Exam 10: Differential Analysis: the Key to Decision Making

Baad Industries is a division of a major corporation. Last year the division had total sales of $20,440,000, net operating income of $1,860,040, and average operating assets of $7,000,000. The division's return on investment (ROI) is closest to:

All other things being the same, which of the following would increase the residual income?

Ebsen Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: The throughput time was:

Inspection Time is generally considered to be non-value-added time.

Residual income is the net operating income that an investment center earns above the minimum required return on the investment in fixed assets.

A disadvantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

The West Division of Frede Corporation had average operating assets of $700,000 and net operating income of $120,800 in December. The minimum required rate of return for performance evaluation purposes is 16%. What was the West Division's minimum required return in December?

The following data pertain to operations at Quick Incorporated: The combined inspection and move time for this operation would be:

Baad Industries is a division of a major corporation. Last year the division had total sales of $20,440,000, net operating income of $1,860,040, and average operating assets of $7,000,000. The division's margin is closest to:

The North Division of the Lyman Company reported the following data for last year: The residual income for the North Division last year was:

Last year a company had sales of $400,000, a turnover of 2.4, and a return on investment of 36%. The company's net operating income for the year was:

Rintharamy Corporation's management reports that its average delivery cycle time is 25.2 days, its average throughput time is 7.6 days, its manufacturing cycle efficiency (MCE) is 0.25, its average move time is 0.9 day, and its average queue time is 4.0 days. Required: a. What is the wait time? b. What is the process time? c. What is the inspection time?

Nash Corporation manufactures and sells custom snowmobiles. From the time an order is placed till the time the snowmobile reaches the customer averages 50 days. This 50 days is spent as follows: What is Nash's manufacturing cycle efficiency (MCE) for its snowmobiles?

The following information relates to the Quilt Division of TDS Corporation for last year: Assume that Quilt was being evaluated solely on the basis of residual income. Which of the following investment opportunities would Quilt want to invest in?

Garde Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: The throughput time was:

Koogle Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 13%. In August, the Commercial Products Division had average operating assets of $530,000 and net operating income of $76,700. What was the Commercial Products Division's residual income in August?

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is:

Process Time is the only non-value-added component of Throughput Time.

The Jenkins Division recorded operating data as follows for the past year: For the past year, the turnover used in ROI calculations was:

Gaal Industries is a division of a major corporation. Last year the division had total sales of $26,110,000, net operating income of $1,801,590, and average operating assets of $7,000,000. The company's minimum required rate of return is 18%. Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)?