Chapter 10 Learnsmart

Assembling products and handling baggage are examples of Blank______ processes.

internal business

What the company does in an attempt to satisfy customers falls into the Blank______ group of the balance scorecard.

internal business processes

What the company does in an attempt to satisfy customers falls into the _____ group of the balance scorecard

internal business processes

The amount of time a product spends waiting to be worked on, to be moved, to be inspected, or to be shipped is referred to as

queue

The amount of time a product spends waiting to be worked on, to be moved, to be inspected, or to be shipped is referred to as _____ time

queue

Which of the following is not one of the three primary types of responsibility centers?

sales

Using net book value (instead of gross cost) to calculate average operating assets

increases ROI over time

The manufacturing cycle efficiency (MCE) is computed by relating the value-added time to the

throughput

A company can increase its return on investment (ROI) by

-reducing operating expenses -increasing sales

Net operating income ÷ Average operating assets =

Return on investment

Leading indicators of future financial success include

customer satisfaction measures

EBIT is another term for

net operating income

Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. Western's manager is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are correct?

-The manager may decide to reject the project because it will lower the current ROI earned by his division. -Accepting the project is in the best interest of the company as a whole.

Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n)

profit

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 project should be accepted by the company because it increases overall residual income. -The department manager may not want to accept the project because it will lower the overall ROI for the department.

Computing ROI using the expanded model provides additional insights. ROI can be lowered by excessive operating expenses which can depress _____ and excessive operating assets which can depress _____

-margin -turnover

Carlos Inc requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average operating assets of $200,000 and a net operating income of $24,000. The department's residual income is?

$24,000 - ($20,000 x 10%) = $4,000

Toys, Trinkets and More requires a minimum rate of return of 12% on its average operating assets. The toy department currently has average operating assets of $300,00 and a net operating income of $42,000. The department's residual income is

$42,000 - ($300,000 x 12%) = $6,000

Which of the following performance measures are part of the balanced scorecard?

-Learning and growth -Financial -Customer

Which of the following evaluation measures are used for investment center managers only—not for cost or profit center managers?

-Return on investment (ROI) -Residual income

Which of the following statements are true?

-Using balanced scorecard performance measures to reward employees can result in sub-optimal results. -It is important that balanced scorecard measures are not easily manipulated.

Operating assets include

-accounts receivable -inventory -equipment

A manufacturing cycle efficiency of 40% means that

-the typical order is being worked on 40% of the time-value-added activities are being performed 40% of the time

Gavin, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 5.0; Inspection time 0.7; Process time 2.5; Move time 0.4; Queue time 3.0. Gavin's delivery cycle time is _____ days

11.6

Residual income =

Net operating income (NOI) - (Average operating assets × Minimum required rate of return)

Which of the following business segments would not be considered a cost center?

Retail outlet

Sales ÷ Average operating assets Net operating income ÷ Sales

Sales ÷ Average operating assets Net operating income ÷ Sales

The ROI formula typically uses

average operating assets for the year

an _____ ______ consists of an integrated set of performance measures that are derived from and support a company's strategy.

balanced scorecard

A disadvantage of the residual income approach is that it

cannot be used to evaluate different sized divisions

The manager of a(n) _____ center does not have control over revenue or the use of investment funds

cost

An organization in which decision-making authority is spread throughout the organization is

decentralized

The elapsed time from when a customer order is received until the finished goods are shipped is known as the

delivery cycle time

The manager of a(n)_____ center has control over costs, revenue, and investments in operating assets.

investment

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be ______ likely to pursue projects that will benefit the entire company.

more

A MCE of less than 1 indicates

non-value added time is present

Compensation should

only be tied to balanced scorecard measures after the organization has been successfully managed with it for some time

A balanced scorecard

presents a theory of how a company can take action to attain its desired outcomes

The only value-added component of throughput time is _____ time.

process

The net operating income that an investment center earns above the minimum required return on its operating assets is its _____ income.

residual

The inability to compare divisions of different sizes is a major disadvantage of

residual income only

Any part of an organization whose manager has control over and is accountable for all three centers (cost, profit, or investments) is a(n0 _____ center.

responsibility

In decentralized organizations, decision-making authority is

spread throughout the organization

Operations are able to respond quickly to customers and changes in the environment in a decentralized organization because Blank

there are fewer managers that must be consulted before a decision is made

The elapsed time from when a customer order is received until production of the order is started is called _____ time

wait

Return on investment =

Net operating income ÷ Average operating assets

Service departments, such as the accounting department, are generally considered _____ centers, while sales offices are often considered _____

cost profit

which of the following is not a characteristic of decentralization?

decentralization reduces how accountable lower level manager are for the outcomes of their decisions

Net operating income is income before _____ and _____

interest taxes

The period from which a product begins production as raw materials and ends as a finished product is known as _____ time or manufacturing cycle time.

throughput

Financial performance measures

-focus on past, not future performance -need to be integrated with nonfinancial measures in the balanced scorecard

Adams, Inc. has found that their managers are reluctant to replace old equipment with new, updated equipment. To stop this practice, Adams should compute ROI using assets' net book values.

False

An integrated set of performance measures that are derived from the company's strategy is

a balanced scorecard

The manager of a(n) _____ center has control over both costs and revenues, but not over the use of investment fund

profit

ROI can be calculated as

-net operating income ÷ average operating assets -margin × turnover

Quick to Ship Company has a process time of 2 days and a throughput time of 8 days. The manufacturing cycle efficiency is

.25

JPL, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 4.0; Inspection time 0.6; Process time 2.3; Move time 0.7; Queue time 3.1. JPL's throughput (manufacturing cycle) time is Blank______ days.

6.7

Choose the four groups of performance measures typically used in the balanced scorecard approach.

Financial, customer, internal business processes, and learning and growth

Which of the following statements is not a weakness of using return on investment (ROI) to evaluate performance?

ROI does not include the investment in nonoperating assets, such as land held for investment or stock in other companies.