SHORT ANSWER.

Write the word or phrase that best completes each statement or answers the question. 71)

Designing an accounting based performance measure requires six steps. List each step. For three of the

steps, describe a question that must be resolved as part of the implementation process. 71)

_____________

72)

Batman Abstract Company has three divisions that operate autonomously. Their results for 2007 are as

follows:

 

Riddler

Joker

Penguin

Sales

$5,000,000

$7,000,000

$10,000,000

Contribution margin

1,440,000

1,700,000

3,500,000

Operating income

1,000,000

1,750,000

2,520,000

Investment base

9,000,000

10,000,000

14,000,000

 

The company's desired rate of return is 20%.

 

Required:

a.Compute each division's ROI.

b.Compute each division's residual income.

c.Rank each division by both ROI and residual income.

d.Which division had the best performance in 2007? Why?

 72)

_____________

73)

Hargrave Products has three divisions which operate autonomously. Their results for 2001 were as follows:

 

 

East

 

 

 

West

 

 International

Sales$30,000,000$40,000,000$50,000,000

Cost of goods sold$15,000,00025,000,00037,000,000

Operating income4,500,0004,750,0005,000,000

Investment base30,000,00030,500,00031,000,000

 

The company's desired rate of return is 15 percent.

 

Required:

 

a.Compute each division's ROI. Round to three decimal places.

b.Compute each division's residual income. 73)

_____________

74)

Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 2007

follow:

 

Plows

Tractors

Combines

Revenues

$2,250,000

$500,000

$4,800,000

Accounts receivable

800,000

152,500

1,435,000

Operating assets

1,000,000

400,000

1,750,000

Net operating income

220,000

60,000

480,000

Taxable income

165,000

90,000

385,000

 

Required:

a.Compute the investment turnover for each division.

b.Compute the return on sales for each division

c.Compute the return on investment for each division.

d.Which division manager is doing best? Why?

e.What other factors should be included when evaluating the managers?

 

For parts (b) and (c) income is defined as operating income.

 74)

_____________

75)

An art distribution Company has three divisions which operate autonomously. Their results for 2001 were as follows:

 

R-divisionJ-divisionG-division

Sales$5,000,000$7,000,000$10,000,000

Contribution margin1,440,0001,700,0003,500,000

Operating income1,000,0001,750,0002,520,000

Investment base9,000,00010,000,00014,000,000

 

The company's desired rate of return is 20 percent.

 

Required:

 

a.Compute each division's ROI.

b.Compute each division's residual income.

c.Rank each division by both ROI and residual income.

d.Which division had the best performance in 2001? Why? 75)

_____________

76)

Museum Corporation uses the investment centre concept for the museums that it manages. Select operating data for three of its museums for 2001 are as follows:

 

MontrealTorontoVancouver

Revenue$300,000$375,000$450,000

Total assets150,000125,000175,000

Net operating income25,50028,00029,500

 

Required:

 

a.Compute the return on investment for each division.

b.Which museum manager is doing best based only on ROI? Why?

c.What other factors should be included when evaluating the managers? 76)

_____________

77)

The Coffee Division of Canadian Products is planning the 2001 operating budget. Average Total assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each. Variable costs of the division are budgeted at $400,000 while fixed costs are set at $250,000. The company's required rate of return is 18 percent.

 

Required:

 

a.Compute the volume necessary to achieve a 20 percent ROI.

b.The division manager receives a bonus of 50 percent of the residual income. What is his anticipated bonus for 2001 assuming he achieves the 20 percent ROI from part a? 77)

_____________

78)

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2001 are budgeted as follows:

 

Sales$5,000,000

Less variable costs2,500,000

Contribution margin$2,500,000

Less fixed expenses1,800,000

Net operating income$

700,000

 

Total assets for the division are currently $3,600,000. For 2001 the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60 percent of selling price.

 

Required:

 

a.What is the effect on ROI of accepting the new product line?

b.If the company's required rate of return is 6 percent, and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations. 78)

_____________

79)

Capital Investments has three divisions. Each division's required rate of return is 15 percent. Planned operating results for 2001 are:

 

DivisionOperating incomeInvestment

A$15,000,000 $100,000,000

B25,000,000125,000,000

C11,000,00050,000,000

 

The company is planning an expansion requiring each division to increase its investments by $25,000,000 and its income by $4,500,000.

