The following information pertains to Zootime Co.'s Shelter Division for the current year: (CPA adapted) \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 311,000 \\ \hline \text { Variable cost } & \$ 250,000 \\ \hline \text { Traceable fixed costs } & \$ 50,000 \\ \hline \text { Average invested capital } & \$ 40,000 \\ \hline \text { Imputed interest rate } & 10 \% \\ \hline \end{array}\]Zootime's return on investment was:

A) 10.00%. B) 13.33%. C) 27.50%. D) 30.00%. A) 10.00%. B) 13.33%. C) 27.50%. D) 30.00%.

The following information was presented by Shower Wonder Enterprises for an asset purchased at the beginning of the previous year.\[\begin{array} { | l | r | } \hline \text { Original cost of the asset } & \$ 20,000 \\ \hline \text { Useful life of the asset } & 10 \text { years } \\ \hline \text { Cashflow annual operating protit } & \$ 4,000 \\ \hline \text { Sabage value } & \$ - 0 - \\ \hline \end{array}\]What is the return on investment (ROI)assuming Shower Wonder (a)uses the straight-line method for depreciation and (b)average net book values to compute ROI?

A) 21.1%. B) 20.0%. C) 22.2%. D) 11.76%. A) 21.1%. B) 20.0%. C) 22.2%. D) 11.76%.

The Maxim Corporation reported the following operating results for its three divisions: South,West,and East. \[\begin{array} { | l | r | r | r | } \hline & \begin{array} { r } \text { South } \\ \text { Division } \end{array} & \begin{array} { r } \text { West } \\ \text { Division } \end{array} & \begin{array} { r } \text { East } \\ \text { Division } \end{array} \\ \hline \text { Sales } & \$ 380,000 & \$ 1,700,000 & \$ 2,000,000 \\ \hline \begin{array} { l } \text { Operating } \\ \text { profits } \end{array} & \$ 20,000 & \$ 50,000 & \$ 100,000 \\ \hline \begin{array} { l } \text { Dwisional } \\ \text { assets } \end{array} & \$ 200,000 & \$ 625,000 & \$ 800,000 \\ \hline \end{array}\]Which division's profit margin is the highest?

A) South. B) West. C) East. D) All three divisions are the same. A) South. B) West. C) East. D) All three divisions are the same.

The following information was presented by Outdoors Manufacturing Company for an asset purchased at the end of the previous year.\[\begin{array} { | l | r | } \hline \text { Original cost of the asset } & \$ 20,000 \\ \hline \text { Useful life of the asset } & 10 \text { years } \\ \hline \text { Cashflow annual operating protit } & \$ 4,000 \\ \hline \text { Sabage value } & \$ - 0 - \\ \hline \end{array}\]What is the return on investment (ROI)assuming Outdoors (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?

A) 11.1%. B) 20.0%. C) 10.0%. D) 22.2%. A) 11.1%. B) 20.0%. C) 10.0%. D) 22.2%.

Bella Vista Service Co.is a computer service center.For the month of May,Bella Vista Service Co.had the following operating statistics: (CMA adapted) \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 450,000 \\ \hline \text { Operating income } & 25,000 \\ \hline \text { Net profit after taxes } & 8,000 \\ \hline \text { Total assets } & 500,000 \\ \hline \text { Stockholder's equity } & 200,000 \\ \hline \text { Cost of capital } & 6 \% \\ \hline \end{array}\]Based on the above information,which one of the following statements is correct?

A) Bella Vista Service Co.has a return on investment of 4%. B) Bella Vista Service Co.has a residual income of $(2,000). C) Bella Vista Service Co.has a return on investment of 5.6%. D) Bella Vista Service Co.has a residual income of $(22,000). A) Bella Vista Service Co.has a return on investment of 4%. B) Bella Vista Service Co.has a residual income of $(2,000). C) Bella Vista Service Co.has a return on investment of 5.6%. D) Bella Vista Service Co.has a residual income of $(22,000).

Kevin Thomas is the general manager of the Modular Homes Division,and his performance is measured using the residual income method.Thomas is reviewing the following forecasted information for his division for next year: (CMA adapted) \[\begin{array} { | l | r | } \hline \text { Category } & \begin{array} { r } \text { Amount } \\ \text { (thousanos) } \end{array} \\ \hline \text { Working capital } & \$ 1,800 \\ \hline \text { Revenue } & 30,000 \\ \hline \text { Plant and equipment } & 17,200 \\ \hline \end{array}\] If the cost of capital is 15% and Thomas wants to achieve a residual income target of $2,000,000,what will costs have to be in order to achieve the target?

