Exam 12: Performance Evaluation and Decentralization

Last night, Shirley worked on her accounting homework for one and one half hours. During that time, she completed 6 problems. What is the cycle time for one problem?

Figure 12-5. The following information pertains to the three divisions of Yang Company: -Refer to Figure 12-5. What are the sales for Division B?

The practice of delegating decision-making authority to lower levels of management in a company is called centralization.

Select the appropriate definition for each of the items listed below. a. Turnover b. Margin c. ROI d. Residual income -The ratio of operating income to sales.

MCE (manufacturing cycle efficiency) is calculated using the following formula:

Pollux Company had the following income statement for last year: Beginning assets were $565,000 and ending assets were $597,000. (Carry computations out to three decimal places.)

Decreasing inventories leads to a reduction in return on investment (ROI).

Basically, EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons).

The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division.

The use of residual income encourages managers to accept any project that earns above the minimum rate.

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. Which of the following statements is true?

Economic Value Added is residual income with the cost of capital equal to the firm's

The direct comparison of the performance of two different investment centers is difficult using residual income because residual income is an absolute measure.

In _______________ decision making, decisions are made at the very top level, and lower-level managers are charged with implementing these decisions.

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 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

The selling division would never agree to a transfer price below its full manufacturing cost.

The strategic management system that translates an organization's mission and strategy into operational objectives and performance measures is

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 Style and LeatherStuff have agreed on a transfer price of $3.25. What are the total cost savings for LeatherStuff?

Residual income is calculated as

A Utah hospital decided to streamline its surgical suite operation. In order to speed things up, the nurses in charge studied how much time patients actually spent in various activities. They found that on average, a patient scheduled for an operation spent about 1 hours waiting, and 1.5 hours in moving from lab to x-ray to the operating room. The average operation takes 90 minutes. What is the MCE?