Exam 22: Multinational Performance Measurement and Compensation

Use the information below to answer the following question(s).Berger Publishing has two divisions which operate autonomously.Their results for the past year were as follows: The company's desired rate of return is 15%. -What are the respective residual incomes for the Toronto and Vancouver divisions?

If the exchange rate at the end of the a foreign subsidiary's first year was 5 Fidgets to 1 Canadian dollar, and if it was 8 Fidgets to 1 Canadian dollar at the end of the second (current)year, what exchange rate should be used to convert total assets if we want to calculate the company's ROI in Canadian dollars?

Current cost is the cost of purchasing an asset today identical to the one currently held.

Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.

Use the information below to answer the following question(s).The following data are available for a foundry operation started as a new company four years ago when the construction cost index was 125: * = "of long-term assets at historical cost" -What is the year 4 operating income using year-4 current cost amortization?

The Shamrock Corporation manufactures flower pots in Canada and Ireland.The operations are organized as decentralized divisions.The following information is available for the year just ended: The exchange rate at the time of Shamrock's investment (the end of the previous year)in Ireland was $1.35 Canadian to 1.00 Euro.During the year, the Euro weakened steadily in value and the exchange rate at the end of the current year was 1.24 Canadian = $1.00 Euro.The average exchange rate during the year was 1.28 Canadian = $1.00 Euro.Required: a.Calculate the Canadian Division's ROI for last year based on dollars. b.Calculate the Irish Division's ROI for last year based on Euros. c.Which of Shamrock's two divisions earned the better ROI? Explain your answer, complete with supporting calculations showing the Irish Division ROI in Canadian dollars.

Use the information below to answer the following question(s).The following data are available for a heating, ventilating, and air conditioning (HVAC)vent manufacturer started as a new company four years ago when the construction cost index was 120: * = "of long-term assets at historical cost" -What is the current cost annual depreciation in year 4 dollars?

Use the information below to answer the following question(s).Ruth Cleaning Products manufactures home cleaning products.The company has two divisions, Bleach and Bleach-2.Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.The following information is provided for the year just ended: The company is currently using a required rate of return of 15 percent. -What are Bleach's and Bleach-2's residual incomes, based on current values, respectively?

Consolidated Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for the current year are as follows: Required: a.Compute the return on investment for each station. b.Which station manager is doing best based only on ROI? c.Are any of the stations under performing? d.Should the required rate of return be the same for each station if the business risks are different? Explain.

Use the information below to answer the following question(s).Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million).The cost of equity capital is 5 percent, while the tax rate is 30 percent.Brandorf Company has profit centres in the following locations with the following data: -What is EVA for St.Johns?

A part of a control system that articulates the mission, purpose, and core values of a company is known as a(n)

Deciding if all subunits should have the same required rate of return is an example of

Using gross book value as an investment base will result in a lower ROI than using net book value as an investment base.

The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.

Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

A corporation has a required rate of return of 13% for all subsidiaries.The Calgary subsidiary earned residual income of $200,000 in year 1, and $300,000 in year 2 on an investment base of $4,500,000.What rate of return did the Calgary subsidiary earn in years 1 and 2 respectively?

Pay for performance measures in the best interests of shareholders would, logically, exclude long-term achievement and deferred compensation.

The Tea Division of Canadian Products is planning the operating budget for next year.Average total assets of $1,700,000 will be used during the year and unit selling prices are expected to average $250 each.Variable costs of the division are budgeted at $600,000 while fixed costs are set at $450,000.The company's required rate of return is 10%.Required: a.Compute the volume necessary to achieve a 15% ROI. b.The division manager receives a bonus of 50% of the residual income.What is his anticipated bonus for next year assuming he achieves the targeted operating income in part a.and the required return is based on 10%?

Chaucer Ltd.has current assets of $450,000 and capital assets of $630,000.Its budgeted production volume for the next fiscal year is 200,000 units.Fixed costs are projected at $400,000 and variable unit costs for the one product produced total $5/unit.The company defines ROI as Operating Income/Total Assets and its required rate of return is 14%.Required: a.What selling price should Chaucer charge for its product if it wishes to achieve a 25% ROI? What is the operating income at this price? b.The general manager for Chaucer receives a bonus equal to 12% of the residual income for the period.Calculate the amount of the bonus assuming the selling price calculated in part a). c.Prepare a brief memo to the President of Chaucer outlining the advantages and disadvantages of ROI and Residual Income.Include your recommendations for the most appropriate method for calculating the bonus.

Which of the following is a difference between a diagnostic control system and an interactive control system?