Exam 12: Decentralization and Performance Evaluation

Which of the following components are evaluated when using the Balanced Scorecard approach?

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\% Based on the limited information, which subsidiary is the best candidate for expansion?

Managers who are evaluated favorably when profit is used as the performance measure will most likely be evaluated favorably when return on investment is used as the performance 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 residual income of the Audio Division?

A manager is evaluated based on return on investment.The corporate minimum required return is 11 percent and the manager runs a division that has attained a 14 percent return on investment.Which of the following statements is true?

Which of the following is a disadvantage of a decentralized organization?

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?

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 An opportunity is available that yields an expected income of $45,900 on an investment of $450,000.If the divisions are evaluated based on return on investment, which division(s) will accept the opportunity?

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

Tomlinson Tech has a cost of capital of 8 percent, a required rate of return of 9.5%, and an income tax rate of 30 percent.The Consumer Division of Tomlinson Tech has assets totaling $2,800,000 and current liabilities at $180,000 with $40,000 of this amount being interest-bearing.Sales for the year totaled $1,900,000 and interest expense totaled $20,000.Net income was $166,500 for the year.How much is the Consumer Division's invested capital?

The income statement for the Commercial Construction Division of the Kenyon Company is as follows: Sales \ 272,000 Operating expenses 132,000 Net operating income 140,000 Interest expense 20,000 Earnings before taxes 120,000 Income tax expense (30\%) \ 36,000 Net income If this division's invested capital is $500,000, how much is its return on investment?

If managers are evaluated using return on investment, they are often over aggressive of accepting new investments because the investment will provide an increase in net income.

The Produce Division of Saveway Shop had invested capital of $520,000 last year with $20,000 of noninterest-bearing current liabilities.If the minimum required rate of return is 9 percent, the cost of capital is 7 percent, and last year's residual income was $52,000, how much was last year's NOPAT?

Which dimension of a balanced scorecard is a measure of the increase in employee training?

NOPAT is

Bottling Division of Fizzies Drink Company bottles soft drink produced by other divisions of Fizzies Drink Company.The Bottling Division had sales last year of $1,200,000, and earned $300,000 in income (NOPAT).Its invested capital was $1,000,000.How much are the Bottling Division's profit margin, investment turnover, and return on investment?

Lack of goal incongruence is a problem in decentralized organizations.

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

The Cadillac division of General Motors is considered

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?