Exam 10: Decentralizing and Performance Evaluation

Bill Jones,Flooring's accountant,has prepared the following income statement for the month of May. Residential Commercial Total Sales revenue $2,760,000 $3,125,000 $5,885,000 Variable expenses 1,305,000 2,520,000 3,825,000 Contribution margin 1,455,000 605,000 2,060,000 Fixed expenses 645,000 615,000 1,260,000 Operating income $ 810,000 $ 10,000 $ 800,000 In preparing the income statement,Bill was unsure what to do with $240,000 in corporate fixed expenses that cannot be traced to a particular division.Since these costs were incurred to run the business as a whole,and he believed that each division benefited equally,he just allocated half to each division. Required a.How do you think Bill should have handled the $240,000 in corporate fixed expenses? b.Prepare a segment margin income statement that highlights each division's contribution to corporate profits.

In calculating EVA,invested capital is determined by

ROI is a relative measure of return,in other words,the result is a dollar amount of return.

The return on investment measures

ABC Corporation's North Division generates operating income of $100,000 on $900,000 in sales.The company had $400,000 in assets at the beginning of the year and $450,000 at the end of the year.What is the company's return on investment for the year?

-Mounce Corporation produces and sells two products,Basic and Super.Data for activity during March are as follows: Required: Prepare a Segment Margin income statement.Common fixed costs of $25,000 are allocated Basic and $30,000 to Super.

Return on investment is based on the fair market value of operating assets.

The income that is earned above the specified minimum level of return is referred to as

A profit center manager should be evaluated by

Brooke Bundi,president of the Seco Corporation,has mandated a minimum 10% return on investment for any project undertaken by the company.Given the company's decentralization,Brooke leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 12%.The Flavored Water division,under the direction of manager Karl Martin,has achieved a 14% return on investment for the past three years.This year in not expected to be different from the past three.Martin has just received a proposal to invest $1,700,000 in a new line of flavored water that is expected to generate $221,000 in operating income. Required a.Calculate the residual income for the proposed new line of flavored water. b.If Karl Martin is evaluated based on residual income,will he choose to invest in the new line of flavored water? Why or why not?

A segment of an organization is any part of the organization that management wishes to evaluate.

If a company desires to increase ROI,it should consider methods that will decrease

At Devoe Manufacturing,the vice-president of the Southern Division is responsible for the production and selling of products in fifteen states as well as securing the productive assets needed to create the product.This division is an example of which of the following responsibility centers?

Nobles Corporation provided the following income statement for two of its divisions: East and West. Nobles' actual weighted-average cost of capital is 10% and its tax rate is 30%.The East division balance sheet showed $300,000 of assets $60,000 current and $240,000 long-term and $320,000 of liabilities $120,000 current and $200,000 long-term.The West division reported $360,000 of assets $80,000 current and $280,000 long-term and $260,000 of liabilities $60,000 current and $200,000 long-term. Required: a.Calculate the economic value added for each division. b.Which of the two managers will be rated higher on performance? Why?

-Nobles Corporation provided the following income statement for two of its divisions: East and West. Required: The home office allocated common fixed costs of $80,000 to East and $60,000 to West.Prepare a segment margin income statement.

If a cost is incurred to support the company as a whole,it is referred to as a

In a responsibility accounting environment,which of the following is not a classification of organizational

If managers want to increase ROI,an increase in sales revenue will increase

An organization may be structured as a centralized or decentralized decision-making environment.Classify each of the following as a characteristic of a centralized or decentralized decision-making environment by placing an "X" in the appropriate column.

In a responsibility accounting environment,which of the following managers is considered to have the broadest responsibility?