Exam 12: Decentralization and Performance Evaluation

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

A profit center is a subunit that has responsibility for controlling costs and revenues and generating a return on assets invested in the subunit.

Most service departments, such as machine maintenance and janitorial services, are examples of

Rail Star Company reported the following results for 2017: Sales \ 6,000,000 Investment turnover 2.4 Return on investment 10\% Given this information, how much is the company's invested capital?

In decentralized organizations, upper level corporate managers provide substantial authority to subunits because they have the most expertise.

The following income statements for the year ending December 31 and other information are available for the Langston Division of Act Company: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { For the Year Ending Decem ber } 31$ 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-be aring 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 NOPAT adjusted as it relates to computing EVA for 2018?

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

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

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

Last year, Green Thumb's Residential Division reported sales of $950,000, interest expense of $100,000, and net income of $126,000.The company's tax rate is 30 percent, and it has an 8 percent cost of capital and a 9 percent required rate of return.Residential Division has noninterest-bearing current liabilities that total $75,000 and it has total assets of $820,000.How much is the Residential Division's NOPAT?

The income amount that is used in the calculation of return on investment is usually

Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper.Information related to the two subsidiaries follows. Yard Recycling Paper Recycling Total assets \ 8,000,000 \ 15,000,000 Noninterest-bearing current liabilities 500,000 1,000,000 Net income 1,500,000 2,600,000 Interest expense 600,000 800,000 Required rate of return 8\% 11\% Cost of capital 7\% 9\% Tax rate 30\% 32\% Which subsidiary has added the most to shareholder value in the last year?

An investment center manager is responsible for controllable revenues and costs, and controllable investments.

What does ROI measure?

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 ROI of the Audio Division?

It is difficult to compare investment centers using return on investment when there is a significant difference in the _________ between the investment centers.

The Pastry Division of Dream Bread has invested capital of $1,300,000.During the past year, the Pastry Division reported sales of $5,590,000 and earned $400,000 of NOPAT.By how many times did revenue exceed the Pastry Division's investment?

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 percent.As it pertains to evaluating investment centers, how much is Division 3's profit margin?

The Media Division of Winslow Company has invested capital of $1,250,000, sales of $590,000, net income of $44,250, and interest expense of $7,000.Winslow's income tax rate is 40 percent.What is the Media Division's return on investment?

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