Exam 12: Performance Evaluation and Decentralization

How is return on investment (ROI)calculated?

Match each term with the correct statement from below. -A Balanced Scorecard viewpoint that defines customer and market segments in which the business will compete.

A transfer price is the price charged for a component by the selling division to the buying division of the same company.

Xulu Company had the following income statement for last year: Sales \ 400,000 Less: Cost of goods sold 220,000 Gross profit \ 180,000 Less: Selling and administrative expense 80,000 Operating income \ 100,000 Beginning assets were $575,000,and ending assets were $625,000. (Carry computations out to three decimal places.) A. $\quad$ What are the average operating assets? B. $\quad$ What is the margin? C. $\quad$ What is the turnover? D. $\quad$ What is the ROI?

Given the following information for the Northern Division: Asset base \ 500,000 Sales revenues \ 725,000 Expenses \ 662,500 Required: A. What is the margin, turnover, and ROI for the Northern Division? The Northern Division has an option to make an additional investment that would add B. $\quad \$ 100,000$ to the asset base. It would generate an additional $\$ 50,000$ in sales revenue and no additional expenses. What would be the effect on margin, turnover, and ROI? Another alternative (independent of al ternative B) for the Northern Division is to run an C. advertising campaign that would require additional advertising expenses of $\$ 37,500$ , but the best estimate is the campaign would generate an additional $\$ 75,000$ of revenue. What would be the effect on margin, turnover, and ROI?

Which of the following statements is characteristic of Manufacturing Cycle Efficiency (MCE)?

Which Balanced Scorecard perspective details the internal processes needed to provide value for customers and owners?

In which of the following responsibility centres is a manager responsible only for sales?

Select the appropriate definition for each of the items listed below. -The most common measure of performance for an investment centre.

Which formula is used to calculate MCE (manufacturing cycle efficiency)?

Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What are the total cost savings for Videostuff?

Alpha Division had the following information: Asset base in Alpha Division \ 800,000 Net income in Alpha Division \ 100,000 Cost of capital 12\% Target ROI 15\% Margin for Alpha Division 20\% Suppose the asset base is decreased by $200,000,with no other changes.What would be the return on investment of Alpha Division?

Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the ceiling of the bargaining range,and which division sets it?

A hospital decided to streamline its surgical suite operation.The nurses in charge studied the amount of time patients actually spent in various activities.They found that,on average,a patient scheduled for an operation spent about 2 hours waiting and 2.5 hours moving from the lab to the X-ray to the operating room.The average operation takes 120 minutes.What is the MCE?

Plank Inc.has a division that makes paint and another division that constructs subdivisions.The paint division incurs the following costs for one litre of paint: Direct materials \ 1.10 Direct labour 1.45 Variable overhead 0.90 Fixed overhead 1.15 Total \ 4.60 The Paint Division can make 1,000,000 L per year,and expects to produce 800,000 L next year.The Construction Division currently buys 200,000 L of paint from an outside supplier for $5.30 per litre (the same price that the Paint Division receives). A. The maximum transfer price per litre of paint is $\$\_\_\_\_$ . B. The minimum transfer price per litre of $p$ aint is $\$\_\_\_\_$ . C. Assume that the transfer takes place at $\$ 5$ per litre; calcul ate the amount by which each of the following will be better off with the transfer than without it. Paint Division: $\$\_\_\_\_$ Construction Division: $\$\_\_\_\_$ Plank, Inc., as a whole: $\$\_\_\_\_$

What is the formula for calculating economic value added (EVA)?

The Wood Parts Division of Alpha Company sells all of its output to the Finishing Division of the company.The only product of the Wood Parts Division is chair legs that are used by the Finishing Division.The retail price of the legs is $20 per leg.Each chair completed by the Finishing Division requires four legs.Production quantity and cost data are as follows: Number of chair legs produced each year 30,000 Direct materials \ 135,000 Direct labour \ 90,000 Factory overhead (25\% is variable) \ 90,000 Required: Compute the transfer price for a chair leg using: A. Market price B. Variable product costs plus a fixed fee of $20 \%$ C. Full cost plus $20 \%$ markup D. Variable costs

Suppose the operating asset turnover increased by 75% and the margin increased by 50%.What would be the percentage increase in the ROI?

In the negotiated transfer pricing,the buying division sets the ceiling (maximum possible transfer price)for the bargaining range.

Which Balanced Scorecard perspective defines the capabilities that an organization needs to create long-term improvement?