Exam 23: Performance Measurement, Compensation, and Multinational Considerations

The salary component of compensation dominates when performance measures that are sensitive to managers' actions are not available.

Which of the following is true of benchmarking two managers against each other if they carry out similar operations?

The Cybertronics Corporation reported the following information for its Cyclotron Division: Income is defined as operating income. What is the Cyclotron Division's return on sales?

Relative performance evaluation ________.

ROI, RI, or EVA measures are more appropriate than ROS to measure the performance of a company. Why?

Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.

When managers set and measure target levels of performance and feedback, ________.

The weighted-average cost of capital (WACC) equals ________.

Return on investment, Residual income, or Economic value added measures are more appropriate than return on sales because they consider only the investment to measure the performance.

The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.

The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the value of the operating assets belonging to the Tractor Division?

The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the Tractor Division's return on sales?

Coptermagic Company supplies helicopters to corporate clients. Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million (book value of $8 million). The cost of equity capital for Coptermagic is 15%, and its tax rate is 30%. Coptermagic has profit centers in four divisions that operate autonomously. The company's results for 2015 are as follows: Required: a.Compute Coptermagic's weighted average cost of capital. b.Compute each division's Economic Value Added. c.Rank the divisions by EVA.

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

A manager's job entails gathering information, interpreting that information and making judgments on that information and thus is less susceptible to moral hazards than jobs that require repetitive tasks and less subjective decision making.

Bob's Cellular Phone Company uses ROI to measure divisional performance. Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating income and net revenue. The Dupont method is generally used. The company's Phone Accessories Division had the following results for the last two years: 2015 ROI = ($2,000,000/$20,000,000) × ($20,000,000/$10,000,000) = 0.20 2016 ROI = ($2,400,000/$25,000,000) × ($25,000,000/$15,000,000) = 0.16 Corporate management was disappointed in the performance of the division for 2016, since it had made an additional investment in the division that was budgeted for a 23% ROI. Required: a.Discuss some factors that may have contributed to the decrease in ROI for 2016. b.Would there have been any substantial difference if average capital had been used?

The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the Gamma Division's return on investment (d)?

Companies are increasingly using nonfinancial measures to evaluate performance. Why? Since these numbers do not come from the company's financial records, why are they used?

Moto Corp allows its divisions to operate as autonomous units. The operating data for 2015 follow: Required: a.Compute the investment turnover for each division. b.Compute the return on sales for each division. c.Compute the return on investment for each division. d.Which division manager is doing best? Why? e.What other factors should be included when evaluating the managers? For parts (b) and (c) income is defined as operating income.

An additional criticism of team-based compensation is that there can be problems managing team members who are not productive contributors to a team's success but who, nevertheless, share in the team's rewards.