickers e. The number of subscribers to the electronic newsletter (instead of the paper newsletter) f. The number of employees who are LEED associates (i.e., hold professional credentials related to Leadership in Energy & Environmental Design) g. Change in results of annual environmental impact audit year-over-year h. The number of unsold inventory items (apples) i. Annual sales j. The percentage increase in the number of likes on Facebook (Appletree Co. page) and followers on Instagram (Appletree Co.) k. The percentage of unsold inventory items (apples) disposed of via secondary distribution channels (e.g., food banks) versus the percentage of unsold inventory items discarded l. Revenue from disposal of unsold inventory in secondary distribution channels (e.g., food banks) m. The operations ratio with and without sustainability measures in place n. The percentage of repeat customers expressed as a percentage of total customers o. Percentage of investment portfolio invested in sustainable investments p. The number of mentions of "Appletree Co." via social media q. The percent increase in the number of blog posts with "environmental" or "sustainability" subject matter r. Amount of annual contributions to charitable causes

National Company has two divisions, Walton and Iowa. Walton produces an item that Iowa could use in its production. Iowa currently is purchasing 50,000 units from an outside supplier for $9.10 per unit. Walton has sufficient capacity and has variable costs of $5.25 per unit. The full cost to manufacture the unit is $7.70. Walton currently sells 450,000 units at a selling price of $9.80 per unit. a. What will be the effect on National Company's operating profit if the transfer is made internally? b. What will be the change in profits for Walton if the transfer price is $7 per unit? c. What will be the change in profits for Iowa if the transfer price is $7 per unit?

King Corp. has revenues of $1,500,000 resulting in an operating income of $105,000. Average invested assets total $750,000, and the hurdle rate is 6%. Calculate the residual income if sales increase by 10% and the profit margin and invested assets remain constant.

The DuPont method breaks residual income into profit margin and investment turnover

Pine Corp. has revenues of $500,000 resulting in an operating income of $54,000. Invested assets total $600,000. Residual income is $18,000. Calculate the new residual income if sales increase by 10% and the profit margin and invested assets remain the same.

Crawford Corp. has an ROI of 15% and a residual income of $10,000. If operating income equals $30,000, what is the amount of average invested assets?