Exam 12: Decentralization and Performance Evaluation

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?

An adjustment is made to net income when calculating residual income to remove

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?

When residual income is calculated, an amount is subtracted to cover the profit that the company believes should be earned by the assets invested in the subunit.

The following information is reported for the current year for North Atlantic Division of XT Enterprises: Sales \ 3,800,000 Interest expense \ 250,000 Net income \ 500,000 Total assets \ 5,000,000 Noninterest-bearing current liabilities \ 400,000 Cost of capital 8\% Required rate of return 14\% Tax rate 30\% How much is the division's return on investment rounded to one decimal?

A subunit that has responsibility for controlling costs, but does not have responsibility for generating revenue is a(n)

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

The following information is reported for the current year for North Atlantic Division of XT Enterprises: Sales \ 3,800,000 Interest expense \ 250,000 Net income \ 500,000 Total assets \ 5,000,000 Noninterest-bearing current liabilities \ 400,000 Cost of capital 8\% Required rate of return 14\% Tax rate 30\% As it relates to investment center evaluation, how much is the division's profit margin, rounded to the nearest whole percentage?

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

Managers of cost centers are evaluated in order to decide if a division should be expanded, contracted, or changed.

If a company uses responsibility accounting, a shift supervisor in the Austin production plant should be held responsible for

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?

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

Managers tend to over invest when profit is used to evaluate them.

The Pastry Division of Dream Bread has invested capital of $1,300,000.During the past year, the Pastry Division reported sales of $1,200,000 and earned $400,000 of NOPAT.How much profit did the Pastry Division generate on each revenue dollar earned by the division?

Profit margin is

The following income statements for the year ending December 31 and other information are available for the Langston Division of Act Company: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { For the Year Ending December } 31$ 2018 2017 Sales \ 250,000,000 \ 220,000,000 Cost of goods sold 105,000,000 96,000,000 Gross margin 145,000,000 124,000,000 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 Less taxes on income 31,320,000 26,730,000 Net income \7 3,080,000 \6 2,370,000 Total assets \ 650,000,000 \ 605,000,000 Noninterest-bearing current liabilities \ 15,000,000 \ 12,300,000 Required rate of return 12\% 12\% Cost of capital 10\% 10\% Interest expense is $0 and the tax rate is 30 percent.Langston Division amortizes intangible costs over 4 years.By how much is invested capital adjusted as it relates to computing EVA for 2018?

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

The manager of the West Division of Beach Clothing Company is evaluating the acquisition of a new embroidery machine.The budgeted operating income of the West Division was $4,000,000 with total assets of $22,000,000 and noninterest-bearing current liabilities of $1,000,000.The proposed investment would add $750,000 to operating income and would require an additional investment of $3,500,000.The targeted rate of return for the West Division is 14 percent and the cost of capital is 9 percent.Ignoring taxes, how much is the residual income of the West division if the embroidery machine is purchased?

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?