Question 1

Indigo Corp.has an ROI of 15% and a residual income of $10,000.If operating income equals $30,000,what is the hurdle rate?

Accepted Answer

A) 15% 
B) 10% 
C) 33.3% 
D) 18.3%

Question 2

Pine Corp.has revenues of $500,000 resulting in an operating income of $54,000.Invested assets total $600,000.Residual income is $18,000.Calculate the new residual income if sales increase by 10% and the profit margin and invested assets remain the same.

Accepted Answer

A) $23,400 
B) $0 
C) $3,240 
D) $36,000

Question 3

The responsibility center in which the manager has responsibility and authority over revenues and costs,but not assets,is the:

Accepted Answer

A) cost center. 
B) investment center. 
C) profit center. 
D) revenue center.

Question 4

Tropic Corp.has sales revenue of $500,000 resulting in operating income of $54,000.Average invested assets total $600,000,and the cost of capital is 6%.Calculate the return on investment if sales increase by 10% and the profit margin and invested assets remain the same.

Accepted Answer

A) 9.0% 
B) 9.9% 
C) 10.8% 
D) 6.0%

Question 5

The balanced scorecard includes both leading and lagging indicators.Which of the following correctly places each indicator on the spectrum of most leading to most lagging?

Accepted Answer

A) Financial → Customer → Internal business process → Learning and growth 
B) Financial → Learning and growth → Internal business process → Customer 
C) Customer → Learning and growth → Internal business process → Financial 
D) Learning and growth → Internal business process → Customer → Financial

Question 6

Sugar Company has two divisions,Lenox and Berkshire.Lenox produces an item that Berkshire could use in its production.Berkshire currently is purchasing 100,000 units from an outside supplier for $43 per unit.Lenox is currently operating at full capacity of 750,000 units and has variable costs of $28 per unit.The full cost to manufacture the unit is $35.Lenox currently sells 750,000 units at a selling price of $44 per unit.
a.What will be the effect on Sugar Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Lenox if the transfer price is $40 per unit?
c.What will be the change in profits for Berkshire if the transfer price is $40 per unit?

Accepted Answer

The answer of Sugar Company has two divisions,Lenox and Berkshire.Lenox...

Exam 10: Decentralized Performance Evaluation

Indigo Corp.has an ROI of 15% and a residual income of $10,000.If operating income equals $30,000,what is the hurdle rate?

Pine Corp.has revenues of $500,000 resulting in an operating income of $54,000.Invested assets total $600,000.Residual income is $18,000.Calculate the new residual income if sales increase by 10% and the profit margin and invested assets remain the same.

The responsibility center in which the manager has responsibility and authority over revenues and costs,but not assets,is the:

Tropic Corp.has sales revenue of $500,000 resulting in operating income of $54,000.Average invested assets total $600,000,and the cost of capital is 6%.Calculate the return on investment if sales increase by 10% and the profit margin and invested assets remain the same.

The balanced scorecard includes both leading and lagging indicators.Which of the following correctly places each indicator on the spectrum of most leading to most lagging?