 

Required:

 

a.Compute the current ROI for each division.

b.Compute the current residual income for each division.

c.Rank the divisions according to their current ROIs and residual incomes.

d.Determine the effects after adding the new project to each division's ROI and residual income.

e.Which Divisions are pleased with the addition and which ones are unhappy assuming the managers are evaluated on a combination of ROI and residual income? Is a combination of ROI and residual income appropriate for the divisions? 79)

_____________

80)

Kase Tractor Company allows its divisions to operate as autonomous units. The tax rate is 35% and other operating data for 2001 follow:

 

PlowsTractors Combines

Revenues $2,250,000 $500,000 $4,800,000

Accounts receivable 800,000152,5001,435,000

Total assets1,000,000400,0001,750,000

Net operating income220,000 60,000480,000

Taxable income165,000 90,000385,000

WACC11.5%11.5%11.5%

 

Required:

 

a.Compute the return on investment for each division.

b.Compute the EVA for each division

c.What other ratio could be calculated for performance evaluation? 80)

_____________

 

 

 

SHORT ANSWER.

Write the word or phrase that best completes each statement or answers the question. 71)

Designing an accounting based performance measure requires six steps. List each step. For three of the

steps, describe a question that must be resolved as part of the implementation process. 71)

_____________

72)

Batman Abstract Company has three divisions that operate autonomously. Their results for 2007 are as

follows:

 

Riddler

Joker

Penguin

Sales

$5,000,000

$7,000,000

$10,000,000

Contribution margin

1,440,000

1,700,000

3,500,000

Operating income

1,000,000

1,750,000

2,520,000

Investment base

9,000,000

10,000,000

14,000,000

 

The company's desired rate of return is 20%.

 

Required:

a.Compute each division's ROI.

b.Compute each division's residual income.

c.Rank each division by both ROI and residual income.

d.Which division had the best performance in 2007? Why?

 72)

_____________

73)

Hargrave Products has three divisions which operate autonomously. Their results for 2001 were as follows:

 

 

East

 

 

 

West

 

 International

Sales$30,000,000$40,000,000$50,000,000

Cost of goods sold$15,000,00025,000,00037,000,000

Operating income4,500,0004,750,0005,000,000

Investment base30,000,00030,500,00031,000,000

 

The company's desired rate of return is 15 percent.

 

Required:

 

a.Compute each division's ROI. Round to three decimal places.

b.Compute each division's residual income. 73)

_____________

74)

Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 2007

follow:

 

Plows

Tractors

Combines

Revenues

$2,250,000

$500,000

$4,800,000

Accounts receivable

800,000

152,500

1,435,000

Operating assets

1,000,000

400,000

1,750,000

Net operating income

220,000

60,000

480,000

Taxable income

165,000

90,000

385,000

 

Required:

a.Compute the investment turnover for each division.

b.Compute the return on sales for each division

c.Compute the return on investment for each division.

d.Which division manager is doing best? Why?

e.What other factors should be included when evaluating the managers?

 

For parts (b) and (c) income is defined as operating income.

 74)

_____________

75)

An art distribution Company has three divisions which operate autonomously. Their results for 2001 were as follows:

 

R-divisionJ-divisionG-division

Sales$5,000,000$7,000,000$10,000,000

Contribution margin1,440,0001,700,0003,500,000

Operating income1,000,0001,750,0002,520,000

Investment base9,000,00010,000,00014,000,000

 

The company's desired rate of return is 20 percent.

 

Required:

 

a.Compute each division's ROI.

b.Compute each division's residual income.

c.Rank each division by both ROI and residual income.

d.Which division had the best performance in 2001? Why? 75)

_____________

76)

Museum Corporation uses the investment centre concept for the museums that it manages. Select operating data for three of its museums for 2001 are as follows:

 

MontrealTorontoVancouver

Revenue$300,000$375,000$450,000

Total assets150,000125,000175,000

Net operating income25,50028,00029,500

 

Required:

 

a.Compute the return on investment for each division.

b.Which museum manager is doing best based only on ROI? Why?

c.What other factors should be included when evaluating the managers? 76)

_____________

77)

The Coffee Division of Canadian Products is planning the 2001 operating budget. Average Total assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each. Variable costs of the division are budgeted at $400,000 while fixed costs are set at $250,000. The company's required rate of return is 18 percent.

 

Required:

 

a.Compute the volume necessary to achieve a 20 percent ROI.

b.The division manager receives a bonus of 50 percent of the residual income. What is his anticipated bonus for 2001 assuming he achieves the 20 percent ROI from part a? 77)

_____________

78)

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2001 are budgeted as follows:

 

Sales$5,000,000

Less variable costs2,500,000

Contribution margin$2,500,000

Less fixed expenses1,800,000

Net operating income$

700,000

 

Total assets for the division are currently $3,600,000. For 2001 the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60 percent of selling price.

