Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%. \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 3,000,000 \\ \hline \text { Operating income } & \$ 500,000 \\ \hline \text { Total assets } & \$ 4,500,000 \\ \hline \text { Current liabilities } & \$ 300,000 \\ \hline \end{array}\] What is Apple division's residual income?

A) $50,000 B) $140,000 C) $336,000 D) $360,000 A) $50,000 B) $140,000 C) $336,000 D) $360,000

Exam 23: Performance Evaluation and the Balanced Scorecard

Match Corporation has provided the following information: Total assets: $200,000 Profit margin: 30% Turnover: .20 Minimum acceptable return: 12% What is Match's return on investment?

(Multiple Choice)

4.8/5

(30)

Question 41

When a company uses the net book value of its assets when calculating return on investment, it is possible that return on investment could increase over time even though there are not any actual improvements in operations.

(True/False)

4.7/5

(35)

Question 42

Assuming a constant target rate of return and weighted average cost of capital, which of the following Transactions will result in an increase in both residual income and economic value added?

(Multiple Choice)

4.7/5

(40)

Question 43

A disadvantage of using return on investment to evaluate performance is that it can lead to suboptimal decision making from a corporate perspective.

(True/False)

4.9/5

(36)

Question 44

Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%. Sales \ 3,000,000 Operating income \ 500,000 Total assets \ 4,500,000 Current liabilities \ 300,000 What is Apple division's residual income?

(Multiple Choice)

5.0/5

(25)

Question 45

A company's return on investment is 10% and its target rate of return is 12%. Which of the following Statements is correct?

(Multiple Choice)

4.8/5

(33)

Question 46

The most relevant return on investment comparison for a corporation is always the comparison across its various divisions.

(True/False)

4.8/5

(42)

Question 47

The balanced scorecard approach considers lag indicators as well as lead indicators.

(True/False)

4.9/5

(31)

Question 48

Canton Corporation currently has a return on investment of 14%. The Potsdam division is reporting residual income of $500,000 and a 12% return on investment. The Potsdam division is contemplating an investment opportunity which has a 13% return on investment and a positive residual income. Should Potsdam division's management make the investment if goal congruence is important to the Canton Corporation?

(Multiple Choice)

4.8/5

(42)

Question 49

A benefit of decentralization is that it increases the difficulty of goal congruence.

(True/False)

4.7/5

(39)

Question 50

Gallop Company has total assets of $600,000, a 10% target rate of return, a return on investment of 12%, an 8% weighted average cost of capital, and current liabilities of $100,000. What is Gallop Company's economic value added assuming that the income tax rate is 40%?

(Multiple Choice)

4.7/5

(36)

Question 51

Norwood Company has a return on investment of 10%, operating income of $200,000, and a capital turnover of 4.0. How much were Norwood's sales?

(Multiple Choice)

4.9/5

(33)

Question 52

Profile Corporation has total assets of $600,000, an 11% target rate of return, and a residual income of $6,000. Which of the following statements is incorrect?

(Multiple Choice)

4.8/5

(40)

Question 53

Madrid Company has a return on investment of 12.5%, sales of $4,000,000, and a profit margin of 5%. How much were Madrid's total assets?

(Multiple Choice)

4.8/5

(36)

Question 54

Which of the following statements pertaining to residual income is correct?

(Multiple Choice)

4.8/5

(38)

Question 55

The Beech Division had a return on investment of 16% last year. Which of the following investment Opportunities would Beech's management consider for the upcoming year given that Beech's Management is evaluated using return on investment?

(Multiple Choice)

4.9/5

(29)

Question 56

Which of the following is not taken into consideration when calculating economic value added?

(Multiple Choice)

4.8/5

(42)

Question 57

The residual income formula is:

(Multiple Choice)

4.8/5

(37)

Question 58

Showing 41 - 58 of 58

Match Corporation has provided the following information: Total assets: $200,000 Profit margin: 30% Turnover: .20 Minimum acceptable return: 12% What is Match's return on investment?

When a company uses the net book value of its assets when calculating return on investment, it is possible that return on investment could increase over time even though there are not any actual improvements in operations.

Assuming a constant target rate of return and weighted average cost of capital, which of the following Transactions will result in an increase in both residual income and economic value added?

A disadvantage of using return on investment to evaluate performance is that it can lead to suboptimal decision making from a corporate perspective.

A company's return on investment is 10% and its target rate of return is 12%. Which of the following Statements is correct?

The most relevant return on investment comparison for a corporation is always the comparison across its various divisions.

The balanced scorecard approach considers lag indicators as well as lead indicators.

A benefit of decentralization is that it increases the difficulty of goal congruence.

Gallop Company has total assets of $600,000, a 10% target rate of return, a return on investment of 12%, an 8% weighted average cost of capital, and current liabilities of $100,000. What is Gallop Company's economic value added assuming that the income tax rate is 40%?

Norwood Company has a return on investment of 10%, operating income of $200,000, and a capital turnover of 4.0. How much were Norwood's sales?

Profile Corporation has total assets of $600,000, an 11% target rate of return, and a residual income of $6,000. Which of the following statements is incorrect?

Madrid Company has a return on investment of 12.5%, sales of $4,000,000, and a profit margin of 5%. How much were Madrid's total assets?

Which of the following statements pertaining to residual income is correct?

The Beech Division had a return on investment of 16% last year. Which of the following investment Opportunities would Beech's management consider for the upcoming year given that Beech's Management is evaluated using return on investment?

Which of the following is not taken into consideration when calculating economic value added?

The residual income formula is:

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandising Inventory

Internal Control and Cash

Receivables

Plant Assets and Intangibles

Current Liabilities, Payroll, and Long-Term Liabilities

Corporations: Paid-In Capital and the Balance Sheet

Corporations: Effects on Retained Earnings and the Income Statement

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Management Accounting

Job Order and Process Costing

Appendix: Process Costing

Activity-Based Costing and Other Cost Management Tools

Cost-Volume-Profit Analysis

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

The Master Budget and Responsibility Accounting

Flexible Budgets and Standard Costs

Filters