Question 1

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } 
& \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \
\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \
\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \
\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \
\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \
\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \
\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2
\end{array}$
-Investment turnover is calculated by dividing investments by revenues.

Accepted Answer

A) True 
 B)False

Question 2

Capital Investments has three divisions.Each division's required rate of return is 15%.Planned operating results for 2019 are as follows:
 $$\begin{array} { | c | c | c | } 
\hline \text { Division } & \text { Operating profit } & \text { Investment } \
\hline \mathrm { A } & \$ 15,000,000 & \$ 100,000,000 \
\hline \mathrm { B } & \$ 25,000,000 & \$ 125,000,000 \
\hline \mathrm { C } & \$ 11,000,000 & \$ 50,000,000 \
\hline
\end{array}$$ 
The company is planning an expansion,which will require each division to increase its investments by
$25 000 000 and its profit by $4 500 000.
Required:
a.Compute the current ROI for each division.
b.Compute the current residual income for each division.
c.Rank the divisions according to their current ROIs and residual incomes.
d.Determine the effects after adding the new project to each division's ROI and residual income.
e.Assuming the managers are evaluated on either ROI or residual income,which divisions are pleased with the expansion and which ones are unhappy?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Capital Investments has three divisions.Each division's required...

Question 3

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
 $$\begin{array} { l r r r } 
& \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \
\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \
\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \
\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \
\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \
\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \
\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5
\end{array}$$
-What is the value of the operating assets belonging to the Beta Division?

Accepted Answer

A) $4 333 333 
B) $5 952 380 
C) $6 500 000 
D) $7 151 800

Question 4

Timing of feedback depends on:

Accepted Answer

A) the sophistication of the organisation's information technology. 
B) the specific level of management receiving the feedback. 
C) how critical the information is for the success of the organisation. 
D) All of the above.

Question 5

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
 $$\begin{array} { l r r r } 
& \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \
\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \
\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \
\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \
\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \
\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \
\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5
\end{array}$$
-What is Beta Division's investment turnover?

Accepted Answer

A) 0.15 
B) 1.5 
C) 2.4 
D) 0.67

Question 6

The 'balanced scorecard' in most organisations is broken down into the following categories: financial perspective,customer perspective,internal business-process perspective,and productivity perspective.

Accepted Answer

A) True 
 B)False

Question 7

A firm will see a difference in the return on investment result depending on whether they use historical cost or current cost valuation methods for the assets.

Accepted Answer

A) True 
 B)False

Question 8

Illawarra Pizzas Corporation uses the investment centre concept for the pizza bars that it manages in the city.Illawarra has a 30% required rate of return on investment in order for a branch to be viable.Select operating data for three of its branches for 2017 are as follows:
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Acacia Street } & \text { Wattle Street } & \text { Gum Street } \
\hline \text { Revenue } & \$ 4250000 & \$ 3375000 & \$ 3750000 \
\hline \text { Operating assets } & 1750000 & 1750000 & 1250000 \
\hline \text { Net operating profit } & 480000 & 575000 & 455000 \
\hline
\end{array}$$ 
Required:
a.Compute the return on investment for each.
b.Which branch manager is doing best based only on ROI? Why?
c.Are any of the pizza bars in danger of being closed due to lack of performance?
d.What other factors should be included when evaluating the managers?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Illawarra Pizzas Corporation uses the investment centre...

Question 9

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.

Accepted Answer

A) Management compensation 
B) Moral hazard 
C) Goal congruence 
D) Incentive compensation

Question 10

When using the historical cost of assets for calculation of return on investment,is it better to use the gross book value of the assets or the net book value of the assets? Discuss.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of When using the historical cost of assets...

Question 11

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } 
& \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \
\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \
\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \
\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \
\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \
\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \
\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2
\end{array}$
-What were the sales for the Boat Division?

Accepted Answer

A) $7 200 000 
B) $9 000 000 
C) $11 750 000 
D) $7 500 000

Question 12

Answer the following questions using the information below:
The Echuca Electrical Corporation reported the following information for its Coaxial Cables Division:
 $$\begin{array} { l r } 
\text { Revenues } & \$ 1000000 \
\text { Operating costs } & 600000 \
\text { Taxable income } & 200000 \
\text { Operating assets } & 500000
\end{array}$$ Profit is defined as operating profit.
-What is the Coaxial Cables Division's investment turnover ratio?

