Exam 12: Organizational Structure and Performance Measurement

$\text { Reference: 12-04 }$ Estes Company has assembled the following data for its divisions for the past year: Division A Division B Average operating assets \ 500,000 ? Sales ? \ 520,000 Net operating income \ 100,000 \ 20,300 Turnover 1.25 4 Margin ? 3.9\% Minimum required rate of return 14\% ? Residual income ? \ 6,000 -Division B's average operating assets are?

Reference: 12-06 The Baily Division recorded operating data as follows for the past two years: Year 1 Year 2 Sales ? \ 1,200,000 Stockholders' equity \ 540,000 720,000 Average operating assets \ 600,000 ? Margin 15\% ? Return on investment 22.5\% 18\% Baily Division's turnover was exactly the same in both Year 1 and Year 2. -Which of the following is not an operating asset?

Reference: 12-03 The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: Unit selling price \ 50 Unit variable cost \ 30 Total fixed costs \ 200,000 Average operating assets \ 750,000 Minimum required rate of return 12\% -Suppose the manager of the Axle Division desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?

Which of the following are benefits of decentralization? I. Giving a manager of a division greater decision making control over his/her division provides vital training for a manager who is on the rise in the company. II. Managers at corporate headquarters have greater control in seeing that the goals of the company are realized. III. Added decision-making authority and responsibility often leads to increased job satisfaction and often persuades a manager to put forth his/her best efforts.

$\text { Reference: } 12 - 10$ Harstin Corporation has provided the following data: Sales \ 625,000 Gross margin 70,000 Net operating income 50,000 Stockholders' equity 90,000 Average operating assets 250,000 Residual income 20,000 -Multidimensional performance systems such as the balanced scorecard are appropriate for not-for-profit organizations but not for commercial businesses.

$\text { Reference: 12-09 }$ The Northern Division of Gordon Company reported the following data for last year: Sales \ 900,000 Stockholders' equity \ 320,000 Operating expenses \ 700,000 Average operating assets \ 500,000 Interest expense \ 50,000 Tax expense \ 60,000 Minimum required rate of return 15\% -Which of the following are potential benefits of using multi-dimensional performance reporting? I. Managers are less likely to miss facets of performance that impact financial results. II. Performance measures can be more easily refined as strategies are changed and a better understanding of what works and what doesn't work is obtained. III. In developing the system managers will focus on understanding cause and effect relationships in the way the business operates resulting in the discovery of opportunities for improvements.