Exam 10: Decentralizing and Performance Evaluation

Diablo Corporation's Western region operates as an investment center.John Mosby,the division's director,is considering investing in manufacturing equipment with a cost of $120,000.The equipment is expected to generate $35,000 in additional net operating profit.If the weighted average cost of capital is 18%,what is the equipment's EVA?

After an organization implements a certain level of decentralization,it is committed to maintaining that level for the life of the organization.

Rivers Industries produces and sells electronic sound equipment.The company has production capacity of 20,000

The formula for calculating ROI is

Which of the following is not a problem associated with residual income?

In a centralized organization,decision-making authority

Gooding Custom Design generated $320,000 in operating income on sales revenue of $2,500,000.The company had $3,000,000 in assets on January 1 and $3,250,000 in assets on December 31. Required a.Calculate Gooding's margin. b.Calculate Gooding's asset turnover. c.Calculate Gooding's return on investment.

Which of the following terms is not used in referring to common costs?

City Retail sells two products: Standard and Deluxe.The company had sales of $800,000 during the current year.The company's contribution margin ratio was 40% and total fixed costs totaled $300,000.Sales were $600,000 for Standard and $200,000 for Deluxe.Traceable fixed costs were $150,000 for Standard and $90,000 for Deluxe.Variable costs were $360,000 for Standard and $120,000 for Deluxe.What is the segment margin for the Standard product? a.$20,000 b.$80,000 c.$90,000 d.$240,000

ROI can be improved by

When organizations choose to decentralize their operations,divisions may end up exchanging goods and services with one another rather than with external suppliers or customer.Since managers are evaluated based on how well their divisions perform,they want any transaction with another division to generate positive results. Required: Discuss the four ways of determining a transfer price and explain the advantages and disadvantages of each.

-University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient. The CEO of the hospital is not pleased with the division's performance,and he believes that the Diagnostic division is responsible for its dismal result and wants to consider outsourcing diagnostic procedures. Required: The controller has determined that the hospital's headquarters allocated $98,000 and $32,000 in common administrative fixed costs,respectively,to Diagnostic and Outpatient divisions.Prepare a segment margin income statement that will provide the CEO with a better basis for evaluating the two divisions' performance.

A manager of a profit center cannot

What advantage does the DuPont model offer compared to the standard ROI calculation?

Although a profit center is expected to generate profits,not just revenues or costs,the manager cannot commit funds to invest in assets.

A cost center manager should be evaluated by

-Bethlehem Corporation had $1,000,000 in sales which resulted in operating income of $62,000.On January 1,Bethlehem reported $920,000 in assets.Because of a downturn in the economy,Bethlehem sold several assets during the year.Its December 31 balance sheet reported only $580,000 in assets. Required: a.Calculate Bethlehem's margin. b.Calculate Bethlehem's asset turnover. c.Calculate Bethlehem's return on investment.

Kimble Industries production division reported a net operating loss of $500,000 in 2016.Included in that amount were common fixed corporate expenses of $720,000 that were allocated to divisions based on segment gross profit.The division's segment margin was a.$220,000. b.$500,000. c.$220,000. d.$500,000.

The DuPont model for calculating ROI contains which of the following components?

Generally Accepted Accounting Principles GAAP require companies to