Exam 12: Performance Evaluation and Decentralization

Borraw Company The following information pertains to the three divisions of Borraw Company: Division A Division B Sales ? 1,250,000 Net operating income \ 25,000 \ 75,000 Average operating assets ? ? Rebum on investment 20\% 15\% Margin 0.05 ? Tumover ? ? Target ROI 12\% 10\% -Refer to Borraw Company. What are the sales for Division A?

A key feature of economic value added (EVA) is that it emphasizes after-tax operating income and the actual cost of capital.

Condor Company Condor Company provided the following information for last year: Operating income \ 60,000 Sales \ 240,000 Beginning operating assets \ 440,000 Ending operating assets \ 450,000 -Refer to Confor Company. What was the company's return on investment?

Which statement best describes the Manufacturing Cycle Efficiency (MCE)?

Which responsibility centre designation would be used for a production manager?

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

What is the price the selling division charges for a component purchased by the buying division of the same company?

In calculating residual income, the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment.

What is the best transfer price when the transferred product has a competitive outside market?

What is the term for the number of units of output that can be produced in a given period of time?

Zorro Company 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 inv estment ? 20\% 15\% Margin 0.10 0.05 ? Turnover 1.0 ? ? Target ROI 14\% 12\% 10\% -Refer to Zorro Company. What is the residual income for Division A?

Corrugated, Inc.Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box: Direct materials \ 0.20 Direct labour 0.70 Variable overhead 0.10 Fixed overhead Total The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives). -Refer to Corrugated, Inc. Assume the company allows division managers to negotiate the transfer price. The Box Division is producing 400,000 boxes. Suppose the Box Division and the Candy Division agree to transfer boxes. What would be the floor of the bargaining range and which division sets it?

Turnover is the ratio of operating income to sales.

Several transfer pricing policies are used in practice. Which transfer pricing policy is NOT used?

Giga-Stuff, Inc.Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead Total Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). -Refer to Giga-Stuff, Inc. Assume the company allows negotiated transfer pricing. What is the floor of the bargaining range, and which division sets it?

How is EVA (economic value added) different from standard residual income calculations?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -A Balanced Scorecard viewpoint that defines customer and market segments in which the business will compete

The snowboard manufacturing cell has 1,200 hours of time available per quarter. The cell could make 7,200 snowboards but made only 6,000 during that time. Required: Calculate the following: A. Theoretical cycle time in minutes B. Theoretical velocity per hour C. Actual cycle time in minutes D. Actual velocity per hour E. MCE is __________________% (round your answer two digits).

How is residual income calculated?

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 90 minutes. What is the MCE?