Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: \[\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\ \text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\ \text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\ \text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\ \text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\ \text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\ \text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2 \end{array}\] -What is the Tractor Division's return on sales?

A) 0.10 B) 0.15 C) 0.12 D) 0.20 A) 0.10 B) 0.15 C) 0.12 D) 0.20

Boomerang Products has three divisions,which operate autonomously.Their results for 2017 were as follows: \[\begin{array} { | l | r | r | r | } \hline & { \text { Standard } } & { \text { Deluxe } } & { \text { Supreme } } \\ \hline \text { Sales } & \$ 30000000 & \$ 40000000 & \$ 50000000 \\ \hline \text { Cost of goods sold } & 15000000 & 25000000 & 37000000 \\ \hline \text { Operating profit } & 4500000 & 4750000 & 5000000 \\ \hline \text { Investment base } & 18000000 & 18555000 & 18650000 \\ \hline \end{array}\] The company's desired rate of return is 25%. Required: a.Calculate each division's ROI (round to three decimal places). b.Calculate each division's residual income. _____________________________________________________________________________________________ _____________________________________________________________________________________________

a. \[\begin{array} { l } \text {Stan

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: \[\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\ \text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\ \text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\ \text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\ \text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\ \text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\ \text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2 \end{array}\] -What is the value of the operating assets belonging to the Tractor Division?

A) $2 250 000 B) $1 750 000 C) $2 000 000 D) $2 500 000 A) $2 250 000 B) $1 750 000 C) $2 000 000 D) $2 500 000

Wacker Company has two regional offices.The data for each follows: \[\begin{array} { l r r } & \text { Adelaide } & \text { Perth } \\ \text { Revenues } & \$ 580000 & \$ 596000 \\ \text { Operating assets } & 4800000 & 9000000 \\ \text { Net operating profit } & 2016000 & 2400000 \end{array}\] What is the Adelaide Division's return on investment?

A) 0.42 B) 0.54 C) 0.96 D) 4.12 A) 0.42 B) 0.54 C) 0.96 D) 4.12

Murray River Fisheries Company is a decentralised organisation with several autonomous divisions.The division managers are evaluated,in part,on the basis of the change in their return on invested assets.Operating results for the Greenwall Division for 2019 are budgeted as follows: \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 10000000 \\ \hline \text { Less variable costs } & \underline { 5000000 } \\ \hline \text { Contribution margin } & 5000000 \\ \hline \text { Less fixed expenses } & \underline { 3600000 } \\ \hline \text { Net operating profit } & \$ 1400000 \\ \hline \end{array}\] Operating assets for the division are currently $7 200 000.For 2019,the division can add a new product line for an investment of $1 200 000.The new product line will generate sales of $3 200 000 and will incur fixed expenses of $1 200 000 annually.Variable costs of the new product will average 60% of the selling price. Required: a.What is the effect on ROI of accepting the new product line? b.If the company's required rate of return is 6% and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations. _____________________________________________________________________________________________ ____________________________________________________________________________________________

a. \[\begin{array} { | l | r | r | } \

Exam 20: Performance Measurement, Compensation and Multinational Considerations

Answer the following questions using the information below: The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: Jetski Division Boat Division Surfboard Division Sales \ 7500000 () \ 1800000 Net operating profit \ 750000 \ 1080000 \ 450000 Operating assets () () \ 1500000 Retum on investment 0.20 0.10 () Retum on sales () 0.12 0.25 Investment turnover (f) () 1.2 -Return on investment is the most popular performance measure when measuring performance in an investment centre.

(True/False)

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Question 101

Answer the following questions using the information below: Echidna Company has two sources of funds: long-term debt with a market and book value of $30 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $5 million).Echidna Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%. Operating Profit Assets Current Liabilities Mt Iron \ 1630000 \ 5625000 \ 1600000 Mt Pilbara \ 2200000 \ 7500000 \ 2400000 Broken Hill \ 4900000 \ 13875000 \ 6360000 -What is the EVA for Mt Pilbara?

(Multiple Choice)

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Question 102

A report that measures financial and non-financial performance measures for various organisation units in a single report is called a(n):

(Multiple Choice)

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Question 103

The objective of maximising their return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organisation should be accepted.

(True/False)

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Question 104

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: Tractor Division Tiller Division Digger Division Sales \ 5000000 () \ 1200000 Net operating profit \ 500000 \ 720000 \ 300000 Operating assets () () \ 1000000 Return on investment 0.20 0.10 () Return on sales () 0.12 0.25 Investment turnover () () 1.2 -What is the Tractor Division's return on sales?

(Multiple Choice)

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Question 105

Answer the following questions using the information below: The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: Jetski Division Boat Division Surfboard Division Sales \ 7500000 () \ 1800000 Net operating profit \ 750000 \ 1080000 \ 450000 Operating assets () () \ 1500000 Retum on investment 0.20 0.10 () Retum on sales () 0.12 0.25 Investment turnover (f) () 1.2 -Return on sales is calculated by dividing net profit by revenues.

(True/False)

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Question 106

In performance evaluations:

(Multiple Choice)

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Question 107

Boomerang Products has three divisions,which operate autonomously.Their results for 2017 were as follows: Standard Deluxe Supreme Sales \ 30000000 \ 40000000 \ 50000000 Cost of goods sold 15000000 25000000 37000000 Operating profit 4500000 4750000 5000000 Investment base 18000000 18555000 18650000 The company's desired rate of return is 25%. Required: a.Calculate each division's ROI (round to three decimal places). b.Calculate each division's residual income. _ _

(Essay)

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Question 108

Designing an accounting based performance measure requires six steps.List each step.For three of the steps,describe a question that must be resolved as part of the implementation process. _ _

(Essay)

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Question 109

John's Mobile Phone Company uses ROI to measure divisional performance.Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating profit and net revenue.The DuPont method is generally used.The company's Phone Accessories Division had the following results for the last two years: 2016 ROI = ($2 000 000/$20 000 000)× ($20 000 000/$10 000 000)= 0.20 2017 ROI = ($2 400 000/$25 000 000)× ($25 000 000/$15 000 000)= 0.16 Corporate management was disappointed in the performance of the division for 2017,since it had made an additional investment in the division that was budgeted for a 23% ROI. Required: a.Discuss some factors that may have contributed to the decrease in ROI for 2017. b.Would there have been any substantial difference if average capital had been used? _ _

(Essay)

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Question 110

Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

(True/False)

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Question 111

and would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

(Multiple Choice)

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Question 112

Historical-cost-based accounting measures are very good for evaluating economic returns on new investments.

(True/False)

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Question 113

Answer the following questions 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 profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%. Operating Profit Assets Current Liabilities Darwin \ 815000 \ 3750000 \ 800000 Hobart \ 1100000 \ 5000000 \ 1200000 Newcastle \ 2450000 \ 9250000 \ 3180000 -What is the EVA for Hobart?

(Multiple Choice)

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Question 114

Answer the following questions using the information below: Echidna Company has two sources of funds: long-term debt with a market and book value of $30 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $5 million).Echidna Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%. Operating Profit Assets Current Liabilities Mt Iron \ 1630000 \ 5625000 \ 1600000 Mt Pilbara \ 2200000 \ 7500000 \ 2400000 Broken Hill \ 4900000 \ 13875000 \ 6360000 -Economic Value Added (EVA)calculations are similar to residual income calculations because in each calculation there is a charge for the division's invested capital which is deducted from a measure of that division's profit.

(True/False)

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Question 115

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: Tractor Division Tiller Division Digger Division Sales \ 5000000 () \ 1200000 Net operating profit \ 500000 \ 720000 \ 300000 Operating assets () () \ 1000000 Return on investment 0.20 0.10 () Return on sales () 0.12 0.25 Investment turnover () () 1.2 -What is the value of the operating assets belonging to the Tractor Division?

(Multiple Choice)

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Question 116

Wacker Company has two regional offices.The data for each follows: Adelaide Perth Revenues \ 580000 \ 596000 Operating assets 4800000 9000000 Net operating profit 2016000 2400000 What is the Adelaide Division's return on investment?

(Multiple Choice)

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Question 117

Murray River Fisheries Company is a decentralised organisation with several autonomous divisions.The division managers are evaluated,in part,on the basis of the change in their return on invested assets.Operating results for the Greenwall Division for 2019 are budgeted as follows: Sales \ 10000000 Less variable costs Contribution margin 5000000 Less fixed expenses Net operating profit \ 1400000 Operating assets for the division are currently $7 200 000.For 2019,the division can add a new product line for an investment of $1 200 000.The new product line will generate sales of $3 200 000 and will incur fixed expenses of $1 200 000 annually.Variable costs of the new product will average 60% of the selling price. Required: a.What is the effect on ROI of accepting the new product line? b.If the company's required rate of return is 6% and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations. _

(Essay)

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Question 118

Costs recognised in particular situations but not incorporated in financial accounting records are:

(Multiple Choice)

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Question 119

The question 'Should assets be defined as total assets or net assets?' is considered to be part of which step in designing an accounting-based performance measure?

(Multiple Choice)

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Question 120

A report that measures financial and non-financial performance measures for various organisation units in a single report is called a(n):

The objective of maximising their return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organisation should be accepted.

In performance evaluations:

Designing an accounting based performance measure requires six steps.List each step.For three of the steps,describe a question that must be resolved as part of the implementation process. _ _

Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

and would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Historical-cost-based accounting measures are very good for evaluating economic returns on new investments.

Wacker Company has two regional offices.The data for each follows: Adelaide Perth Revenues \ 580000 \ 596000 Operating assets 4800000 9000000 Net operating profit 2016000 2400000 What is the Adelaide Division's return on investment?

Costs recognised in particular situations but not incorporated in financial accounting records are:

The question 'Should assets be defined as total assets or net assets?' is considered to be part of which step in designing an accounting-based performance measure?

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 20: Performance Measurement, Compensation and Multinational Considerations

A report that measures financial and non-financial performance measures for various organisation units in a single report is called a(n):

The objective of maximising their return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organisation should be accepted.

In performance evaluations:

Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

________ and ________ would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Historical-cost-based accounting measures are very good for evaluating economic returns on new investments.

Wacker Company has two regional offices.The data for each follows: Adelaide Perth Revenues \ 580000 \ 596000 Operating assets 4800000 9000000 Net operating profit 2016000 2400000 What is the Adelaide Division's return on investment?

Costs recognised in particular situations but not incorporated in financial accounting records are:

The question 'Should assets be defined as total assets or net assets?' is considered to be part of which step in designing an accounting-based performance measure?

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Measuring and Reporting Sustainability

Filters

and would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.