Accounting 208 Ch. 11 Questions

WHat does a manufacturing cycle efficiency (MCE) of less than 1 mean? How would you interpret an MCE of 0.40?

An MCE of less than 1 means that the production process includes non-value-added time. An MCE of 0.40, for example, means that 40% of throughput time consists of actual processing, and that the other 60% consists of moving, inspection, and other non-value-added activities.

In what way can the use of ROI as a performance measure for investment centers lead to bad decisions? How does the residual income approach overcome this problem?

If ROI is used to evaluate performance, a manager of an investment center may reject a profitable investment opportunity whose rate of return exceeds the company's required rate of return but whose rate of return is less than the investment center's current ROI. The residual income approach overcomes this problem because any project whose rate of return exceeds the company's minimum required rate of return will result in an increase in residual income.

What is meant by residual income?

Residual income is the net operating income an investment center earns above the company's minimum required rate of return on operating assets.

What is the difference between delivery cycle time and throughput time? WHat four elements make up throughput time? What elements of throughput time are value-added and what elements are non-value-added?

The difference between delivery cycle time and throughput time is the waiting period between when an order is received and when production on the order is started. Throughput time is made up of process time, inspection time, move time, and queue time. Process time is value-added time and inspection time, move time, and queue time are non-value-added time.

DIstinguish between a cost center, a profit center, and an investment center.

The manager of a cost center has control over cost, but not revenue or the use of investment funds. A profit center manager has control over both cost and revenue. An investment center manager has control over cost and revenue and the use of investment funds.