A) $9,000,000. B) $10,800,000. C) $25,150,000. D) $25,690,000. A) $9,000,000. B) $10,800,000. C) $25,150,000. D) $25,690,000.

How will decreases in the following items affect return on investment (ROI)? \[\begin{array} { | l | c | c | } \hline & \text { Sales } & \text { Equipment } \\ \hline \text { A. } & \text { Decrease } & \text { Decrease } \\ \hline \text { B. } & \text { Decrease } & \text { Increase } \\ \hline \text { C. } & \text { Increase } & \text { Decrease } \\ \hline \text { D. } & \text { Increase } & \text { Increase } \\ \hline \end{array}\]

A) Option A B) Option B C) Option C D) Option D A) Option A B) Option B C) Option C D) Option D

The Maxim Corporation reported the following operating results for its three divisions: South,West,and East.\[\begin{array} { | l | r | r | r | } \hline & \begin{array} { r } \text { South } \\ \text { Division } \end{array} & \begin{array} { r } \text { West } \\ \text { Division } \end{array} & \begin{array} { r } \text { East } \\ \text { Division } \end{array} \\ \hline \text { Sales } & \$ 380,000 & \$ 1,700,000 & \$ 2,000,000 \\ \hline \begin{array} { l } \text { Operating } \\ \text { profits } \end{array} & \$ 20,000 & \$ 50,000 & \$ 100,000 \\ \hline \begin{array} { l } \text { Dwisional } \\ \text { assets } \end{array} & \$ 200,000 & \$ 625,000 & \$ 800,000 \\ \hline \end{array}\]Which division has the largest asset turnover?

A) South. B) West. C) East. D) All three divisions are the same. A) South. B) West. C) East. D) All three divisions are the same.

Exam 14: Business Unit Performance Measurement

"I think that EVA is the best performance measure.I am going to recommend that we evaluate all managers,of plants,divisions,subsidiaries,up to the chief executive officer (CEO),using it." Do you think this statement is appropriate? Explain.

(Essay)

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Question 41

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

(Multiple Choice)

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Question 42

Which of the following statement(s)is/are true? (A)If a division's return on investment (ROI)exceeds its cost of capital,then its residual income is positive.(B)If a division's cost of capital equals its return on investment (ROI),then its residual income is zero.

(Multiple Choice)

4.9/5

(80)

Question 43

The following information pertains to Zootime Co.'s Shelter Division for the current year: (CPA adapted) Sales \ 311,000 Variable cost \ 250,000 Traceable fixed costs \ 50,000 Average invested capital \ 40,000 Imputed interest rate 10\% Zootime's return on investment was:

(Multiple Choice)

4.8/5

(80)

Question 44

The following information was presented by Shower Wonder Enterprises for an asset purchased at the beginning of the previous year. Original cost of the asset \ 20,000 Useful life of the asset 10 years Cashflow annual operating protit \ 4,000 Sabage value \ -0- What is the return on investment (ROI)assuming Shower Wonder (a)uses the straight-line method for depreciation and (b)average net book values to compute ROI?

(Multiple Choice)

4.7/5

(83)

Question 45

The Maxim Corporation reported the following operating results for its three divisions: South,West,and East. South Division West Division East Division Sales \ 380,000 \ 1,700,000 \ 2,000,000 Operating profits \ 20,000 \ 50,000 \ 100,000 Dwisional assets \ 200,000 \ 625,000 \ 800,000 Which division's profit margin is the highest?

(Multiple Choice)

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(86)

Question 46

It is not possible for a manager to accept an unacceptable project when his/her performance is evaluated using ROI.

(True/False)

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Question 47

One advantage of using after-tax income as a performance measure of divisional results is that it is a financial accounting measure that can also be used to compute organizational income.

(True/False)

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Question 48

Raisin Corporation uses residual income to evaluate the performance of its divisions.The minimum required rate of return for performance evaluation purposes is 19%.The Processed Foods Division had average operating assets of $410,000 and net operating income of $86,000 in June.Required: What was the Processed Foods Division's residual income in June?

(Essay)

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Question 49

The following information was presented by Outdoors Manufacturing Company for an asset purchased at the end of the previous year. Original cost of the asset \ 20,000 Useful life of the asset 10 years Cashflow annual operating protit \ 4,000 Sabage value \ -0- What is the return on investment (ROI)assuming Outdoors (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?

