Managerial Accounting SB Chapter 11

Given a margin of 12%, sales of $150,000 and average operating assets of $90,000, the ROI is _____%

20 12% * 150000/90000 = 20%

Return on investment (ROI) =

Net Operating Income / Average Operating Assets

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

Replacing an existing asset will not automatically decrease ROI

Operating assets include:

accounts receivable, equipment, inventory

An advantage of using a(n) ____ ____ is that it continually tests the theories underlying management strategies

balanced scorecard

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

balanced scorecard

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

centralized organizations

Disadvantages of decentralization include:

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

Lower-level management goals that are inconsistent with company goals are a possible disadvantage of ____

decentralization

How can a company increase its return on investment (ROI)?

increase sales reduce operating expenses

Last year, Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average operating assets of $400,000. The company is considering the purchase of equipment that will reduce expenses by $20,000.The equipment will cost $100,000 and be purchased by issuing a notes payable. Sales will remain unchanged. If Valley accepts the project, its return on investment (ROI) after the purchase is projected to__________ (increase/decrease) from the current level of _________% to the new return on investment (ROI) of___________%

increase, 10, 12 net operating income / average operating assets = 40000/400000 = 10% net operating income / average operating assets = 60000/500000 = 12%

Net operating income is income before ____ and ____

interest, taxes

Assembling products and handling baggage are examples of ___ processes

internal business

What the company does in an attempt to satisfy customers falls into the ___ group of the balance scorecard

internal business processes

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

margin, turnover

The elapsed time from when a customer order is received and when production begins is called ___ time

wait

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?

$4000 $24,000 - ($20,000 x 10%) = $4,000

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

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

0.25 2/8 = .25

The balanced scorecard:

1. links the organization's strategy to its financial budgets 2. helps managers communicate the organization's strategy to their subordinates 3. helps to ensure employees understand the organization's strategy also 1. incorporates both financial and nonfinancial measures 2. helps employees understand the strategy of the company 3. may include ROI and residual income in its coordinated system of performance measures

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.

T/F: For a typical company current financial measures are the best and only indication of future financial performance

False

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

Net operating income/Sales Sales/Average operating assets

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.

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.

T/F: A manager might reject a proposal using ROI that the manager would accept using residual income

True

Performance measures should be reported:

as often as needed

The manager of a(n) ______ center does not have control over revenue or the use of investment funds.

cost

Service departments, such as the accounting department, are generally considered _____ centers, while sales offices are often considered ____ centers

cost, profit

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 higher a business segment's return on investment (ROI), the greater the profit earned per ___ invested in the segment's average operating assets

dollar

An adaption of residual income that has been adopted by many companies is called

economic value added

True or false: Adams, inc. has found that their managers are reluctant to replace old equipment with new, updated equipment. To stop this practice, Adams should compute ROI using assets' net book value

false, net book value discourages equipment replacement

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

financial, learning and growth, customer-related

Nonfinancial (operating) performance measures:

help identify what drives organizational performance

Residual income is a measure used to evaluate managers of ___ centers

investment

Compensation should:

only be tied to balance 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

percent

The only value-added component of throughput time is ______ time.

process

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

residual income

When a manager accepts a project because the net operating income (NOI) from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on:

residual income

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

residual income return on investment (ROI)

Any part of an organization whose manager has control over and is accountable for cost, profit, or investments is a(n) ___ center

responsibility

Lower-level managers' decision-making authority can be linked to the outcomes of those decisions through ____ accounting systems

responsibility

A theory about how to achieve the organization's goals is a(n) ____

stategy

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

strategy

Operational excellence is an example of a company

strategy

If a balanced scorecard is well constructed:

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