Deck 10: Performance Measurement in Decentralized Organizations

Question 1

Which of the following three statements are correct?
I.A profit center has control over both cost and revenue.
II.An investment center has control over invested funds,but not over costs and revenue.
III.A cost center has no control over sales.

A)Only I
B)Only II
C)Only I and III
D)Only I and II

Answer 1

Only I and III

Question 2

Turnover is computed by dividing average operating assets into:

A)invested capital.
B)total assets.
C)net operating income.
D)sales.

Answer 2

D

Question 3

Consider a company that has only variable costs.All other things the same,an increase in unit sales will result in no change in the return on investment.

Answer 3

False

Question 4

In computing the margin in a ROI analysis,which of the following is used?

A)Sales in the denominator
B)Net operating income in the denominator
C)Average operating assets in the denominator
D)Residual income in the denominator

Question 5

Managers of cost centers are evaluated according to the profits which their departments are able to generate.

Question 6

If expenses exceed revenues in a department,then it would be considered a cost center.

Question 7

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because:

A)the problems associated with measuring the asset base are eliminated.
B)desirable investment decisions will not be rejected by divisions that already have a high ROI.
C)only the gross book value of assets needs to be calculated.
D)returns do not increase as assets are depreciated.

Question 8

A balanced scorecard should contain every performance measure that can be expected to influence a company's profits.

Question 9

Residual income equals average operating assets multiplied by the difference between the return on investment and the minimum required rate of return.

Question 10

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

Question 11

Which of the following is not an operating asset?

A)Cash
B)Inventory
C)Plant equipment
D)Common stock

Question 12

The performance measures on a balanced scorecard tend to fall into four groups: financial measures,customer measures,internal business process measures,and external business process measures.

Question 13

The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.

Question 14

In determining the dollar amount to use for operating assets in the return on investment (ROI)calculation,companies will generally use either net book value or gross cost of the assets.Which of the following is an argument for the use of net book value rather than gross cost?

A)It is consistent with how assets are reported on the balance sheet.
B)It eliminates the depreciation method as a factor in ROI calculations.
C)It encourages the replacement of old,worn-out equipment.
D)All of the above.

Question 15

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

Question 16

Which of the following will not result in an increase in the residual income,assuming other factors remain constant?

A)An increase in sales.
B)An increase in the minimum required rate of return.
C)A decrease in expenses.
D)A decrease in operating assets.

Question 17

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

A)Increase in average operating assets.
B)Decrease in average operating assets.
C)Increase in minimum required return.
D)Decrease in net operating income.

Question 18

Which of the following statements provide(s)an argument in favor of including only a plant's net book value rather than gross book value as part of operating assets in the ROI computation?
I.Net book value is consistent with how plant and equipment items are reported on a balance sheet.
II.Net book value is consistent with the computation of net operating income,which includes depreciation as an operating expense.
III.Net book value allows ROI to decrease over time as assets get older.

A)Only I.
B)Only III.
C)Only I and II.
D)Only I and III.

Question 19

Residual income is superior to return on investment 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.

Question 20

The performance measures on an individual's scorecard should not be overly influenced by actions taken by others in the company or by events that are outside of the individual's control.

Question 21

The division's turnover is closest to:

A)20.00
B)4.35
C)0.22
D)3.57

Question 22

Mordue 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:

A)0.15
B)0.53
C)0.05
D)0.16

Question 23

Reed Company's sales last year totaled $150,000 and its return on investment (ROI)was 12%.If the company's turnover was 3,then its net operating income for the year must have been:

A)$6,000
B)$2,000
C)$18,000
D)it is impossible to determine from the data given.

Question 24

Last year a company had stockholder's equity of $160,000,net operating income of $16,000 and sales of $100,000.The turnover was 0.5.The return on investment (ROI)was:

A)10%
B)9%
C)8%
D)7%

Question 25

The division's margin is closest to:

A)21.8%
B)5.0%
C)23.0%
D)28.0%

Question 26

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

A)8.9 hours
B)18 hours
C)4.5 hours
D)22.5 hours

Question 27

Niemiec Corporation keeps careful track of the time required to fill orders.The times recorded for a particular order appear below: The manufacturing cycle efficiency (MCE)was closest to:

A)0.20
B)0.06
C)0.12
D)0.96

Question 28

The division's return on investment (ROI)is closest to:

A)4.1%
B)21.75%
C)17.9%
D)1.1%

Question 29

In August,the Universal Solutions Division of Jugan Corporation had average operating assets of $670,000 and net operating income of $77,500.The company uses residual income,with a minimum required rate of return of 12%,to evaluate the performance of its divisions.What was the Universal Solutions Division's residual income in August?

A)$2,900
B)-$2,900
C)-$9,300
D)$9,300

Question 30

Division B had an ROI last year of 15%.The division's minimum required rate of return is 10%.If the division's average operating assets last year were $450,000,then the division's residual income for last year was:

A)$67,500
B)$22,500
C)$37,500
D)$45,000

Question 31

The Reed Division reports the following operating data for the past two years: The return on investment at Reed was exactly the same in Year 1 and Year 2.

