ACC Ch. 10 SB

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

residual income

In a decentralized organization ______.

-lower-level managers are trained for higher positions. -top management can concentrate on issues such as overall strategy -changes in the operating environment can be responded to rapidly

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 ______ days.

6.7 Throughput time = process time + inspection time + move time + queue time.

Residual income =

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

Return on investment =

Net operating income ÷ Average operating assets

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.

Net operating income ÷ Average operating assets =

Return on investment

Which of the following ratios are part of the ROI formula?

Sales ÷ Average operating assets Net operating income ÷ Sales

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.

An integrated set of performance measures that are derived from the company's strategy is a(n) ___ ___ . (Enter only one word per blank.)

balanced scorecard

Managers of cost centers are expected to ______.

minimize costs, while providing an acceptable level of service

EBIT is another term for ______.

net operating income

ROI can be calculated as ______.

net operating income ÷ average operating assets margin × turnover

In decentralized organizations, decision-making authority is ______.

spread throughout the organization

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

Financial Learning and growth Customer

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

a balanced scorecard

An advantage of using a(n) ___ ___ is that it continually tests the theories underlying management strategies. (Enter only one word per blank.)

balanced scorecard

Compensation should ______.

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

Components of throughput time include ______ time.

queue inspection process

Valid criticisms of evaluating performance based on return on investment (ROI) include managers may ______.

- be put in charge of a business segment that includes committed costs over which a manager has no control - take actions that increase ROI in the short-run at the expense of long-term performance - reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI

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. The manager of the Western division 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. -Rejecting the project would be an example of the manager sacrificing the objectives of the overall company in order to improve his segment.

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

.25 2/8=.25

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 Delivery cycle time = wait time + process time + inspection time + move time + queue time.

Which of the following is not a characteristic of decentralization?

Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions.

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 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 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.

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. (Enter only one word per blank.)

cost

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

decentralized

Lower-level managers are empowered to make decisions in a ______ organization, which can ________ motivation and job satisfaction.

decentralized, increase

The time between when an order is placed and when it is delivered is known as the ___ ___ ___ . (Enter only one word per blank.)

delivery cycle time

Net operating income is income before ___ and ___ . (Enter only one word per blank.)

interest; taxes

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 balanced scorecard ______.

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

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(n) ___ center. (Enter only one word per blank.)

responsibility

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

sales

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

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

The manufacturing cycle efficiency is computed by relating the value-added time to the ___ time. (Enter only one word per blank.)

throughput

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. (Enter only one word per blank.)

throughput