Exam 10: Decentralizing and Performance Evaluation

Although managers' actions may improve ROI in the short run,they may do so at the expense of the company's long-term financial health.

-Marshall Industries has sales of $600,000 and net operating income of $30,000.Marshall's average operating assets total $200,000.What is the company's return on investment? Show your work.

On an organizational chart,from bottom to top,which of the following is the order of responsibility centers? A)Cost,profit,investment B)Cost,investment,profit C)Profit,cost,investment D)Profit,investment,cost

You cannot classify a unit as a cost, profit, or investment center by looking at its name or its location on the organizational chart.

ROI can be viewed as

Which of the following would not be an advantage of decentralization?

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.

-Marshall Industries operates as an investment center.Buddy Hall,the region's division manager,has set a required minimum rate of return of 15%.Marshall's total assets are $350,000,current liabilities are $150,000,and operating income is $60,000.The company's weighted-average cost of capital is 18% and its tax rate is 28%. Required: Calculate Marshall's EVA.Show your work.

Economic value added EVA performance measures

Cleopatra Corporation's Lingerie division has a segment margin of $729,000 and net sales revenue of $5,400,000 for the current reporting period.Average total assets for the period were $3,375,000.The division manager is considering implementing a new inventory system which would reduce the total assets by $675,000.Assuming no change in sales or segment margin,the projected ROI with the reduction in inventory would be

Springer Company produces and sells home-ground wheat flour.The flour mill division sells to the general public in its outlet store located at the mill.The mill division also is the supplier of flour for its bakery division located across the street from the flour mill.The following information has been collected by Springer's controller: Production capacity 20,000 pounds Selling price $0.90 per pound Variable production cost $0.20 per pound Variable selling cost $0.08 per pound Number of pounds needed by the bakery 6,000 If the flour mill transfers flour to the bakery,it can avoid $0.03 of the variable selling cost. Required: a.If the flour mill can only sell 12,000 pounds at its outlet store to outside customers,what is the lowest acceptable transfer price per pound that the flour mill division should accept? b.If the flour mill can sell all 20,000 pounds at its outlet store to outside customers,what is the lowest acceptable transfer price per pound the flour mill division should accept?

Which of the following items would not appear on a segment margin income statement?

Jumbo Industries is considering the purchase of equipment costing $80,000.The company has a 15% required minimum rate of return.The equipment is expected to generate $20,000 in additional operating income.What is the equipment's residual income?

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 in additional operating income.What is the crane's residual income?

Lakeside Industries' operates as a decentralized organization.Its tent division manufactures small camping tents.The fabricating division manufactures one component needed by the tent division.The tent division has been purchasing the component from an outside supplier,but top management has conducted a study and believes the company could substantially cut costs by all divisions purchasing any components made by other divisions from Lakeside rather than an outside source.Detailed c.What is the transfer price if Lakeside uses the market-based price? d.What is the minimum transfer price?

Which of the following is not a step in calculating EVA?

If a cost was incurred to support the company as a whole,then it is a common cost.

Which of the following is a reason why top managers would decide to increase the level of decentralized decision-making authority in their company?

If you think of an organization's structure as a continuum,on the centralized end of the continuum,operational managers

As long as EVA is positive,the firm's managers have used the invested capital to create additional value for shareholders.