Exam 12: Decentralization and Performance Evaluation

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 residual income?

The Cadillac division of General Motors is considered

A manager who has the ability to replace assets within his division, is in control of what type of center?

Why is an adjustment made to net income when calculating NOPAT?

The Global Division of Station Depot has invested capital of $920,000. If residual income is $4,600 and net operating profit after taxes is $69,000, how much is the cost of capital?

A profit margin of 12 percent indicates that each dollar of assets invested generated 12 cents of profit.

In a decentralized organization, performance evaluations encourage managers to behave as if their own personal goals are congruent with the goals of the company as a whole.

Division 3 of Baritune Enterprises reported sales of $820,000, NOPAT totaling $61,500, interest expense of $8,000, and invested capital totaling $512,500. Its income tax rate is 30%. As it pertains to evaluating investment centers, how much is Division 3's investment turnover?

Which one of the following is not an advantage of decentralization for an organization?

A balanced scorecard is used to evaluate investment centers.

An advantage of decentralization is that subunit managers can respond more quickly to changing circumstances.

The Jersey Division of Yankee Products has invested capital of $1,400,000. This division incurred $80,000 in interest expense and $140,000 in income tax expense in 2014. If this division reported a return on investment of 14 percent, how much is net operating profit after taxes?

Which of the following is not an advantage of decentralization of a company?

Which of the following is a responsibility that distinguishes an investment center manager from a profit center manager?

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 How much is the residual income of the Audio Division?

Which of the following performance measures is considered the most sophisticated and is felt to give top management the most comprehensive method of evaluating subunits?

Which of the following can improve a company's return on investment? I. Increase the profit margin II. Decrease total assets III. Decrease the contribution margin

Which of the following methods of setting a transfer price most closely reflects an arm's-length, independent transaction?

RedEx Transport's Rail Division has an annual capacity to process 800,000 tons of gravel used as a base under railroad tracks by railroads. The normal selling price is $62 per ton. At current operating levels, fixed costs are $10 per ton and variable costs are $32 per ton. The Air Division of RedEx Transport would like to buy 200,000 tons of gravel from the Rail Division to use in producing quality aggregate to be used for runways. The Rail Division is operating at 100 percent of capacity. The Air Division currently buys the gravel for $55 per ton from an outside source. The Rail Division can save $5 per ton in variable costs on the transfer. What is the lowest price the Rail Division should consider if it wishes to see no decline in profits?

Which of the following is an incentive for managers who must deal with different tax rates in international markets?