Exam 11: Investment Center Performance Evaluation

Sprint Company has the following data for 2009: Sprint Company has a target ROI of 20 percent. Required: Calculate the following amounts for each division:

Which statement is true concerning decentralization?

The following information relates to the operating performance of two divisions of Mega Electronics,Inc. ,for last year. Required: a.Compute the return on investment (ROI)of each division,using total assets at gross book value as the investment base. b.Compute the ROI of each division,using total assets net of accumulated depreciation (net book value)as the investment base. c.Which of the two measures do you think gives the better indication of operating performance? Explain your reasoning.

Colonial Computing Systems Colonial Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1)Production and (2)Marketing.The Marketing Division has always purchased a particular mouse from Production at $50 per unit.The Production Division is considering raising the price to $60 per unit.The Production Division's costs related to the mouse production is as follows: The Marketing Division handles the promotion and distribution of the mouse purchases from the Production Division and sells each mouse for $100.Marketing Division incurs monthly fixed costs of $5,000.Marketing Division sells 1,500 units per month.Marketing Division can buy the same mouse from outside suppliers for $60.If the Marketing Division purchases the mouse from outside suppliers,the facilities the Production Division uses to manufacture the mouse would remain idle. Refer to Colonial Computing Systems.The Production Division is operating below capacity because of weak global demand for the product.What should be the mouse transfer price between the Production Division and Marketing Division in order for Colonial to optimize profits?

Transfer pricing systems based on costs include which of the following?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the profit margin percentage for Year 2008?

Which of the following statements is true concerning decentralization?

The Chewy Chocolate Division of the Delight Confection Company had a rate of return on investment (ROI)of 12 percent (= $1,200,000/$10,000,000)during Year 5,based on sales of $20,000,000.In an effort to improve its performance during Year 6,the company instituted several cost-saving programs,including the substitution of automatic equipment for work previously done by workers and the purchase of raw materials in large quantities to obtain quantity discounts.Despite these cost-saving programs,the company's ROI for Year 6 was 10 percent (= $1,100,000/$11,000,000),based on sales of $20,000,000. Required: a.Break down the ROI for Year 5 and Year 6 into profit margin and investment turnover ratios. b.Explain the reason for the decrease in ROI between the two years using the results from part a.

The following is a measure for assessing how effectively management used the funds invested and is the ratio of divisional sales to the investment in divisional assets.

What issues must be addressed when using return on investment (ROI)as a divisional performance measure?

What is economic value added (EVA)?

Which of the following transfer pricing procedures maximizes the company's profit by transferring at the differential outlay cost to the selling division plus the opportunity cost to the company of making the internal transfers?

To encourage division managers to act in ways consistent with organizational goals,divisional planning and control systems attempt to create

Management uses the following as a measure for assessing efficiency in producing and selling goods and services because it indicates the portion of each dollar of revenue that is profit.

Surveys of global corporate transfer pricing practices indicate that nearly half use

The following information relates to the operating performance of three divisions of Paul,Inc.for last year. Required: a.Compute the rate of return on investment (ROI)of each division for last year. b.Assume that the firm levies a charge on each division for the use of funds.The charge is 10 percent on investment,and the accounting system deducts it in measuring divisional net income.Recalculate ROI using divisional net income after deduction of the use-of-funds charge in the numerator. c.Which of these two measures do you think gives the better indication of operating performance? Explain your reasoning.

What is the contribution approach alternative to return on investment for division performance measurement?

The rate of return on investment (ROI)has two components:

The Satin Division of the Christmas Candy Company had a rate of return on investment (ROI)of 12 percent (= $1,500,000/$10,000,000)during Year 4,based on sales of $30,000,000.In an effort to improve its performance during Year 5,the company instituted several cost-saving programs,including the substitution of automatic equipment for work previously done by workers and the purchase of raw materials in large quantities to obtain quantity discounts.Despite these cost-saving programs,the company's ROI for Year 5 was 10 percent (= $1,200,000/$12,000,000),based on sales of $30,000,000. Required: a.Break down the ROI for Year 4 and Year 5 into profit margin and investment turnover ratios. b.Explain the reason for the decrease in ROI between the two years using the results from part a.

Which statement is true concerning a dual transfer pricing system?