acct test 3

Residual income = Net operating income less ____

(Average operating assets x Minimum required rate of return)

Disadvantages of decentralization include ______

-lack of coordination -spreading innovative ideas may be difficult -clashing objectives between departments and the organization

Financial performance measures ______.

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

In a decentralized organization

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

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

Delivery cycle time

Residual income =

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

Return on investment

Net operating income ÷ Average operating assets =

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

residual income

The income that remains after subtracting from the controllable margin the minimum rate of return on a company's average operating assets.

Operating assets include ______.

accounts receivable inventory equipment

The ROI formula typically uses Blank______.

average operating assets for the year

A major drawback of residual income is that it _______

cannot be used to compare the performances of divisions of different sizes Correct

Decision-making authority lies mostly with higher-level managers in strongly ______ organizations.

centralized

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

decentralized

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

investment

ROI is a method used to evaluate Blank______.

investment centers, but not cost or profit centers

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because ________.

it encourages managers to make investments that are profitable for the entire company

Managers of cost centers are expected to ______.

minimize costs, while providing an acceptable level of service

EBIT is another term for Blank______.

net operating income

A MCE of less than 1 indicates Blank______.

non-value added time is present

When a manager has control over and is accountable for cost, profit or investments of an organization, it is called ____

responsibility center

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