ACC 222 Chapter 11

Minimum required return =

Average operating assets x Minimum required rate of return

the _____ instead of actual costs of a service hsould be charged to operating departments

budgeted

Which of the following is not an operating asset? A. Cash B. Inventory C. Plant equipment D. Common stock

common stock D

A profit center manager has control over both ________ and ________. An investment center manager has control over ___&____ and the use of ____________.

cost revenue investment funds

delegating day-to-day problem solving to lower-level managers, top management can concentrate on bigger issues such as overall strategy is a benefit of

decentralization

eliminating layers of decision-making and approvals, organizations can respond more quickly to customers and to changes in the operating environment is a benefit of

decentralization

the time that elapses between the start of production and the product's completion

manufacturing cycle or throughput time

A cost center has no control over sales.

true

Residual income is superior to return on investment as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.

true

Residual income is the net operating income that an investment center earns above the minimum required return on the investment in operating assets.

true

Residual income should not be used to evaluate a cost center.

true

The performance measures on an individual's scorecard should not be overly influenced by actions taken by others in the company or by events that are outside of the individual's control.

true

The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.

true

from the sellers perspective transfer price should be greater then or equal to

variable cost per unit + total CM on lost sales / # units transfered

Dollar sales to attain a target profit =

(Target profit + Fixed expenses) x CM ratio

Which of the following will not result in an increase in the residual income, assuming other factors remain constant? A. An increase in sales. B. An increase in the minimum required rate of return. C. A decrease in expenses. D. A decrease in operating assets.

B

What three key factors decrease residual income? (two increase one decrease)

Increase in average operating assets, Increase in minimum required return, Decrease in net operating income.

ROI = Margin Turnover

Margin / Turnover

Sales = _____ / ______

Net operating income / Margin

Margin =

Net operating income / Sales

Throughput time (cause im a fo fawckin P-I-M-P) =_____ +______+_____+______

Process time + Inspection time + Move time + Queue time

Net operating income = ____ / ____

ROI / Average operating assets

Average operating assets = _____/______

Sales / Turnover

Turnover = _____ / ______

Sales/ Average operating assets

manufacturing efficiency cycle=

Value-added time (Process time) / Throughput (manufacturing cycle) time

Delivery cycle time = ____ + _____

Wait time + Throughput time

In a decentralized organization, decision-making authority isn't confined to __________; instead, decision-making authority is ___________.

a few top executives ; spread throughout the organization

An MCE of 0.40, for example, means that 40% of throughput time consists of __________, and that the other 60% consists of moving, inspection, and other non-value-added activities.

actual processing

The purpose of the Data Processing Department of Falena Corporation is to assist the various departments of the corporation with their information needs free of charge. The Data Processing Department would best be evaluated as a.....center

cost

from the purschasers perspective the transfer price should be less the or equal to the

cost of buying from outside suppliers

Which of the following is an argument for the use of net book value rather than gross cost? A. It is consistent with how assets are reported on the balance sheet. B. It eliminates the depreciation method as a factor in ROI calculations. C. It encourages the replacement of old, worn-out equipment. D. All of the above.

d

empowering lower-level managers to make decisions can increase their motivation and job satisfaction benefit of

decentralization

empowering lower-level managers to make decisions puts decision-making authority in the hands of those who tend to have the most detailed and up-to-date information about day-to-day operations is a benefit of

decentralization

granting decision-making authority helps train lower-level managers for higher-level positions is a benefit of

decentralization

the elapsed time from receipt of a customer order to when the completed goods are shipped to the customer

delivery cycle time

immunity from arbitrary exercise of authority: political independence

divisional autonomy

In determining the ________ to use for operating assets in the return on investment (ROI) calculation, companies will generally use either ________ or __________ of the assets.

dollar amount ; netbook value gross cost

the amount by which company profits exceed the cost of capital in a given year

economic value added

. Managers of cost centers are evaluated according to the profits which their departments are able to generate.

false

A balanced scorecard should contain every performance measure that can be expected to influence a company's profits.

false

An investment center has control over invested funds, but not over costs and revenue.

false

Consider a company that has only variable costs. All other things the same, an increase in unit sales will result in no change in the return on investment.

false

If expenses exceed revenues in a department, then it would be considered a cost center.

false

The performance measures on a balanced scorecard tend to fall into four groups: financial measures, customer measures, internal business process measures, and external business process measures.

false

what three key factors will increase residual income? (increase and 2 decrease)

increase in sales and decrease in expenses and operating assets

Residual income is a better measure for performance evaluation of an _________________ than return on investment because desirable investment decisions will not be rejected by divisions that already have a ________.

investment center manager ; high ROI

Speed-to-market can be improved by taking on ______________. Instead of working on _________ innovations that require a great deal of time and effort.

less ambitious projects, major product

a price, determined by negotiation between division managers, to record transfers between divisions; typically lies between the variable cost and the market price of the item transferred

negotiated transfer price

Margin is the ratio of ________ to ______. Turnover is the ratio of ________ to ________. The product of the two numbers is the ____.

net operating income total sales ; total sales average operating assets; ROI

Residual income is the __________ an investment center earns above the company's minimum ______________ on operating assets.

net opperating income ; required rate of return

An MCE of less than 1 means that the production process includes __________

non-value-added time.

Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

opperating department

Net operating income - (Average operating assets x Minimum required rate of return %) =

residual income

net operating income - minimum required return =

residual income

an organizational unit for which a manager is assigned responsibility over costs, revenues, or assets.

responsibility center

The manager of a cost center has control over cost, but not ______ or the use of __________.

revenue ; investment funds

In computing the margin in a ROI analysis, what is in the denominator?

sales

Turnover is computed by dividing average operating assets into

sales

A company's balanced scorecard should be derived from and support its ________.

strategy

performance improvement in one part of an organization at the expense of decreased performance in another part

suboptimization

A profit center has control over both cost and revenue.

true

Breaking the ROI computation into two separate elements helps the manager to see important relationships that might remain hidden.

true

Residual income can't be used to compare the performance of divisions of different sizes.

true

Residual income equals average operating assets multiplied by the difference between the return on investment and the minimum required rate of return.

true