Exam 10: Decentralizing and Performance Evaluation

People's Construction Company has set a 15% required minimum rate of return.The company's CFO is considering investing in a $125,000 crane that is expected to generate $25,000 of additional operating income.People's weighted-average cost of capital is 10% and its tax rate is 30%.What is the crane's EVA?

The Transformer division of Lorman Industries produces transformers that can be sold to outside customers or transferred to the Electronics division of the company.The following information has been collected by Lorman's controller: Production capacity 100,000 a.If the Transformer division can only sell 80,000 units to outside customers,what is the lowest acceptable transfer price that it is willing to accept for the 6,000 units? b.If the Transformer division can sell all 100,000 units to outside customers,list three courses of actions that the division might consider to provide the units to Electronics.

You are assigned to a team responsible for evaluating segment managers' performance measures.A team member has indicated that a friend who is a manager at a competitor's company is evaluated using "ROI",but does not know what "ROI" is. Required: a.Explain what ROI is and why it is a useful tool in measuring managers' performance. b.Give an example of when ROI would not be an appropriate performance measurement.

The DuPont Model decomposes the original ROI formula into two components: margin and asset turnover.

The market-based price is easily determined by

Althea Corporation's Perfume division has a segment margin is $85,000 for the current reporting period.Total assets at the beginning of the period were $800,000 and $900,000 at the end of the period.What is the division's ROI?

Which of the following terms are used in referring to common costs?

Which of the following would not be a focus of top managers in a decentralized organizational structure?

To calculate the weighted-average cost of capital we need to know

Wrightsville Beach Company produces ice packs and various sizes of cooler bags.The Lunch Box division would like to buy 125,000

Noble Corporation had sales of $3,000,000 and operating income of $500,000.Noble also had $900,000 of assets on January 1 and $800,000 on December 31.What is the corporation's ROI for the year?

The accounting department of a large corporation would be classified as a

A manager who is responsible for both the revenue and the costs incurred in generating a product or service is managing a

The packaging department in a large manufacturing company would be classified as a

Net operating profit after taxes is referred to as

Which of the following accomplishes an increase in ROI through a reduction in the asset base?

Which of the following assets would not be included in average operating assets used to calculate ROI?

-In a decentralized organization,upper managers need a way to evaluate the performance of

Common allocated fixed costs are an issue in evaluating segment performance.Answer the following questions relating to common fixed costs. a.What are two other terms used in referring to common costs? b.Where are common allocated fixed costs shown on a segment margin income statement? c.When do traceable fixed costs become common costs?

When does a traceable fixed cost become a common cost?