Exam 10: Decentralized Performance Evaluation

In transfer pricing,the manager of the buying division is motivated to pay the highest price possible,while the manager of the selling division is motivated to sell at the lowest price possible.

Residual income can mitigate the problems of goal incongruence.

Which of the following statements best represents the controllability principle?

The controllability principle holds that managers should be held responsible for what they can control and for allocated costs.

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail is operating at capacity,what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

Devon Inc.has a profit margin of 12% and an investment turnover of 2.5.Sales revenue is $600,000.What is the operating income?

Which of the following is not a perspective used by the balanced scorecard?

Howard has an ROI of 16% based on revenues of $400,000.The investment turnover is 2.What is the residual income if the cost of capital is 9%?

Which of the following is not a method used to determine transfer prices?

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

The following information is available about the status and operations of the Manufacturing Division of Taylor Company,which has a hurdle rate of 6%. a.Compute the ROI for the Manufacturing Division. b.Break the Manufacturing Division ROI down using the DuPont formula. c.Compute the residual income for the Manufacturing Division.

Madison Corp.has a hurdle rate of 9%.Calculate the missing values:

Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?

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

Which of the following is not an advantage of decentralization?

Devon Inc.has a profit margin of 12% and an investment turnover of 2.5.Sales revenue is $600,000.What is the amount of average invested assets?

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.

Avocado Company has an operating income of $80,000 on revenues of $1,000,000.Average invested assets are $500,000 and Avocado Company has an 8% cost of capital.What is the residual income?

Grove Corp.has revenues of $1,500,000 resulting in an operating income of $105,000.Average invested assets total $750,000.Calculate the ROI if sales increase by 10% and the profit margin and investment level remain constant.

The part of the organization for which managers are responsible is called a: