Question 1

Outline and discuss the steps involved in making decisions on performance measures.

Accepted Answer

1. Identify and align accounting perform

Question 2

Which of the following is true concerning the ROI performance measure?

Accepted Answer

A)  ROI is based on cash flow. 
B)  Is also called the accounting rate of return. 
C)  Some companies use net assets (assets minus liabilities) as the numerator. 
D)  The usual formulation is [total assets/ income ]. 
E)  Net assets are sometimes used as the denominator, and net assets are sometimes used as the numerator. 
A)  ROI is based on cash flow. 
B)  Is also called the accounting rate of return. 
C)  Some companies use net assets (assets minus liabilities) as the numerator. 
D)  The usual formulation is [total assets/ income ]. 
E)  Net assets are sometimes used as the denominator, and net assets are sometimes used as the numerator.

Question 3

During the past year Badger Company had a net income of $175,000. What is the ROI if the investment is $25,000?

Accepted Answer

A)  0.142 
B)  2.500 
C)  5.140 
D)  7.000 
E)  5.450 
A)  0.142 
B)  2.500 
C)  5.140 
D)  7.000 
E)  5.450

Question 4

Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 2009 follow:
   Required:
a. Compute the return on sales for each division
b. Compute the return on investment for each division.
c. Which division manager is doing best? Why?
d. What other factors should be included when evaluating the managers?
For parts (b) and (c) income is defined as operating income.

Accepted Answer

@#IMG-DLM& b. ROI:
 @#IMG-DLM& c. Combines' manager had the

Question 5

Answer the following question(s) using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
  
-What is the EVA for Brooksville?

Accepted Answer

A)  $476,250 
B)  $428,000 
C)  $415,525 
D)  $390,000 
E)  $318,750 
A)  $476,250 
B)  $428,000 
C)  $415,525 
D)  $390,000 
E)  $318,750

Question 6

Residual income is income plus an imputed interest charge for the investment.

Accepted Answer

A) True 
 B)False

Question 7

Alpine Ltd. has two divisions. Division A manufactures components that can be sold in the external market place or transferred to Division B for further processing. The following data relate to Division A's component product.
   The capacity of the plant is 2,500 units per year.
Division B has offered to purchase 350 units from Division A at a price of $1,600/unit, which is the market price of the component. The manager of Division A has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division A manager also states that additional fixed costs of $195,000 would be required to produce the 350 units.
The corporate required rate of return is 18% of assets and the existing asset base in Division A is $2,500,000.
Required:
a. How many units must Division A sell in order to achieve its target ROI? What profit margin would be earned at this level of sales?
b. Assume Division A currently sells 2,000 units to the external market and can accept Division B's offer without affecting its external sales. Evaluate the refusal of Division B's offer from the standpoint of the corporation as a whole and from Division A manager's perspective.
c. Assume Division A currently sells 2,000 units to the external market and can accept Division B's offer without affecting its external sales. Calculate Division A's residual income with and without the sale to Division B.
d. What recommendations would you give to the President of Alpine Ltd. with respect to performance evaluation of the divisions?

Accepted Answer

a.
Target ROI = 18% ∗ $2,500,000 = $450,

Question 8

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?

Accepted Answer

A)  the rate in effect when the ROI is calculated 
B)  the rate estimated to be in effect when the ROI is to be reported in the financial statements 
C)  the average rate for the year, assuming that the rate changed approximately evenly throughout the year 
D)  the rate in effect when the assets were acquired (ie. 5 to 1) 
E)  it would be double-counting to convert the assets - leave both assets and income in fidgets and the exchange rate for the numerator cancels out the exchange rate for the denominator 
A)  the rate in effect when the ROI is calculated 
B)  the rate estimated to be in effect when the ROI is to be reported in the financial statements 
C)  the average rate for the year, assuming that the rate changed approximately evenly throughout the year 
D)  the rate in effect when the assets were acquired (ie. 5 to 1) 
E)  it would be double-counting to convert the assets - leave both assets and income in fidgets and the exchange rate for the numerator cancels out the exchange rate for the denominator

Question 9

An automotive dealership, with a book value of $3,000,000, and total assets of $5,000,000, has a long history of earning 18%. Last year, the company earned $900,000. The owner is considering acquiring another dealership in a nearby town. If the expansion increases income by 50%, what is the maximum amount of investment the owner can make in the new dealership in order to maintain his desired 18% return?

Accepted Answer

A)  $1,350,000 
B)  $9,000,000 
C)  $5,000,000 
D)  $3,000,000 
E)  $2,500,000 
A)  $1,350,000 
B)  $9,000,000 
C)  $5,000,000 
D)  $3,000,000 
E)  $2,500,000

Question 10

Which of the following approaches include investment in a performance measure?

Accepted Answer

A)  ROI and RI 
B)  ROI and ROS 
C)  ROS and RI 
D)  EVA and ROI 
E)  ROI, EVA, and RI 
A)  ROI and RI 
B)  ROI and ROS 
C)  ROS and RI 
D)  EVA and ROI 
E)  ROI, EVA, and RI

Question 11

Which of the following statements is true relative to performance evaluations?

Accepted Answer

A)  Managers should be evaluated for the whole organization's performance. 
B)  Managers should be evaluated on things they can affect. 
C)  Sales people cannot completely control the level of sales. 
D)  Managers should not be evaluated on the things they can affect if the factors are not completely controllable. 
E)  Managers should be evaluated on all items they affect regardless of the control they exert over them. 
A)  Managers should be evaluated for the whole organization's performance. 
B)  Managers should be evaluated on things they can affect. 
C)  Sales people cannot completely control the level of sales. 
D)  Managers should not be evaluated on the things they can affect if the factors are not completely controllable. 
E)  Managers should be evaluated on all items they affect regardless of the control they exert over them.

Question 12

Moral Hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Accepted Answer

A) True 
 B)False

Question 13

Use the information below to answer the following question(s).
The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The following information was salvaged:
  
-What were the sales for Beta Division?

Accepted Answer

A)  $4,333,333 
B)  $5,952,380 
C)  $6,500,000 
D)  $7,151,800 
E)  $6,326,787 
A)  $4,333,333 
B)  $5,952,380 
C)  $6,500,000 
D)  $7,151,800 
E)  $6,326,787

Question 14

Divisions operating in different countries often record performance is different currencies.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on standards of ethical behaviour. 
B)  A diagnostic control system focuses on standards of ethical behaviour while an interactive control system focus on meeting expectations. 
C)  A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on organizational attention and learning on key strategic issues. 
D)  A diagnostic control system focuses on organizational attention and learning on key strategic issues, while an interactive control system focuses on meeting expectations. 
A)  A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on standards of ethical behaviour. 
B)  A diagnostic control system focuses on standards of ethical behaviour while an interactive control system focus on meeting expectations. 
C)  A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on organizational attention and learning on key strategic issues. 
D)  A diagnostic control system focuses on organizational attention and learning on key strategic issues, while an interactive control system focuses on meeting expectations.

Question 16

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:
   * = long-term assets at historical cost
-What is the ROI using current-cost amortization?

Accepted Answer

A)  (11.50)% 
B)  16.00% 
C)  22.5% 
D)  12.00% 
E)  11.25% 
A)  (11.50)% 
B)  16.00% 
C)  22.5% 
D)  12.00% 
E)  11.25%

Question 17

There are three basic ingredients in profitability: investment, revenues, and debts.

Accepted Answer

A) True 
 B)False

Question 18

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:
   * = long-term assets at historical cost
-What is the NBV of the long-term assets at current cost at the end of year 4?

Accepted Answer

A)  $660,000 
B)  $800,000 
C)  $960,000 
D)  $1,180,000 
E)  $1,760,000 
A)  $660,000 
B)  $800,000 
C)  $960,000 
D)  $1,180,000 
E)  $1,760,000

Question 19

In establishing performance measures and compensation policy, the issues are interdependent and the decision maker may proceed through a series of decisions several times before selecting the performance measure(s).

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

a.
Total assets = $450,000 + $630,000 =

Outline and discuss the steps involved in making decisions on performance measures.

Which of the following is true concerning the ROI performance measure?

During the past year Badger Company had a net income of $175,000. What is the ROI if the investment is $25,000?

Residual income is income plus an imputed interest charge for the investment.

Which of the following approaches include investment in a performance measure?

Which of the following statements is true relative to performance evaluations?

Moral Hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Divisions operating in different countries often record performance is different currencies.

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

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: * = long-term assets at historical cost -What is the ROI using current-cost amortization?

There are three basic ingredients in profitability: investment, revenues, and debts.

In establishing performance measures and compensation policy, the issues are interdependent and the decision maker may proceed through a series of decisions several times before selecting the performance measure(s).

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters

Exam 24: Multinational Performance Measurement and Compensation

Outline and discuss the steps involved in making decisions on performance measures.

Which of the following is true concerning the ROI performance measure?

During the past year Badger Company had a net income of $175,000. What is the ROI if the investment is $25,000?

Residual income is income plus an imputed interest charge for the investment.

Which of the following approaches include investment in a performance measure?

Which of the following statements is true relative to performance evaluations?

Moral Hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Divisions operating in different countries often record performance is different currencies.

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

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: * = long-term assets at historical cost -What is the ROI using current-cost amortization?

There are three basic ingredients in profitability: investment, revenues, and debts.

In establishing performance measures and compensation policy, the issues are interdependent and the decision maker may proceed through a series of decisions several times before selecting the performance measure(s).

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters