Exam 12: Performance Evaluation and Decentralization

Select the term from below to match with the correct statement. -A(n) ___________ is a responsibility center in which a manager is responsible only for costs.

Sales \ 185,000 Operating income \ 60,000 Operating assets \ 375,000 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?

When the selling division can sell and the buying division can buy externally at the market price, the company as a whole will be in the same position whether or not a market price transfer takes place internally.

Margin is calculated as

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).

-Refer to Figure 12-1. Dempsey's return on investment for last year was