Accepted Answer

A) 2.00 
B) 2.50 
C) 3.33 
D) 0.80

Question 13

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
 $$\begin{array} { l r r } 
& \text { North } & \text { South } \
\text { Sales } & \$ 3000000 & \$ 2500000 \
\text { Operating profit } & 750000 & 550000 \
\text { Taxable income } & 650000 & 375000 \
\text { Investment } & 6000000 & 5000000
\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.
-Which of the following is the correct formula for return on sales?

Accepted Answer

A) Investment/Profit 
B) Profit/Revenue 
C) Revenue/Investment 
D) Profit/Investment

Question 14

Team incentives encourage cooperation by:

Accepted Answer

A) improving morale. 
B) forcing people to work together on difficult tasks. 
C) rewarding all teams the same amount. 
D) letting individuals help one another as they strive toward a common goal.

Question 15

During the past 12 months,the Platypus Corporation had a net profit of $50 000.What is the amount of the investment if the return on investment is 20%?

Accepted Answer

A) $100 000 
B) $200 000 
C) $250 000 
D) $500 000

Question 16

Relative performance evaluation:

Accepted Answer

A) filters out the effect of common non-controllable factors. 
B) results in managers having no incentive to help one another. 
C) is called 'benchmarking'. 
D) All of these answers are correct.

Question 17

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
 $$\begin{array} { l r r } 
& \text { North } & \text { South } \
\text { Sales } & \$ 3000000 & \$ 2500000 \
\text { Operating profit } & 750000 & 550000 \
\text { Taxable income } & 650000 & 375000 \
\text { Investment } & 6000000 & 5000000
\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.
-What are the respective residual incomes for the North and South Divisions?

Accepted Answer

A) $30 000 and $50 000 
B) $50 000 and a negative $150 000 
C) $150 000 and $50 000 
D) $150 000 and $30 000

Question 18

Many common performance measures,such as customer satisfaction,rely on internal financial accounting information.

Accepted Answer

A) True 
 B)False

Question 19

Answer the following questions using the information below:
Echidna Company has two sources of funds: long-term debt with a market and book value of $30 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $5 million).Echidna Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%.
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Operating Profit } & { \text { Assets } } & \text { Current Liabilities } \
\hline \text { Mt Iron } & \$ 1630000 & \$ 5625000 & \$ 1600000 \
\hline \text { Mt Pilbara } & \$ 2200000 & \$ 7500000 & \$ 2400000 \
\hline \text { Broken Hill } & \$ 4900000 & \$ 13875000 & \$ 6360000 \
\hline
\end{array}$$
-In an Economic Value Added (EVA)calculation,the appropriate measure of a division's profit would be that division's after tax operating profit.

Accepted Answer

A) True 
 B)False

Question 20

Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $10 million issued at an interest rate of 12%,and equity capital that has a market value of $8 million (book value of $4 million).Waldorf Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 12%,while the tax rate is 25%.
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Operating Profit } & { \text { Assets } } & \text { Current Liabilities } \
\hline \text { Mildura } & \$ 960000 & \$ 4000000 & \$ 200000 \
\hline \text { Townsville } & \$ 1200000 & \$ 8000000 & \$ 600000 \
\hline \text { Broome } & \$ 2040000 & \$ 12000000 & \$ 1200000 \
\hline
\end{array}$$
-What is the EVA for Broome?

Accepted Answer

A) $1 530 000 
B) $450 000 
C) $414 360 
D) $1 115 640

Exam 20: Performance Measurement, Compensation and Multinational Considerations

Timing of feedback depends on:

The 'balanced scorecard' in most organisations is broken down into the following categories: financial perspective,customer perspective,internal business-process perspective,and productivity perspective.

A firm will see a difference in the return on investment result depending on whether they use historical cost or current cost valuation methods for the assets.

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.

When using the historical cost of assets for calculation of return on investment,is it better to use the gross book value of the assets or the net book value of the assets? Discuss. _ _

Team incentives encourage cooperation by:

During the past 12 months,the Platypus Corporation had a net profit of $50 000.What is the amount of the investment if the return on investment is 20%?

Relative performance evaluation:

Many common performance measures,such as customer satisfaction,rely on internal financial accounting information.