Exam 22: Multinational Performance Measurement and Compensation

The Tea Division of Canadian Products is planning the operating budget for next year.Average total assets of $1,700,000 will be used during the year and unit selling prices are expected to average $250 each.Variable costs of the division are budgeted at $600,000 while fixed costs are set at $450,000.The company's required rate of return is 10%. Required: a.Compute the volume necessary to achieve a 15% ROI. b.The division manager receives a bonus of 50% of the residual income.What is his anticipated bonus for next year assuming he achieves the targeted operating income in part a.and the required return is based on 10%?

Keeping all other factors constant,which of the following would NOT cause an increase in the return on investment?

Using net book value when calculating return on investment encourages managers whose performance is measured by this metric to replace assets.

What the first step in selecting appropriate performance measures?

Use the information below to answer the following question(s). The top management at Groundsource Company,a manufacturer of lawn and garden equipment,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 is the Tractor Division's investment turnover?

A company's weighted-average cost of capital [WACC] was 9.6% last year.The company has $6,000,000 of bonds payable (its only debt)with a 9.25% coupon,and has $9,000,000 in equity capital.The tax rate is 35%.What is the company's cost of equity capital?

Jim's Quality Pre-owned Auto Sales Ltd.allows its divisions to operate as autonomous units.Their results for the current year were as follows: Required: For each division compute the a.return on sales b.return on investment based on total assets employed c.economic value added d.residual income based on net operating income

Which of the following incorporates the amount of investment into the performance measure?

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

What disadvantage is there in using ROI and/or RI as performance measures?

If a company is a multinational company with operations in several different countries,one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to

The benefits of tying performance measures more closely to a manager's efforts encourage the use of

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: * = "of long-term assets at historical cost" -What is the net book value (NBV )of the long-term assets at current cost at the end of year 4?

A multinational established a division in a South American country as a subsidiary corporation,with an initial investment in total assets of 13 million CU's (the local currency is CU's),which cost the company $3,250,000 Canadian at the time.The company sent an experienced manager to run the division,and gave her a target of 13% required rate of return,promising a bonus if this was met and/or exceeded. After one year,the subsidiary manager was pleased to report a 20% ROI. You have been able to determine the following data pertaining to the subsidiary: ∙ Exchange rate at end of year was 8 CU's to 1 Cdn dollar ∙ Operating income was earned evenly throughout the year ∙ The exchange rate changed approximately evenly throughout the year Required: a.Calculate the subsidiary's income in CU's. b.Calculate the subsidiary's return on investment in Canadian dollars. c.Calculate the subsidiary's residual income in Canadian dollars.

A control system that focuses on meeting expectations is known as a(n)

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a (n)

A corporation has a required rate of return of 13% for all subsidiaries.The Calgary subsidiary earned residual income of $200,000 in year 1,and $300,000 in year 2 on an investment base of $4,500,000.What rate of return did the Calgary subsidiary earn in years 1 and 2 respectively?

LaserLife Printer Cartridge Company is a decentralized organization 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 Packer Division for the upcoming year are budgeted as follows: Total assets for the division are currently $3,600,000.For next year the division can add a new product line for an investment of $600,000.The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually.Variable costs of the new product will average 60 percent of selling price. Required: a.What will be the company's ROI after accepting the new product line? b.If the company's required rate of return is 6 percent,and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations.

The term "investment" used in the calculation of accounting performance measures can vary from company to company.By using financial statement terminology describe four different ways that categories of accounts are used to determine the amount of investment.

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