ACCT 292 Chapter 10: Performance Measurement in Decentralized Organizations
Which of the following statements is not a weakness of using return on investment (ROI) to evaluate performance?
ROI does not include the investment in nonoperating assets, such as land held for investment or stock in other companies.
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
EBIT is another term for
net operating income
In strongly decentralized organizations, even the lowest-level managers can make decisions.
True
The elapsed time from when a customer order is received until the finished goods are shipped is known as the ______ _____ ______.
delivery cycle time
Return on investment = ______.
Net operating income ÷ Average operating assets
Choose the groups of performance measures typically used in the balanced scorecard approach.
Learning and growth Customer Financial
Which of the following business segments would not be considered a cost center?
Retail outlet
The ROI formula typically uses
average operating assets for the year
A(n) _____ _____ consists of an integrated set of performance measures that are derived from and support a company's strategy.
balanced scorecard
An advantage of using a(n) ______ ______ is that it continually tests the theories underlying management strategies.
balanced scorecard
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
Operating assets include ______.
inventory equipment accounts receivable
ROI can be calculated as ______.
margin × turnover net operating income ÷ average operating assets
In order to fully understand how a manager's decisions can affect ROI, both ______ and ______ should be computed.
margin, turnover
Compensation should
only be tied to balanced scorecard measures after the organization has been successfully managed with it for some time
Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n) _______ center.
profit
The manager of a(n) _____ center has control over both costs and revenues, but not over the use of investment funds.
profit
Valid criticisms of evaluating performance based on return on investment (ROI) include managers may
reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI be put in charge of a business segment that includes committed costs over which a manager has no control take actions that increase ROI in the short-run at the expense of long-term performance
The net operating income that an investment center earns above the minimum required return on its operating assets is its ______ income.
residual
Quick to Ship Company has a process time of 2 days and a throughput time of 8 days. The manufacturing cycle efficiency is
.25
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 ______ days.
11.6
Net operating income ÷ Average operating assets = ______.
Return on investment
An integrated set of performance measures that are derived from the company's strategy is
a balanced scorecard
Managers of cost centers are expected to ______.
minimize costs, while providing an acceptable level of service
The inability to compare divisions of different sizes is a major disadvantage of ______.
residual income only
Which of the following is not one of the three primary types of responsibility centers?
sales
Which of the following statements is correct?
A manager might reject a proposal using ROI that the manager would accept using residual income.
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.
Which of the following statements are true?
Using balanced scorecard performance measures to reward employees can result in sub-optimal results. It is important that balanced scorecard measures are not easily manipulated.
A disadvantage of the residual income approach is that it ______.
cannot be used to evaluate different sized divisions
Operations are able to respond quickly to customers and changes in the environment in a decentralized organization because
there are fewer managers that must be consulted before a decision is made
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. Western's manager is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are correct?
Accepting the project is in the best interest of the company as a whole. The manager may decide to reject the project because it will lower the current ROI earned by his division.
Which of the following ratios are part of the ROI formula?
Net operating income ÷ Sales Sales ÷ Average operating assets
Lower-level managers are empowered to make decisions in a ______ organization, which can ________ motivation and job satisfaction.
decentralized, increase
Net operating income is income before ________ and _______.
interest, taxes
Computing ROI using the expanded model provides additional insights. ROI can be lowered by excessive operating expenses which can depress _______ and excessive operating assets which can depress ________.
margin, turnover
When managers are evaluated on residual income, rather than on return on investment (ROI), they will be ______ likely to pursue projects that will benefit the entire company.
more
A balanced scorecard
presents a theory of how a company can take action to attain its desired outcomes
The net operating income that an investment center earns above the minimum required return on its average operating assets is
residual income
Any part of an organization whose manager has control over and is accountable for all three centers (cost, profit, or investments) is a(n) ______ center.
responsibility
In decentralized organizations, decision-making authority is
spread throughout the organization
The manufacturing cycle efficiency (MCE) is computed by relating the value-added time to the _____ time.
throughput
