Exam 15: Performance Evaluation and Compensation

The EVA for 2005 was

Specific knowledge is I. More detailed than general knowledge II. More costly to transfer than general knowledge III. An example of an agency cost

Budgets can be used to evaluate managerial performance in I. Cost centers II. Profit centers III. Investment centers

How are research and development costs treated for financial reporting and for economic value added (EVA) calculations?

Which of the following transfer pricing systems potentially takes the most time to establish?

ROI will decrease if

(CMA) Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n)

Residual income is

Return on investment cannot be used effectively to evaluate profit centers because it motivates managers to make suboptimal decisions from the viewpoint of the organizations' owners.

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%. -Division S sold a part to both Division P and outside customers last year. The revenues from these sales were $30,000 (1,000 units) and $35,000 (1,000 units), respectively. Next year, S plans to increase the unit sales price to $42 and wants a proportionate increase in the sales price to Division P. The unit costs are $9 variable and $15 fixed. If Division P does not agree to the price increase, 50% of Division S's fixed costs will be eliminated. What is the highest price Division P would be willing to pay for external purchases?

THN Corporation reported operating income of $30,000, revenue of $50,000, and average operating assets of $40,000 for a recent year. Which of the following is true?

Responsibility accounting includes I. Monitoring primarily for mistakes II. Assigning authority to subunit managers III. Measuring the performance of subunit managers

Investment center managers are held responsible only for their costs.

Suppose an office building is owned for which long-term leases have been signed, the tenants pay utilities and operating costs, and straight-line depreciation is taken. The rate of return on the book value of this investment can be expected to

If a supplying division has excess capacity, the best transfer price is the product's variable cost.

If manufacturing departments are only responsible for production decisions, they are considered cost centers.

Use the following information for the next 2 questions. The Machining Division has a capacity of 2,000 units. Its sales and cost data are: -If the Assembly Division is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales take place at the optimum transfer price?

Which of the following best describes "general knowledge" in a decision-making context?

Use the following information for the next 2 questions. Division A produces a component for Hielkema Company's main product - automobiles. The division operates as a profit center. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: -The price range within which A would sell components to the Assembly Division is

The Jupiter Division of Space, Inc. produces dilithium crystals. One-third of its output is sold to the Antari Division, and the remainder is sold externally. Jupiter's estimated sales and cost data for the coming year are: Assume that Jupiter cannot sell any additional crystals externally. If the Antari Division has an opportunity to buy from an outside supplier at $1.40 per crystal and Jupiter refuses to meet this price, the company as a whole will be