Exam 12: Performance Evaluation and Decentralization

Which of the following is a disadvantage of a focus on return on investment?

Suppose the selling division is operating at less than full capacity.Where would the floor of the bargaining range most probably be set at?

The use of residual income encourages managers to accept any project that earns below the minimum rate.

A production department within the factory,such as assembly,is an example of a profit centre.

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 the Figure.What was Condor's margin last year?

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

Which Balanced Scorecard perspective defines the customer and market segments in which the business unit will compete?

What are the advantages and disadvantages of return on investment (ROI)?

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.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 ceiling of the bargaining range,and which division sets it?

Each month,a vacuum cleaner manufacturing cell has 800 hours of time available.During that time,the cell could have manufactured up to 2,400 vacuums,but only 1,600 vacuums were actually manufactured.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

Turnover is the ratio of operating income to sales.

In which of the following responsibility centres is a manager responsible for both revenues and costs?

Dynex Company had the following income statement for last year: Beginning assets were $280,000,and ending assets were $300,000 Sales \ 200,000 Less: COGS 100,000 Gross Frofit \ 100,000 Less: Selling \& Admin. Expense 40,000 Operating income \ 60,000 A. Average operating assets were $\$$ _____. B. Margin was_____ C. Turnover was_____ D. Return on investment was_____ $\%$

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

Transfer pricing does not affect divisional profits.

Decentralization is usually achieved by creating units called divisions.

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

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

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

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 Sophistosand and Videostuff have agreed on a transfer price of $2.20.What is the total benefit for Giga-Stuff,Inc.?