Exam 11: Performance Evaluation and Decentralization

Basically, EVA is residual income with the cost of capital equal to the actual cost of capital for the firm (as opposed to some minimum rate of return desired by the company for other reasons).

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.

The National Division of Excellent Products Company had a turnover ratio of 4.50 and a margin of 0.15.Which of the following is the return on investment (ROI)? (Note: Round answer to two decimal places.)

JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division.The manager of the Western Division had wanted to purchase replacement airplanes for the division.However, he decided against it because, although revenues would increase and the new planes would be less expensive to operate, the initial cost of the planes was quite large.The Western Division is most probably accounted for as a(n)

________________ is the difference between realization and sacrifice, where realization is what the customer receives and sacrifice is what is given up in return.

Select the term from below to match with the correct statement. -The manager of a(n) ___________ is evaluated on the basis of income.

Which of the following results from decentralization?

Several transfer pricing policies are used in practice.These transfer pricing policies include market price, cost-based transfer prices, and negotiated transfer prices.

Which of the following is not a disadvantage of the ROI performance measure?

The selling division is forced to transfer a product internally when a cost-based transfer pricing policy is set by top management.

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

A(n) ________________ is when a manager is responsible only for sales.

The following information pertains to the three divisions of Yang Company: - What is the turnover for Division C?

_____________ is the ratio of operating income to sales.

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

Division A produces a component and wants to sell it to Division B.The transfer price is

The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division.

The practice of delegating decision-making authority to lower levels of management in a company is called centralization.

Select the term from below to match with the correct statement. -A(n) ___________ is a responsibility center in which a manager is responsible only for costs.

The difference between realization and sacrifice defines