Exam 6: Performance Measurement in Decentralized Organizations

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:

Which of the following would be an argument for the use of net book value in the computation of operating assets in return on investment calculations?

Queue time is considered value-added time.

The Casket Division of Landazuri Corporation had average operating assets of $620,000 and net operating income of $86,000 in February. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 14%. Required: What was the Casket Division's residual income in February?

Mccubbin Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: The delivery cycle time was:

Return on investment (ROI) equals margin multiplied by turnover.

The Portland Division's operating data for the past two years is as follows: The Portland Division's margin in Year 2 was 150% of the margin for Year 1. -The turnover for Year 1 was:

Ebsen Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: -The manufacturing cycle efficiency (MCE) was closest to:

Residual income should not be used to evaluate a profit center.

Net operating income is income after interest and taxes.

Net operating income is defined as:

All profit centers are responsibility centers, but not all responsibility centers are profit centers.

Return on investment is superior to residual income as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.

The Portland Division's operating data for the past two years is as follows: The Portland Division's margin in Year 2 was 150% of the margin for Year 1. -The average operating assets for Year 2 were:

Last year the Uptown Division of Gorcen Enterprises had sales of $300,000 and a net operating income of $24,000. The average operating assets at Uptown last year amounted to $120,000. -Last year at Uptown the return on investment was:

Cabal Products is a division of a major corporation. Last year the division had total sales of $10,040,000, net operating income of $582,320, and average operating assets of $4,000,000. The company's minimum required rate of return is 14%. -The division's return on investment (ROI) is closest to:

Chabot Company had the following results last year: net operating income, $2,160; turnover, 5; and ROI 18%. Chabot Company's average operating assets were:

Residual income:

A manufacturing cycle efficiency (MCE) ratio close to 1.00 is desirable because this is the ratio of value-added time to throughput time.

The following information relates to last year's operations at the Bread Division of Rison Bakery, Inc.: What was the Bread Division's minimum required rate of return last year?