Exam 23: Performance Measurement, compensation, and Multinational Considerations

Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows: Ohio Dallas Texas Revenue \ 1,200,000 \ 1,500,000 \ 1,800,000 Operating assets 700,000 500,000 600,000 Net operating income 105,000 115,000 120,000 Required: a.Compute the return on investment for each division. b.Which museum manager is doing best based only on ROI? Why? c.What other factors should be included when evaluating the managers?

Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.

Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2015: The company is currently using a 15% required rate of return. -What are Bleach's and Cleanser's return on investment based on current values,respectively?

Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match. Activities: 1. Change in revenues 2. Cycle time 3. Economic order quantity 4. Manufacturing defects 5. Market share 6. New products 7. On-time delivery 8. Operating income 9. Product reliability 10. Time-to-market Performance measure: ____a. Profitability ____b. Customer satisfaction ____c. Innovation ____d. Efficiency, quality, and time

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

ROI,RI,or EVA measures are more appropriate than ROS to measure the performance of a company.Why?

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 centers 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%. Operating Income Assets Current Liabilities Bish Bash Falls \ 815,000 \ 3,750,000 \ 800,000 Brooksville \ 1,100,000 \ 5,000,000 \ 1,200,000 Stonybrook \ 2,450,000 \ 9,250,000 \ 3,180,000 -What is the EVA for Bish Bash Falls?

Craylon Corp.is planning the 2015 operating budget.Average operating assets of $1,800,000 will be used during the year and unit selling prices are expected to average $100 each.Variable costs of the division are budgeted at $500,000,while fixed costs are set at $300,000.The company's required rate of return is 18%. Required: a.Compute the sales volume necessary to achieve a 20% ROI. b.The division manager receives a bonus of 50% of residual income.What is his anticipated bonus for 2015,assuming he achieves the 20% ROI from part (a)?

The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted

Belief system ________.

Which of the following is a performance measure?

Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2015: The company is currently using a 15% required rate of return. -What are Bleach's and Cleanser's residual incomes based on book values,respectively?

Economic value added,unlike residual income,charges managers for the costs of their investments in long-term assets and working capital.

Which of the following is true of performance measurement?

Coptermagic Company supplies helicopters to corporate clients.Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $8 million).The cost of equity capital for Coptermagic is 15%,and its tax rate is 30%.Coptermagic has profit centers in four divisions that operate autonomously.The company's results for 2015 are as follows: Operating Income Assets Current Liabilities New York \ 1,750,000 \ 11,500,000 \ 2,500,000 Chicago 2,400,000 9,000,000 3,500,000 Dallas 4,675,000 27,500,000 9,500,000 Los Angeles 4,200,000 25,000,000 8,000,000 Required: a.Compute Coptermagic's weighted average cost of capital. b.Compute each division's Economic Value Added. c.Rank the divisions by EVA.

The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives.

An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures.Discuss.

When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?

Managers use ________ to ensure employees' intrinsic motivation,the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion.

The required rate of return multiplied by the investment is the ________.