Chapter 10 LearnSmart Reading
Macey, Inc.'s investment center had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000, and net operating income was $70,000. Return on investment was ______.
20%
Which of the following statements is correct?
A manager might reject a proposal using ROI that the manager would accept using residual income.
Given beginning operating assets of $140,000, ending operating assets of $180,000, net operating income of $40,000, and tax expense of $8,000, return on investment is equal to ___ %.
Blank 1: 25
An organization in which decision-making authority is spread throughout the organization is ___ .
Blank 1: decentralized or decentralization
Net operating income is net income from normal operating activities, before other income, ___ , ___ and .
Blank 1: interest Blank 2: taxes or tax
When managers are evaluated on residual income, rather than on return on investment (ROI), they will be ___ (more/less) likely to pursue projects that will benefit the entire company.
Blank 1: more
A transfer price developed using the ___ method should fall somewhere between the variable cost and the wholesale price.
Blank 1: negotiation
In order to fully evaluate ROI, managers should compute both ___ ___ and ___ turnover.
Blank 1: profit Blank 2: margin Blank 3: investment
Which of the following business segments would not be considered a cost center?
Retail outlet
Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true?
The department manager may not want to accept the project because it will lower the overall ROI for the department. The project should be accepted by the company because it increases overall residual income.
True or false: In strongly decentralized organizations, even the lowest-level managers can make decisions.
True
A comprehensive performance measurement system that is derived from an organization's strategic vision is ______.
a balanced scorecard
Return on investment, residual income, and economic value added ______.
are all lagging measures of performance
When a transfer price is based on cost plus a percentage markup, the method being used is ______.
cost-based
The transfer pricing method that generally provides the most benefit to the seller is the ______ method.
market-price
The transfer pricing method that treats the two segments as if they were independent businesses is the ______ method.
market-price
Financial performance measures ______.
may cause managers to make decisions that won't be optimal in the long run focus on past, not future performance
Inside information about the other division's costs, capacity, and demand will impact setting a transfer price using the ______ method.
negotiation
The net operating income that an investment center earns above the amount required to earn the minimum required rate of return is ______.
residual income
Investment turnover × profit margin = ______.
return on investment
The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its ___ ___ .
Blank 1: residual Blank 2: income
The amount that one division charges when it sells goods or services to another division of the same company is called a(n) ___ ___ .
Blank 1: transfer Blank 2: price
True or false: A balanced scorecard includes leading indicators but NOT lagging indicators.
False
True or false: Cost centers have no impact on revenue.
False
True or false: Residual income can be broken down into profit margin and investment turnover.
False
The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.
customer, internal business processes, and learning and growth
There are many variances of ROI, including return on ______.
equity assets capital employed
When calculating Return on Investment (ROI), net operating income ______.
includes income from normal operations does not include interest expense
The formula for return on investment is ______.
net operating income ÷ average invested assets
Net operating income ÷ average invested assets = ______.
return on investment
In decentralized organizations, decision-making authority is ______.
spread throughout the organization
The price charged when one segment of a company provides goods or services to another segment of the same company is the ______ price.
transfer
The minimum acceptable transfer price using the cost-based method is ______.
variable cost
