Exam 12: Performance Evaluation and Decentralization

The difference between operating income and the minimum dollar return required on a company's operating assets is the _______________.

Decentralization usually is achieved by creating units called ___________.

Figure 12-3. Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box: Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). -Refer to Figure 12-3. Assume that Grey Inc. allows division managers to negotiate transfer price. Centra is producing 700,000 boxes. If Centra and Mantra agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

The Balanced Scorecard perspective that defines the customer and market segments in which the business unit will compete is the ____ perspective.

Figure 12-4. Quinn Inc. has a number of divisions. One division, Style, makes zippers that are used in the manufacture of boots. Another division, LeatherStuff, makes boots that use the zippers and needs 90,000 zippers per year. Style incurs the following costs for one zipper: Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives). -Refer to Figure 12-4. Assume that Quinn allows negotiated transfer pricing. What is the ceiling of the bargaining range and which division sets it?

If there is a competitive outside market for the transferred product, then the best transfer price is the

JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division. The manager of the Western Division had wanted to purchase replacement airplanes for the division. However, he decided against it because, although revenues would increase and the new planes would be less expensive to operate, the initial cost of the planes was quite large. The Western Division is most probably accounted for as a(n)

Division A had ROI of 15% last year. The manager of Division A is considering an additional investment for the coming year. What step will the manager likely choose to take?

The performance measure that uses after-tax operating income and the actual cost of capital employed is

MATCHING Select the term from below to match with the correct statement. a. centralization b. revenue center c. profit center d. cost center e. investment center f. decentralization -A(n) ___________ is a responsibility center in which a manager is responsible for revenues, costs, and investments.

Figure 12-2. The manager of Stock Division projects the following for next year: The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. -Refer to Figure 12-2. What is the residual income for Stock Division without the additional investment?

A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on

Figure 12-7 Monfett Manufacturing earned operating income last year as shown in the following income statement: At the beginning of the year, the value of operating assets was $263,000. At the end of the year, the value of operating assets was $336,000. Monfett Manufacturing requires a minimum rate of return of 15%. Total capital employed equal $350,000 and actual cost of capital is 6%. -Refer to Figure 12-7. Calculate the following: A. Residual income B. EVA

Paige Inc. has a division that makes paint and another division that constructs subdivision houses. The paint division incurs the following costs for one gallon of paint: The Paint Division can make 1,000,000 gallons per year, and is at capacity. The Construction Division currently buys its paint from an outside supplier for $5.20 per gallon (the same price that the Paint Division receives).

MATCHING Select the term from below to match with the correct statement. a. centralization b. revenue center c. profit center d. cost center e. investment center f. decentralization -A(n) ___________ is a responsibility center in which a manager is responsible only for sales, or revenues.

A responsibility center in which a manager is responsible for revenues, cost, and investment is a(n)

Figure 12-5. The following information pertains to the three divisions of Yang Company: -Refer to Figure 12-5. What is the turnover for Division C?

The number of units of output that can be produced in a given period of time is called

_____________________ refers to earnings before interest and taxes.

The Balanced Scorecard perspective that describes the internal processes needed to provide value for customers and owners is the ____ perspective.