(Multiple Choice)

5.0/5

(84)

Question 50

Bella Vista Service Co.is a computer service center.For the month of May,Bella Vista Service Co.had the following operating statistics: (CMA adapted) Sales \ 450,000 Operating income 25,000 Net profit after taxes 8,000 Total assets 500,000 Stockholder's equity 200,000 Cost of capital 6\% Based on the above information,which one of the following statements is correct?

(Multiple Choice)

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Question 51

Explain how using gross book value to measure the assets gives different results than using net book value.What happens to ROI over time under each of the two measures?

(Essay)

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Question 52

Level return on investments (ROI)over the life of a long-term project is more likely when ROI is computed using:

(Multiple Choice)

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Question 53

One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000.The cash flows from these assets for the past three years have been: Year Cash flows 1 \ 1,200,000 2 \ 1,400,000 3 \ 1,620,000 The current (i.e. ,replacement)costs of these assets were expected to increase 25% each year.Marvin used the straight-line depreciation method;the estimated useful life is 10-years with no salvage value.For return on investment (ROI)calculations,Marvin uses end-of-year balances.What is the ROI using current costs and net book value? Year 1 Year 2 Year 3 A. 14.6\% 15.9\% 16.0\% B. 15.8\% 15.9\% 14.9\% C. 15.6\% 15.5\% 15.3\% D. 15.6\% 15.8\% 11.9\%

(Multiple Choice)

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Question 54

The Gallop Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI)of 20%.What was Gallop's operating profit margin?

(Multiple Choice)

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Question 55

One disadvantage of using after-tax income as a performance measure of divisional results is that it is an absolute measure which makes it difficult to compare divisions of significantly different sizes

(True/False)

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Question 56

Kevin Thomas is the general manager of the Modular Homes Division,and his performance is measured using the residual income method.Thomas is reviewing the following forecasted information for his division for next year: (CMA adapted) Category Amount (thousanos) Working capital \ 1,800 Revenue 30,000 Plant and equipment 17,200 If the cost of capital is 15% and Thomas wants to achieve a residual income target of $2,000,000,what will costs have to be in order to achieve the target?

(Multiple Choice)

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Question 57

How will decreases in the following items affect return on investment (ROI)? Sales Equipment A. Decrease Decrease B. Decrease Increase C. Increase Decrease D. Increase Increase

(Multiple Choice)

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Question 58

Return on investment (ROI)can be decomposed into the asset turnover and the:

(Multiple Choice)

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Question 59

The Maxim Corporation reported the following operating results for its three divisions: South,West,and East. South Division West Division East Division Sales \ 380,000 \ 1,700,000 \ 2,000,000 Operating profits \ 20,000 \ 50,000 \ 100,000 Dwisional assets \ 200,000 \ 625,000 \ 800,000 Which division has the largest asset turnover?

(Multiple Choice)

4.9/5

(84)

Question 60

"I think that EVA is the best performance measure.I am going to recommend that we evaluate all managers,of plants,divisions,subsidiaries,up to the chief executive officer (CEO),using it." Do you think this statement is appropriate? Explain.

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

Which of the following statement(s)is/are true? (A)If a division's return on investment (ROI)exceeds its cost of capital,then its residual income is positive.(B)If a division's cost of capital equals its return on investment (ROI),then its residual income is zero.

The following information pertains to Zootime Co.'s Shelter Division for the current year: (CPA adapted) Sales \ 311,000 Variable cost \ 250,000 Traceable fixed costs \ 50,000 Average invested capital \ 40,000 Imputed interest rate 10\% Zootime's return on investment was:

It is not possible for a manager to accept an unacceptable project when his/her performance is evaluated using ROI.

One advantage of using after-tax income as a performance measure of divisional results is that it is a financial accounting measure that can also be used to compute organizational income.

Explain how using gross book value to measure the assets gives different results than using net book value.What happens to ROI over time under each of the two measures?

Level return on investments (ROI)over the life of a long-term project is more likely when ROI is computed using:

The Gallop Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI)of 20%.What was Gallop's operating profit margin?

One disadvantage of using after-tax income as a performance measure of divisional results is that it is an absolute measure which makes it difficult to compare divisions of significantly different sizes

How will decreases in the following items affect return on investment (ROI)? Sales Equipment A. Decrease Decrease B. Decrease Increase C. Increase Decrease D. Increase Increase

Return on investment (ROI)can be decomposed into the asset turnover and the:

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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