Exam 12: Decentralization and Performance Evaluation

Which dimension of a balanced scorecard is a measure of the increase in employee training?

Most service departments, such as machine maintenance and computer services, are considered cost centers.

NOPAT does not hold the investment center manager responsible for

The following income statements and other information are available for the Biltmore Company: 2014 2013 Sales \ 230,000,000 \ 220,000,000 Cost of goods sold Gross margin Selling and administrative costs 25,000,000 22,500,000 Research and development 15,600,000 12,400,000 Income from operations 104,400,000 89,100,000 Income taxes expense 36,540,000 31,185,000 Net income \6 7,860,000 \6 7,915,000 Total assets \ 650,000,000 \ 605,000,000 Noninterest-bearing current liabilities \ 15,000,000 \ 12,300,000 Biltmore's interest expense is $0, its income tax rate is 35 percent, and its cost of capital is 10 percent. Biltmore amortizes R&D over 4 years. By how much is invested capital adjusted as it relates to computing EVA for 2014?

Companies evaluate performance of subunits and subunit managers in order to

Increased motivation of managers is an advantage of decentralization.

Which of the following consists of noninterest-bearing current liabilities?

West Division of PoolGuard has invested capital of $900,000. This division incurred $80,000 in interest expense and $20,000 in income tax expense related to interest in July. If this division reported a return on investment of 15 percent, how much is NOPAT?

Tomlinson Tech has a cost of capital of 8 percent, a required rate of return of 9.5 percent, and an income tax rate of 30 percent. The Consumer Division of Tomlinson Tech has assets totaling $2,800,000 and current liabilities at $180,000 with $40,000 of this amount being interest-bearing. Sales for the year totaled $1,900,000 and interest expense totaled $20,000. Net income was $166,500 for the year. How much is the Consumer Division's NOPAT?

NOPAT is used for 'income' in the return on investment formula because

Which of the following is a disadvantage of using a negotiated transfer price instead of a cost-based transfer price?

Electronic Division makes a part that sells externally for $50.00 per unit. It has a variable production cost of $22.00 per unit, a variable selling and administrative cost of $7.00 per unit, a fixed production cost of $1,000,000 per year, and a fixed selling and administrative cost of $500,000 per year. Production capacity is 250,000 units per year. Electronic Division is selling all it can produce externally at $50.00 per unit. One-half of the variable selling and administrative cost can be eliminated on units transferred to the Digital Division. Digital Division can buy the part externally at $48.00 per unit and uses 30,000 parts annually. Should a transfer take place, and if so what are the rational limits on the range of transfer prices?

Why is an adjustment made to assets when determining residual income?

If managers are evaluated using return on investment, they are often over aggressive of accepting new investments because the investment will provide an increase in net income.

Which of the following is a characteristic of a profit center?

Profit margin is

NOPAT is

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent. The following information about its two divisions has been provided by management: Audio Division Video Division NOPAT \ 1,400,000 \ 2,000,000 Sales \ 10,000,000 \ 12,500,000 Invested capital \ 15,000,000 \ 17,500,000 As it relates to investment center evaluation, how much is the profit margin of the Video Division?

A manager is evaluated based on return on investment. The corporate minimum required return is 11 percent and the manager runs a division that has attained a 14 percent return on investment. Which of the following statements is true?

When performance evaluation is based on return on investment, managers will usually accept projects that yield less than the required rate of return.