 

Required:

 

a.What is the effect on ROI of accepting the new product line?

b.If the company's required rate of return is 6 percent, and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations. 78)

_____________

79)

Capital Investments has three divisions. Each division's required rate of return is 15 percent. Planned operating results for 2001 are:

 

DivisionOperating incomeInvestment

A$15,000,000 $100,000,000

B25,000,000125,000,000

C11,000,00050,000,000

 

The company is planning an expansion requiring each division to increase its investments by $25,000,000 and its income by $4,500,000.

 

Required:

 

a.Compute the current ROI for each division.

b.Compute the current residual income for each division.

c.Rank the divisions according to their current ROIs and residual incomes.

d.Determine the effects after adding the new project to each division's ROI and residual income.

e.Which Divisions are pleased with the addition and which ones are unhappy assuming the managers are evaluated on a combination of ROI and residual income? Is a combination of ROI and residual income appropriate for the divisions? 79)

_____________

80)

Kase Tractor Company allows its divisions to operate as autonomous units. The tax rate is 35% and other operating data for 2001 follow:

 

PlowsTractors Combines

Revenues $2,250,000 $500,000 $4,800,000

Accounts receivable 800,000152,5001,435,000

Total assets1,000,000400,0001,750,000

Net operating income220,000 60,000480,000

Taxable income165,000 90,000385,000

WACC11.5%11.5%11.5%

 

Required:

 

a.Compute the return on investment for each division.

b.Compute the EVA for each division

c.What other ratio could be calculated for performance evaluation? 80)

_____________

 

 

 

42.Research on diversity in organizations includes as class of diversity variables that are _____ attributes, such as education, technical abilities, functional and socioeconomic backgrounds, tenure in the organization, personality, and values.

a.homogeneous

b.underlying (page 111, moderate)

c.multicultural

d.token

43.Research, primarily done in the US, on observable attributes of diversity in groups indicates that _____.

a.the more diverse the group, the lower is its turnover rate

b.the more diverse the group, the lower is the absence rate among those representing the diversity

c.supervisors tend to perceive the dissimilar subordinates more positively, and to give them higher performance ratings

d.all of the above are true

e.all of the above are false (page 112, moderate)

44.Four US paper mills tried for ten years to implement work teams and adopt continuous improvement.  Reasons for their lack of success include _____.

a.management failed to modify its traditional behavior and values to create a new normative or moral framework

b.the continued emphasis on scientific and technical rationality produced an anomic organizational culture

c.status distinctions between managers and workers were reinforced and this undermined efforts to create effective teams

d.the emphasis on individualism among managers and workers made it difficult to adopt team values

e.all of the above (page 113, moderate)

45.A _____ often creates problems for monocultural teams, but seems to present an opportunity for multicultural teams.

a.groupthink

b.social loafing

c.a new member (page 114, moderate)

d.homogeneity

46._____ diversity refers to the differences in the substantive content of how members perceive the team’s challenges and opportunities, options to be evaluated, and optimal course of action.

a.Behavioral

b.Bicultural

c.Cognitive (page 115, moderate)

d.Temporal

47._____ are groups of geographically and/or organizationally dispersed coworkers that are assembled using a combination of telecommunications and information technologies to accomplish an organizational task.

a.Boundary spanners

b.Telemarketers

c.Punctuated multiculturalists

d.Virtual teams (page 116, easy)

48.The more complex the task and the more group cohesion needed to accomplish it, then the _____.

a.longer the group’s lifespan tends to be (page 117, moderate)

b.less likely members are to feel satisfied

c.shorter the group lifespan tends to be

d.more likely members are to feel the entire process was a waste of time

49.The more complex the task, the more spatially and temporally distributed, and the more culturally diverse the members, the _____ it is to manage the virtual team.

a.more pleasant

b.easier

c.more difficult (page 117, easy)

d.less time consuming

50.As groups and teams become more diverse, managers should avoid _____.

a.attempting to create equal power among members

b.emphasizing a superordinate goal

c.letting non-functional performance criteria replace position-related skills, traits, and talents (page 118, difficult)

d.letting organizational goals get in the way of multicultural harmony

51.Which of the following is/are true regarding the cross-cultural use of groups and teams in organizations?

a.Managers in some cultures may feel that it is not appropriate or desirable for groups to make decisions.

b.Managers in some cultures may feel that it is appropriate to use groups as a rational tool to better achieve organizational goals.

c.Managers in some cultures may feel that only groups of kin can be trusted with the responsibility of helping make decisions.

d.All of the above are true. (page 119, moderate)

e.None of the above is true.

 

 

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