Exam 14: Business Unit Performance Measurement

Like return on investment (ROI),economic value added (EVA)adjustments fail to sufficiently address the sub-optimization problem.

One disadvantage of using after-tax income as a performance measure of divisional results is it's an absolute measure which makes it difficult to compare divisions of significantly different sizes.

The measure (ratio)that reflects the performance of a manager regarding sales and cost of goods sold,but not other operating costs and income taxes,is called the

What are two disadvantages of using divisional income as a performance measure?

What is the residual income for each year,assuming the cost of capital is 15% and RST uses historical costs and gross book values to compute residual income?

The following information has been gathered for the Green Division: Compute the Green Division's residual income.

The FGH Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI)of 20%.If the residual income was $2,250,what was the company's cost of capital?

The profit margin ratio is computed by dividing after-tax operating income by sales.

Which of the following items would not require an adjustment to capital employed when using economic value added (EVA)?

Which division's profit margin is the highest?

In general,a division's investment base includes an allocated share of the corporate headquarters' assets.

The following information was presented by Charlie Manufacturing Company for an asset purchased at the beginning of the previous year. What is the return on investment (ROI)assuming Charlie (a)uses the straight-line method for depreciation and (b)average net book values to compute ROI?

What is the ROI using current costs and net book value?

Current costs should not be used to compute either return on investment (ROI)or residual income because current costs are not generally accepted accounting principles (GAAP).

The following information pertains to Quest Co.'s Gold Division for the current year: (CPA adapted) Quest's return on investment was

What is the ROI using current costs and gross book value?

What was B Division's return on investment (ROI)last year?

It is not possible for a manager to accept an unacceptable project when his/her performance is evaluated using ROI.

Divisional income statements do not have to follow generally accepted accounting principles (GAAP)because they are internal reports.

Which of the following statements is (are)true? (A)Divisional income statements do not include allocated common costs. (B)The gross margin ratio is computed by dividing operating income by sales.