Exam 16: Performance Evaluation and Compensation

The Machining Division has a capacity of 2,000 units. Its sales and cost data are: Selling price per unit $100 Variable manufacturing costs per unit $25 Variable administrative costs per unit $5 Total fixed manufacturing overhead $20,000 Total fixed administrative costs $5,000 Residual income is:

Specific knowledge is:

Investment centre managers are held responsible only for their costs.

The location of decision authority in an organization depends on:

Efficiency measures, such as number of new products developed, may be more useful than financial measures in:

A segment with an ROI of 30% has an income of $84,000. The company's required rate of return on segment investments is 18%. The segment's residual income is:

Indicate whether each of the following is more descriptive of centralized (C)or decentralized (D)decision-making. ____ 1. Decision-makers may not fully understand organizational goals and strategies ____ 2. Decisions are more easily made for the benefit of the overall organization ____ 3. Decisions are made by individuals with the greatest knowledge ____ 4. Good for organizations with stable and less complex operations ____ 5. Lack of coordination among subunits may lead to duplication in efforts ____ 6. Although less monitoring of decisions is usually needed, more monitoring of employee effort is necessary. ____ 7. Managers are motivated more often through incentive contracting rather than by monitoring ____ 8. Poor quality decisions due to lack of information ____ 9. More timely decision-making ____ 10. Upper management can focus on organizational strategies

Compensation contracts can be based on accounting and / or non-accounting measurements.

St. John's Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for St. John's Divisions operations over the past 2 years follows: 20x5 20x4 Current assets $120,000 $100,000 Property, plant and equipment (cost)300,000 280,000 Accumulated amortization 80,000 60,000 Current liabilities 90,000 70,000 Long-term debt 85,000 80,000 Pretax operating income 52,800 48,900 Income tax rate 30% 30% What was the St. John's Division EVA for 20x5?

A business segment that has responsibility for both revenues and expenses is called a(n)

For 2006, Aberdeen's return on investment was 26% and its investment turnover was 2.0. Return on sales for 2006 was:

Among the responsibility centres listed, which type of responsibility centre is most likely to use growth in sales as a performance measure?

The manager in a cost centre is responsible for:

Bellingham Division has a required rate of return by corporate headquarters of 20%. The weighted average cost of capital is 12%. You are given the following information for Bellingham's operations for a two-year period: 2005 2004 Current assets $ 50,000 $ 60,000 Long-term assets 200,000 204,000 Accumulated amortization 60,000 44,000 Current liabilities 40,000 20,000 Long-term debt 100,000 140,000 Operating income for the year 19,000 21,000 Tax rate 40% 40% The residual income for 2005 was:

(CMA)The segment operating margin less imputed (estimated)interest on the assets used by the investment centre is known as:

Compare and contrast return on investment, residual income, and economic value added. Which method is best for evaluating investment centre managers? Explain your reasoning.

Residual income measures a company's profits given a required rate of return.

Which of the following best describes "general knowledge" in a decision-making context?

St. John's Division has a required rate of return of 15%. The weighted average cost of capital is 10%. Information for St. John's Divisions operations over the past 2 years follows: 20x5 20x4 Current assets $120,000 $100,000 Property, plant and equipment (cost)300,000 280,000 Accumulated amortization 80,000 60,000 Current liabilities 90,000 70,000 Long-term debt 85,000 80,000 Pretax operating income 52,800 48,900 Income tax rate 30% 30% What was the St. John's Division ROI for 20x5 (rounded to nearest 0.1%)?

Teresa's Taco Co. had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on sales was: