Exam 12: Performance Evaluation and Decentralization

Which of the following is an advantage of the ROI performance measure?

The Sunshine National Bank has a mortgage loan office with conversion cost of $73,950 per month. The five employees each work 170 hours per month. Last month, 1,020 loan applications were processed, but the staff believes that system improvements could lead to the processing of as many as 1,700 per month. -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

A segment of Syntex,Inc.manufactures and sells blankets.The various models of blankets are produced in a single factory using stable technology.They are sold by the sales department,which is also located in the factory.What centre is most probably used to account for this segment?

Residual income is the difference between operating income and the product of the hurdle rate and the company's average operating assets.

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: 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). Direct materials \ 0.20 Direct labour 0.70 Variable overhead 0.10 Fixed overhead 0.23 Total \ 1.23 -Refer to the Figure.Assume that Corrugated,Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if the Box Division transferred boxes to the Candy Division?

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

The Machine Division provides engines for the ATV Division of a company.The standard unit costs for Machine Division are as follows: The engine department has excess capacity.What is the best transfer price to avoid transfer price problems? Direct materials \ 500 Direct labour 1,100 Variable overhead 200 Fixed overhead 100 Market price per unit 3,000

The market price is always the best transfer pricing policy.

Economic value added is residual income with the cost of capital equal to which of the following?

Economic value added (EVA)is similar to ROI in that it links net income to capital employed.

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

What is the term for the practice of delegating decision-making authority to the lower levels of management in a company?

Ruter Company had the following historical accounting data per unit: 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? Direct materials \ 70 Direct labour 40 Variable overhead 25 Fixed overhead 34 Variable selling expenses 55 Fixed selling expenses 19

Black Sea Company has two divisions,the Old Division and the New Division.Last year,the Old Division earned $66,000 using average operating assets of $550,000.Last year,the New Division earned $260,000 using average operating assets of $2,000,000.Minimum required rate of return for Black Sea is 9%. Now assume that the minimum required rate of return for Black Sea is 12%. A. For the Old Division, residual income is_____ B. For the New Division, residual income is_____ C. For the Old Division, residual income is_____ D. For the New Division, residual income is_____

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? B. The Northern Division has an option to make an additional investment that would add $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? C. Another alternative (independent of alternative B) for the Northern Division is to run an 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?

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: 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). 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 floor of the bargaining range,and which division sets it?

Why can the level of the transfer price affect the overall company?

SkyJet 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.What centre is most probably used to account for the Western Division?

Games R Us Company makes children's board games.One popular game requires three hours of processing time,seven hours of waiting time,and five hours of moving time.What is the manufacturing cycle efficiency (MCE)for Games R Us Company?

Match each term with the correct statement from below. -is the practice of delegating decision-making authority to lower levels.