-The margin in Year 2 was:

A)48%
B)32%
C)20%
D)10%

Question 32

Garnick 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:

A)3.5 hours
B)8.7 hours
C)34.9 hours
D)36.1 hours

Question 33

A company's current net operating income is $16,800 and its average operating assets are $80,000.The company's required rate of return is 18%.A new project being considered would require an investment of $15,000 and would generate annual net operating income of $3,000.What is the residual income of the new project?

A)20.8%
B)20%
C)($150)
D)$300

Question 34

Average operating assets are $110,000 and net operating income is $23,100.The company invests $25,000 in new assets for a project that will increase net operating income by $4,750.What is the return on investment (ROI)of the new project?

A)21%
B)19%
C)18.5%
D)20%

Question 35

Soderquist Corporation uses residual income to evaluate the performance of its divisions.The company's minimum required rate of return is 11%.In April,the Commercial Products Division had average operating assets of $100,000 and net operating income of $9,400.What was the Commercial Products Division's residual income in April?

A)-$1,600
B)$1,600
C)$1,034
D)-$1,034

Question 36

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

A)33.1 hours
B)3.7 hours
C)12.6 hours
D)30.9 hours

Question 37

The purpose of the Data Processing Department of Falena Corporation is to assist the various departments of the corporation with their information needs free of charge.The Data Processing Department would best be evaluated as a:

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

Question 38

Sales and average operating assets for Company P and Company Q are given below: What is the margin that each company will have to earn in order to generate a return on investment of 20%?

A)12% and 16%
B)50% and 100%
C)8% and 4%
D)2.5% and 5%

Question 39

The Reed Division reports the following operating data for the past two years: The return on investment at Reed was exactly the same in Year 1 and Year 2.

-Sales in Year 2 amounted to:

A)$250,000
B)$300,000
C)$325,000
D)$350,000

Question 40

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

A)38.8 hours
B)33.4 hours
C)14.1 hours
D)5.4 hours

Question 41

The West Division of Shekarchi Corporation had average operating assets of $620,000 and net operating income of $80,100 in March. The minimum required rate of return for performance evaluation purposes is 14%.

-What was the West Division's residual income in March?

A)-$6,700
B)$6,700
C)-$11,214
D)$11,214

Question 42

Estes Company has assembled the following data for its divisions for the past year:

-Division B's average operating assets is:

A)$81,200
B)$2,080,000
C)$1,333,333
D)$130,000

Question 43

Operating data from Tindall Company for last year follows:

-The average operating assets amounted to:

A)$600,000
B)$400,000
C)$500,000
D)$800,000

Question 44

The following data are available for the South Division of Redride Products, Inc. and the single product it makes:

-How many units must South sell each year to have an ROI of 16%?

A)240,000
B)1,300,000
C)52,000
D)65,000

Question 45

Operating data from Tindall Company for last year follows:

-The margin used in ROI calculations was closest to:

A)18.00%
B)8.00%
C)6.67%
D)15.00%

Question 46

Beall Industries is a division of a major corporation. Last year the division had total sales of $20,160,000, net operating income of $1,592,640, and average operating assets of $8,000,000.

-The division's return on investment (ROI)is closest to:

A)19.9%
B)16.6%
C)1.6%
D)5.7%

Question 47

Beall Industries is a division of a major corporation. Last year the division had total sales of $20,160,000, net operating income of $1,592,640, and average operating assets of $8,000,000.

-The division's turnover is closest to:

A)2.52
B)2.10
C)0.20
D)12.66

Question 48

Beall Industries is a division of a major corporation. Last year the division had total sales of $20,160,000, net operating income of $1,592,640, and average operating assets of $8,000,000.

-The division's margin is closest to:

A)39.7%
B)47.6%
C)7.9%
D)19.9%

Question 49

The West Division of Shekarchi Corporation had average operating assets of $620,000 and net operating income of $80,100 in March. The minimum required rate of return for performance evaluation purposes is 14%.

-What was the West Division's minimum required return in March?

A)$80,100
B)$86,800
C)$11,214
D)$98,014

Question 50

Estes Company has assembled the following data for its divisions for the past year:

-Division A's residual income is:

A)$20,000
B)$30,000
C)$35,000
D)$45,000

Question 51

The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2.

-The margin in Year 2 was:

A)18.75%
B)27.00%
C)22.50%
D)12.00%

Question 52

The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2.

-The net operating income in Year 1 was:

A)$90,000
B)$135,000
C)$140,000
D)$150,000

Question 53

Operating data from Tindall Company for last year follows:

-The residual income was:

A)$18,000
B)$10,000
C)$12,000
D)$16,000

Question 54

Estes Company has assembled the following data for its divisions for the past year:

-Division A's sales are:

A)$400,000
B)$625,000
C)$125,000
D)$200,000

Question 55

The Reed Division reports the following operating data for the past two years: The return on investment at Reed was exactly the same in Year 1 and Year 2.

