ACCOUNTING MANAGERIAL

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

1. Residual income 2. return on investment (ROI)

valid criticisms of evaluating performance based on return on investment (ROI) include managers may:

1. be put in charge of a business segment that includes committed costs over which a manager has no control 2. take actions that increase ROI in short-run at the expense of long-term performance 3. reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI

in order to increase return on investment (ROI), the company must ____ sales and/or _____ operating expenses and/or ____ average operating assets

1. increase 2. decrease 3. decrease

ROI can be calculated as:

1. net operating income divided by average operating assets 2. margin multiplied by turnover

because companies target different customers with different kinds of products and services, performance measures should be tailored to the specific _________ of a company

strategy

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?

$4,000. $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

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

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

-ROI doesn't include the investment in non-operating assets, such as land held for investment or stock in other companies

choose the groups of performance measures typically used in the balanced scoreboard approach

-financial -learning and growth -customer related

The balanced scorecard

-may include ROI and residual income in its coordinated system of performance measures -helps employees to understand the strategy of the company -incorporates both financial and nonfinancial measures

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

-net operating income/sales -sales/average operating assets

how can a company increase its return on investment?

-reduce operating expenses -increase sales

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

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

1. profit 2. investment

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?

1. rejecting the project would be an example of the manager sacrificing the objectives of the overall company in order to improve his segment 2. the manager may decide to reject the project because it will lower the current ROI earned by his division

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

Macey, Inc.'s Investment center had average operating assets of $350,000, revenues of $1,050,000 and net operating income of $70,000. Return on investment is:

20%. Return on investment = Net operating income/ average operating assets = $70,000/$350,000= 20%

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

Balanced Scorecard

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

Residual Income

operating assets include

accounts receivable equipment inventory

performance measures should be reported

as often as needed

decision-making authority lies mostly with higher-level managers in strongly:

centralized organizations

which of the following is not a characteristic of decentralization?

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

the time between when an order is placed and when it's delivered is known as the _____

delivery cycle time

for a typical company current financial measures are the best and only indication of future financial performance

false

how can a company increase its ROI?

increase sales and reduce operating expenses

using net book value to calculate average operating assets

increases ROI over time

assembling products and handling baggage are examples of ______ processes

internal business

the balanced scorecard

links the organizations strategy to its financial budget helps to ensure employees understand the organization's strategy helps managers communicate the organization's strategy to their subordinates

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

in order to fully understand how a manager's decisions can affect ROI, both __ and ___ should be computed

margin and turnover

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

more

compensation should:

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

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

queue time

components of throughput time include:

queue time, inspection time, and process time

why is using the gross cost of operating assets when calculating ROI preferable to using the net book value?

replacing an existing asset will not automatically decrease ROI

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

retail outlet

net operating income/Average operating assets =

return on investiment

in decentralized organizations, decision making authority is:

spread throughout the organization

the balanced scoreboard should be consistent with the company's __________ , so that people will not find themselves working at cross-purposes

strategy

if a balanced scorecard is well constructed

the performance measures should link together on a cause and effect basis

which of the following statements regarding a balanced scorecard is incorrect?

the scorecard should provide an opportunity for subordinates to evaluate their superiors

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

empowering lower level managers to make decisions has both advantages and disadvantages

true