Question 1

Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows:
 $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Ohio } } & { \text { Dallas } } & { \text { Texas } } \
\hline \text { Revenue } & \$ 1,200,000 & \$ 1,500,000 & \$ 1,800,000 \
\hline \text { Operating assets } & 700,000 & 500,000 & 600,000 \
\hline \text { Net operating income } & 105,000 & 115,000 & 120,000 \
\hline
\end{array}$$ Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers?

Accepted Answer

The answer of Antique Corp uses the investment center concept...

Question 2

Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.

Accepted Answer

A) True 
 B)False

Question 3

Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2015:

The company is currently using a 15% required rate of return.
-What are Bleach's and Cleanser's return on investment based on current values,respectively?

Accepted Answer

A)  0.22; 0.6749 
B)  0.42; 0.5219 
C)  0.50; 0.3286 
D)  0.67; 0.2286

Question 4

Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match.
Activities:
 1. Change in revenues
2. Cycle time
3. Economic order quantity
4. Manufacturing defects
5. Market share
6. New products
7. On-time delivery
8. Operating income
9. Product reliability
10. Time-to-market Performance measure:
 ____a. Profitability
____b. Customer satisfaction
____c. Innovation
____d. Efficiency, quality, and time

Accepted Answer

The answer of Assume you are evaluating a manufacturing company.Match...

Question 5

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

Accepted Answer

A)  choosing performance measures that align with the firm's financial goals 
B)  choosing the time horizon of each performance measure 
C)  choosing the details for each performance measure 
D)  choosing a target level of performance

Question 6

ROI,RI,or EVA measures are more appropriate than ROS to measure the performance of a company.Why?

Accepted Answer

The answer of ROI,RI,or EVA measures are more appropriate than...

Question 7

Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \
\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \
\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \
\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \
\hline
\end{array}$$
-What is the EVA for Bish Bash Falls?

Accepted Answer

A)  $338,563 
B)  $305,000 
C)  $275,500 
D)  $255,500

Question 8

Craylon Corp.is planning the 2015 operating budget.Average operating assets of $1,800,000 will be used during the year and unit selling prices are expected to average $100 each.Variable costs of the division are budgeted at $500,000,while fixed costs are set at $300,000.The company's required rate of return is 18%.
Required:
a.Compute the sales volume necessary to achieve a 20% ROI.
b.The division manager receives a bonus of 50% of residual income.What is his anticipated bonus for 2015,assuming he achieves the 20% ROI from part (a)?

Accepted Answer

The answer of Craylon Corp.is planning the 2015 operating budget.Average...

Question 9

The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted

Accepted Answer

A) True 
 B)False

Question 10

Belief system ________.

Accepted Answer

A)  describe standards of behavior and codes of conduct expected of all executives and board of directors 
B)  articulate the mission, purpose, and core values of a company 
C)  are formal information systems managers use to focus the company's attention and learning on key strategic issues 
D)  describe standards of behavior and codes of conduct expected of all employees

Question 11

Which of the following is a performance measure?

Accepted Answer

A)  retained earnings 
B)  market value 
C)  present value of cash flows 
D)  economic value added

Question 12

Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2015:

The company is currently using a 15% required rate of return.
-What are Bleach's and Cleanser's residual incomes based on book values,respectively?

Accepted Answer

A)  $83,750; $40,000 
B)  $110,000; $67,500 
C)  $67,500; $110,000 
D)  $81,500; $40,250

Question 13

Economic value added,unlike residual income,charges managers for the costs of their investments in long-term assets and working capital.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true of performance measurement?

Accepted Answer

A)  Preferred performance measures do not change much with changes in factors that are beyond manager's control. 
B)  Sensitive performance measures increases the cost of providing incentives. 
C)  Less-sensitive performance measures induce managers to improve. 
D)  Managers' performances should be evaluated based on the financial measures such as residual income and economic value added.

Question 15

Coptermagic Company supplies helicopters to corporate clients.Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $8 million).The cost of equity capital for Coptermagic is 15%,and its tax rate is 30%.Coptermagic has profit centers in four divisions that operate autonomously.The company's results for 2015 are as follows:
 $$\begin{array} { | l | r | r | r | } 
\hline &  { \begin{array} { c } 
\text { Operating } \
\text { Income }
\end{array} } & { \text { Assets } } & { \begin{array} { c } 
\text { Current } \
\text { Liabilities }
\end{array} } \
\hline \text { New York } & \$ 1,750,000 & \$ 11,500,000 & \$ 2,500,000 \
\hline \text { Chicago } & 2,400,000 & 9,000,000 & 3,500,000 \
\hline \text { Dallas } & 4,675,000 & 27,500,000 & 9,500,000 \
\hline \text { Los Angeles } & 4,200,000 & 25,000,000 & 8,000,000 \
\hline
\end{array}$$ Required:
a.Compute Coptermagic's weighted average cost of capital.
b.Compute each division's Economic Value Added.
c.Rank the divisions by EVA.

Accepted Answer

The answer of Coptermagic Company supplies helicopters to corporate clients.Coptermagic...

Question 16

The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives.

Accepted Answer

A) True 
 B)False

Question 17

An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures.Discuss.

Accepted Answer

The answer of An important element in designing accounting-based performance...

Question 18

When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?

Accepted Answer

The answer of When designing the steps in accounting-based performance...

Question 19

Managers use ________ to ensure employees' intrinsic motivation,the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion.

Accepted Answer

A)  diagnostic control systems 
B)  boundary systems 
C)  belief systems 
D)  interactive control systems

Question 20

The required rate of return multiplied by the investment is the ________.

Accepted Answer

A)  sunk cost of the investment 
B)  historical cost of the investment 
C)  imputed cost of the investment 
D)  return on sales

Exam 23: Performance Measurement, compensation, and Multinational Considerations

Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

ROI,RI,or EVA measures are more appropriate than ROS to measure the performance of a company.Why?

The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted

Belief system ________.

Which of the following is a performance measure?

Economic value added,unlike residual income,charges managers for the costs of their investments in long-term assets and working capital.

Which of the following is true of performance measurement?

The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives.

An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures.Discuss.

When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?

Managers use ________ to ensure employees' intrinsic motivation,the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion.

The required rate of return multiplied by the investment is the ________.