Exam 12: Performance Evaluation and Decentralization

Which of the following is NOT an advantage of ROI?

The following information pertains to the three divisions of Zorro Company: Division A Division B Division C Sales ? ? 1,250,000 Net operating income \ 40,000 \ 25,000 \ 75,000 Average operating assets 400,000 ? ? Return on investment ? 20\% 15\% Margin 0.10 0.05 ? Turnover 1.2 ? ? Target ROI 14\% 12\% 10\% What is the residual income for Division A?

Ruter Company had the following historical accounting data per unit: Direct materials \ 70 Direct labour 40 Variable overhead 25 Fixed overhead 34 Variable selling expenses 55 Fixed selling expenses 19 The units are normally transferred internally from Division X to Division Y.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30%.There was no beginning or ending inventories. Suppose Division X uses full cost plus markup.What would be the transfer price?

The direct comparison of the performance of two different investment centres is difficult using residual income because residual income is an absolute measure.

The Glass Division of a company makes glass vases,which have the following unit costs: Direct materials \ 0.20 Direct labour 0.35 Variable overhead 0.15 Fixed overhead 1.30 Selling commission 0.50 The Florist Division of the company sells cut flowers and uses the glass vases.The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each.The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each.Vases sold outside incur the sales commission; this commission would not be paid on internal transfers.The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase.Is this a good idea for each division? Explain.

In which of the following responsibility centres is a manager responsible for revenues,cost,and investment?

When using economic value added (EVA)to calculate residual income,what is the formula for the cost of capital employed?

Decreasing inventories leads to a reduction in return on investment (ROI).

In terms of operating income for the company as a whole,the transfer price set by the buying and selling divisions nets out.

Division A produces a component and wants to sell it to Division B.Which of the following best describes the relationship of the transfer price to Division A and Division B?

Match each term with the correct statement from below. -A(n)___________ is a responsibility centre in which a manager is responsible only for costs.

Refer to the Figure.Calculate the following: A. Actual cycle time in minutes B. Theoretical cycle time in minutes C. Actual velocity per hour D. Theoretical velocity per hour

The Seasonal Division of The Hudson Bay Department Store had a net income of $660,000,a net asset base of $5,000,000,and a required rate of return of 10%.Sales for the period totalled $4,00,000.What was the residual income for the period?

Return on investment is just a specific way of calculating residual income

Two transfer pricing policies are used in practice.These transfer pricing policies include cost-based transfer prices and negotiated transfer prices.

Transfer pricing is a simple issue.

Describe the four perspectives of the Balanced Scorecard.

Select the appropriate definition for each of the items listed below. -The ratio of sales to average operating assets.

Unlike ROI,residual income does NOT encourage a short-run orientation.

What does the difference between realization and sacrifice define?