Chapter 11 Concept Overview Videos
Axis Corporation's Division A has average operating assets of $500,000 and the division earned $100,000 as net operating income during a period. The company expects a minimum required rate of return of 15% on its investments. What is the residual income for Division A?
$25,000 Residual income = Net operating income - (Average operating assets * minimum required rate of return) = $100,000 - ($500,000 * 15%) = $100,000 - $75,000 = $25,000.
Residual income = net operating income less __________.
(Average operating assets * minimum required rate of return) Residual income = net operating income less (Average operating assets * minimum required rate of return).
For the year 2015, Systems corporation earned a net operating income of $2 million on sales of $6 million. Assume that the company's average operating assets were $20 million. What is the company's ROI?
10% ROI = Net operating income / average operating assets = $2 million / $20 million = 10%
Vertis Corporation is interested in cutting the amount of time between when a customer places an order and when the order is completed. Details for the first quarter of the year are provided here. Choose the correct answer from the options provided. Days Wait time: 14 Inspection time: 0.6 Process time: 5 Move time: 0.4 Queue time: 6
12 days Throughput time = process time + inspection time + move time + queue time = 5 days + 0.6 days + 0.4 days + 6 days = 12 days
Vertis Corporation is interested in cutting the amount of time between when a customer places an order and when the order is completed. Details for the first quarter of the year are provided here. Choose the correct answer from the options provided. Days Wait time: 14 Inspection time: 0.6 Process time: 6 Move time: 0.4 Queue time: 8
Compute the manufacturing cycle efficiency (MCE). First we compute throughput time = process time + inspection time + move time + queue time = 6 days + 0.6 days + 0.4 days + 8 days = 15 days. Then, we compute MCE. MCE = value-added time / throughput time = 6/15=0.40.
_____________ is the elapsed time from receipt of a customer order to when the completed goods are shipped to the customer.
Delivery cycle time
Which is not one of the four most commonly used performance measures on a balanced scorecard?
External business processes The four performance measures are financial, customer, internal business growth and learning and growth.
A major drawback of residual income is that ________________.
It cannot be used to compare the performances of divisions of different sizes. The residual income approach cannot be used to compare the performances of divisions of different sizes. It is better to focus on the percentage change in residual income from year to year rather than the absolute amount of the residual income.
Return on investment can be calculated by each of the following formulas except ____________.
Margin / turnover RIO can be expressed using margin * turnover or net operating income/average operating assets
Which of the following is used for measuring internal business process performance?
Reducing waste Reducing waste and time to resolve customer complaints are internal business process measures.
When a manager has control over and is accountable for cost, profit or investments of an organization, it is called____________.
Responsibility center
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. the residual income approach encourages managers to make investments that are profitable for the entire company, which normally would be rejected by managers who are evaluated using the ROI formula.
