Accounting 2020 Chapter 11 Smartbook

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.

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

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:

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

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:

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

True or false: An integrated set of performance measures is known as a strategy.

False

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

Financial Learning and growth Customer perspective

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

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

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

Learning and growth Customer-related Financial

Which of the following statements is correct when evaluating divisions of different sizes?

Management should focus on the percentage change in residual income from year to year rather than on absolute amounts.

Residual income =

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

Return on investment =

Net operating income/Average operating assets

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

Net operating income/Sales Sales/Average operating assets

Which of the following business segments would be considered a cost center?

Personnel department Manufacturing facilities Accounting department

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.

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

Retail outlet

Net operating income/Average operating assets =

Return on investment

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: An integrated set of performance measures is known as a balanced scorecard.

True A balanced scorecard is an integrated set of performance measures that are derived from the company's strategy.

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

a balanced scorecard

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

In a ___________________________ organization lower-level managers are empowered to make decisions 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 ___________________ ____________________ ______________________.

delivery cycle time

The results of what people in the organization do are reflected in ______________________ performance measures and what drives organizational performance are reflected in _____________________ performance measures.

financial nonfinancial

Nonfinancial (operating) performance measures:

help identify what drives organizational performance

Components of throughput time include:

inspection time queue time process time

Net operating income is income before _______________________ and ________________________ .

interest taxes

Residual income is a measure used to evaluate managers of ________ centers.

investment

ROI is a method used to evaluate:

investment centers, but not cost or profit centers

ROI can be calculated as:

margin multiplied by turnover net operating income divided by average operating assets

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.

more

EBIT is another term for:

net operating income

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

The performance of two different investment centers should be evaluated by comparing the _____________________ change in residual income from year to year for the two investment centers.

percentage

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

residual

In decentralized organizations, decision-making authority is:

spread throughout the organization

The manufacturing cycle efficiency is computed by relating the value-added time to the ___________________ time.

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.

throughput