Exam 15: Performance Evaluation and Compensation

Use the following information for the next 4 questions. Teresa's Taco Co. had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. -The capital investment was

KNY Corporation reported operating income of $80,000 and average operating assets of $120,000 in a recent accounting period. Which of the following transactions would definitely increase KNY's return on investment?

Use the following information for the next 3 questions. Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows. -Which of the following is most likely to be an example of an agency cost caused by incongruent goals?

Return on investment can be decomposed into two ratios: investment turnover and return on sales.

In a dual-rate transfer pricing system, the selling department is credited for the market price and the buying department is charged the product's variable cost.

Use the following information for the next 2 questions. The Mukilteo Division of Snohomish Corp. produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: -If Mukilteo is operating at full capacity and selling solely to outside customers, what price should another division pay for Mukilteo's product?

Use the following information for the next 4 questions. Teresa's Taco Co. had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. -The return on sales was

Use the following information for the next 5 questions. Bellingham Division has a required rate of return by corporate headquarters of 20%. The weighted average cost of capital is 12%. You are given the following information for Bellingham's operations for a two-year period: -The ROI for 2005 was

Efficiency measures, such as number of new products developed, may be more useful than financial measures in

Compensation contracts can be based on accounting and / or non-accounting measurements.

When a company uses activity-based transfer prices

The manager in a cost center is responsible for

Which of the following is most likely to be the highest transfer price?

Operating income is

Use the following information for the next 4 questions. Teresa's Taco Co. had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. -The return on investment was

Decentralization typically eliminates agency costs from for-profit organizations.

Use the following information for the next 3 questions. Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per pound of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of the flour. Each loaf of bread uses one-half pound of flour. -What is the operating income per pound of flour for Division X if the transfer price is set at $0.625/lb?

Use the following information for the next 3 questions. Chicago Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for Chicago Divisions operations over the past 2 years follows. -What was the Chicago Division residual income for 20x5?

Use the following information for the next 2 questions. The Mukilteo Division of Snohomish Corp. produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: -If Mukilteo has excess capacity available to meet an internal order, what transfer price should be set?

Economic value added uses "adjusted after-tax operating income" as one of its inputs. One purpose of using after-tax income, rather than operating income, is to