-Net operating income in Year 2 amounted to:

A)$60,000
B)$50,000
C)$40,000
D)$35,000

Question 56

The Consumer Products Division of Weiter Corporation had average operating assets of $570,000 and net operating income of $65,100 in March. The minimum required rate of return for performance evaluation purposes is 12%.

-What was the Consumer Products Division's minimum required return in March?

A)$7,812
B)$76,212
C)$68,400
D)$65,100

Question 57

The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2.

-The average operating assets in Year 2 were:

A)$720,000
B)$750,000
C)$800,000
D)$900,000

Question 58

The Reed Division reports the following operating data for the past two years: The return on investment at Reed was exactly the same in Year 1 and Year 2.

-Average operating assets in Year 1 were:

A)$160,000
B)$150,000
C)$125,000
D)$100,000

Question 59

The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2.

-Sales in Year 1 amounted to:

A)$400,000
B)$900,000
C)$750,000
D)$1,200,000

Question 60

The Consumer Products Division of Weiter Corporation had average operating assets of $570,000 and net operating income of $65,100 in March. The minimum required rate of return for performance evaluation purposes is 12%.

-What was the Consumer Products Division's residual income in March?

A)-$3,300
B)$3,300
C)-$7,812
D)$7,812

Question 61

The following data are available for the South Division of Redride Products, Inc. and the single product it makes:

-If South wants a residual income of $50,000 and the minimum required rate of return is 10%,the annual turnover will have to be:

A)0.32
B)0.80
C)1.25
D)1.50

Question 62

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The division's turnover is closest to:

A)3.82
B)4.26
C)0.12
D)37.04

Question 63

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The division's return on investment (ROI)is closest to:

A)49.0%
B)11.5%
C)0.3%
D)2.2%

Question 64

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The delivery cycle time was:

A)29.1 hours
B)30.6 hours
C)8 hours
D)2.7 hours

Question 65

The following data pertain to the Whalen Division of Northern Industries. The margin at Whalen was exactly the same in Year 2 as it was in Year 1.

-The average operating assets for Year 2 amounted to:

A)$400,000
B)$800,000
C)$600,000
D)$500,000

Question 66

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The division's residual income is closest to:

A)$575,100
B)$1,175,100
C)$(1,980,900)
D)$(24,900)

Question 67

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

-The throughput time was:

A)9.3 hours
B)4.9 hours
C)30.9 hours
D)26 hours

Question 68

Hart Manufacturing operates an automated steel fabrication process. For one operation, Hart has found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production process is 3 hours, queue time prior to starting the production process is 2 hours, and inspection time is 1.2 hours.

-The manufacturing cycle efficiency (MCE)for this operation is:

A)55%
B)45%
C)6.6 hours
D)5.4 hours

Question 69

Saffer 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:

A)0.17
B)0.05
C)0.43
D)0.19

Question 70

Hart Manufacturing operates an automated steel fabrication process. For one operation, Hart has found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production process is 3 hours, queue time prior to starting the production process is 2 hours, and inspection time is 1.2 hours.

-What is the move time recorded for the operation?

A)1.5 hours
B)6.5 hours
C)5.8 hours
D)0.85 hours

Question 71

Dickonson Products is a division of a major corporation. The following data are for the last year of operations:

-The division's residual income is closest to:

A)$(320,640)
B)$1,119,360
C)$399,360
D)$(2,595,840)

Question 72

Dickonson Products is a division of a major corporation. The following data are for the last year of operations:

-The division's turnover is closest to:

A)3.78
B)41.67
C)4.16
D)0.10

Question 73

Dickonson Products is a division of a major corporation. The following data are for the last year of operations:

-The division's margin is closest to:

A)26.4%
B)10.0%
C)2.4%
D)24.0%

Question 74

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The division's margin is closest to:

A)26.2%
B)23.5%
C)2.7%
D)11.5%

Question 75

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The throughput time was:

A)4.2 hours
B)9.5 hours
C)30.6 hours
D)26.4 hours

Question 76

The following data pertain to the Whalen Division of Northern Industries. The margin at Whalen was exactly the same in Year 2 as it was in Year 1.

-The minimum required rate of return in Year 1 was:

A)18%
B)17%
C)16%
D)15%

Question 77

Dickonson Products is a division of a major corporation. The following data are for the last year of operations:

-The division's return on investment (ROI)is closest to:

A)0.2%
B)41.6%
C)10.0%
D)1.9%

Question 78

The following data pertain to the Whalen Division of Northern Industries. The margin at Whalen was exactly the same in Year 2 as it was in Year 1.

-The return on investment in Year 1 was:

A)48.00%
B)32.50%
C)7.58%
D)1.92%

Question 79

Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum required rate of return is 12%.

-The manufacturing cycle efficiency (MCE)was closest to:

A)0.15
B)0.05
C)0.45
D)0.18

Question 80

Hart Manufacturing operates an automated steel fabrication process. For one operation, Hart has found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production process is 3 hours, queue time prior to starting the production process is 2 hours, and inspection time is 1.2 hours.

-What is the throughput (manufacturing cycle)time for the operation?

A)12.0 hours
B)9.0 hours
C)10.0 hours
D)5.8 hours