Exam 12: Decentralization and Performance Evaluation

The Florida Division of Garner Furniture reported the following results for 2014: Invested capital \ 800,000 Profit margin 5\% Return on investment 8\% Given this information, how much was sales?

Cost centers, profit centers, and investment centers are all responsible for controlling costs in the respective subunit.

Return on investment is used to evaluate

The manager of the Beach Division of Treat Time is evaluating the acquisition of a new mobile ice cream server. The budgeted operating income of the Beach Division is currently $2,940,000 with total assets of $28,600,000 and noninterest-bearing current liabilities of $600,000. The proposed investment would add $18,000 to operating income and would require an additional investment of $120,000. The targeted rate of return for the Beach Division is 9 percent. Ignoring taxes, how much is the return on investment of the Beach Division if the ice cream server is not purchased?

Firms that grant substantial decision-making authority to the managers of subunits are referred to as

Canal Tower is a division of Sounder Products. For the most recent year, Canal Tower had net income of $16,000,000. Included in income was interest expense of $1,200,000. The operation's tax rate is 40 percent. Total assets of Canal Tower are $225,000,000, current liabilities are $40,000,000, of which $35,000,000 are noninterest-bearing. How much is return on investment for Canal Tower?

In which dimension of a balanced scorecard is the measure of the number of new patents developed through research and development?

Global Division of Food National Distribution's economic value added for 2014 was $1,600. The company's cost of capital for the year was 16 percent and the company's adjusted net operating profit after taxes (NOPAT) was $3,500. How much is the amount of the Global Division's invested capital after adjustment for accounting distortions when calculating EVA?

The Produce Division of Nature Green has invested capital of $940,000 and noninterest-bearing current liabilities totaling $20,000. If the minimum required return is 11 percent, cost of capital is 9 percent, and residual income is $12,000, how much is NOPAT?

Which of the following is not one of the set of dimensions considered in the balanced scorecard?

Bajalia Company compiled the following information for the year ending December 31, 2014: Research and development costs \8 00,000 Sales 6,400,000 Net income 1,200,000 Interest expense 400,000 income tax rate 30\% At the end of 2014, total assets totaled $6,900,000. Bajalia's total current liabilities were $1,400,000, of which $600,000 were interest-bearing obligations. Bajalia's cost of capital is 12 percent and it amortizes intangibles over 4 years. What adjustment must Bajalia make to invested capital for accounting distortions if EVA is to be calculated for 2014?

Merlin Component's Hillside Division is currently operating at 100 percent capacity (capacity is 100,000 units). The normal selling price for its wrap film is $12 per case. At current operating levels, fixed costs are $3 per case and variable costs are $7 per case. Another division of Merlin Components would like to buy from the Hillside Division. If this sale is made, $1.20 per case in variable selling and administrative costs can be saved. Calculate the most acceptable transfer price per unit.

Winton Company has three divisions. The Florida Division has a 30 percent tax rate, a 4.5 percent cost of capital, and a 7.5 percent required rate of return. During the fiscal year, the division reported sales of $3,920,000. Interest expense was $120,000 and net income was $122,800. The Florida Division has total assets of $2,950,000 and noninterest-bearing liabilities of $150,000. How much is the Florida Division's NOPAT?

In what manner does the balanced scorecard challenge managers? I. To focus on the single most important measure to the company II. To perform on a variety of dimensions simultaneously III. To look forward as well as backward

Economic value added is

Winton Company has three divisions. The Florida Division has a 30 percent tax rate, a 4.5 percent cost of capital, and a 7.5 percent required rate of return. During the fiscal year, the division reported sales of $3,920,000. Interest expense was $120,000 and net income was $122,800. The Florida Division has total assets of $2,950,000 and noninterest-bearing liabilities of $150,000. How much is the Florida Division's invested capital?

Why are accounting distortions removed when evaluating performance using EVA?

Consider the following information for the Executive Division of Buy Electronics: December 31 2014 2013 Total assets \ 11,800,000 \ 11,000,000 Noninterest-bearing current liabilities 500,000 520,000 Net income 700,000 800,000 Interest expense 210,000 300,000 Income tax rate 35\% 35\% Cost of capital 7\% 8\% Required rate of return 9\% 11\% How much is residual income for 2014?

Which of the following transfer prices will likely be closest to the opportunity cost of the product?

Return on investment can be improved by increasing net income or increasing the assets invested.