The following information was presented by User-Friendly Industries Company for an asset purchased at the end of the previous year. \[\begin{array} { | l | r | } \hline \text { Original cost of the asset } & \$ 20,000 \\ \hline \text { Useful life of the asset } & 10 \text { years } \\ \hline \text { Annual operating profit, including depreciation } & \$ 4,000 \\ \hline \text { Sabage value } & \$ - 0 - \\ \hline \end{array}\]What is the return on investment (ROI)assuming User-Friendly (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) 22.2%. D) 25.0%. A) 11.1%. B) 20.0%. C) 22.2%. D) 25.0%.

The following data are available for the South Division of Manhattan Products,Inc.and the single product it makes: \[\begin{array} { | l | r | } \hline \text { Unit selling price } & \$ 20 \\ \hline \text { Variable cost per unit } & \$ 12 \\ \hline \text { Annual fixed costs } & \$ 280,000 \\ \hline \text { Average operating assets } & \$ 1,500,000 \\ \hline \end{array}\]How many units must South sell each year to have an ROI of 16%?

A) 240,000. B) 1,300,000. C) 52,000. D) 65,000. A) 240,000. B) 1,300,000. C) 52,000. D) 65,000.

The following information pertains to Artemis Co.for the year ended December 31: (CPA adapted) \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 600,000 \\ \hline \text { Income } & \$ 100,000 \\ \hline \text { Capital investment } & \$ 400,000 \\ \hline \end{array}\]Which of the following equations should be used to compute Artemis' return on investment (ROI)?

A) (4/6)× (6/1)= ROI B) (6/4)× (1/6)= ROI C) (4/6)× (1/6)= ROI D) (6/4)× (6/1)= ROI A) (4/6)× (6/1)= ROI B) (6/4)× (1/6)= ROI C) (4/6)× (1/6)= ROI D) (6/4)× (6/1)= ROI

Use the following information to compute residual income: \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 320,000 \\ \hline \text { Operating inc ome } & \$ 60,000 \\ \hline \text { Average current assets } & \$ 250,000 \\ \hline \text { Cost of capital } & 12 \% \\ \hline \text { Return on inw estment } & 15 \% \\ \hline \end{array}\]

A) $12,000. B) $22,500. C) $30,000. D) $48,000. A) $12,000. B) $22,500. C) $30,000. D) $48,000.

The Labrador Falls Company has three divisions: A Division,B Division,and C Division.$\begin{array}{|l|r|r|r|} \hline & \text { A } & \text { B } & \text { c } \\ \text { Sales }& \$ 320,000 & \$ 540,000 & ?\\ \hline \text { Net operating income } & 60,000 & ? & \$ 24,000 \\ \hline \text { Residual income }& ? & 36,000 & 14,400 \\ \hline \text { Average Division } \\ \text { Assets } & 250,000 & 320,000 & 80,000 \\ \hline \text { Cost of Capital } & 12 \% & 16 \% & \\ \hline \text { Profit Margin } & 20 \% & 5 \% & \\ \text { Asset Turnover } & ? & 4.0 & \\ \hline \text { Return on irwestment } & 15 \% & & \\ \hline \end{array}$What was A Division's residual income last year?

A) $12,000. B) $22,500. C) $30,000. D) $48,000. A) $12,000. B) $22,500. C) $30,000. D) $48,000.

Exam 14: Business Unit Performance Measurement

Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI)is(are)true? (A)Historical costs are based on the original costs to acquire a long-term asset,while current costs represent the costs to replace the long-term asset.(B)For a specific multiple-period project,the return on investment (ROI)computed using current costs will generally be less than the ROI computed using historical costs.

(Multiple Choice)

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Question 61

The following information was presented by User-Friendly Industries 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 Annual operating profit, including depreciation \ 4,000 Sabage value \ -0- What is the return on investment (ROI)assuming User-Friendly (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?

(Multiple Choice)

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Question 62

Economic value added (EVA)assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?

(Multiple Choice)

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Question 63

The following data are available for the South Division of Manhattan Products,Inc.and the single product it makes: Unit selling price \ 20 Variable cost per unit \ 12 Annual fixed costs \ 280,000 Average operating assets \ 1,500,000 How many units must South sell each year to have an ROI of 16%?

(Multiple Choice)

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Question 64

The use of residual income reduces,but does not eliminate,the suboptimization problem.

(True/False)

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Question 65

Most organizations use residual income instead of return on investment (ROI)as a performance measure.

(True/False)

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Question 66

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: (CMA adapted)

(Multiple Choice)

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Question 67

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 historical cost and net book value? Year 1 Year 2 Year 3 A. 21.5\% 34.0\% 42.0\% B. 22.2\% 31.3\% 43.6\% C. 23.0\% 32.0\% 47.0\% D. 24.8\% 35.0\% 49.5\%

(Multiple Choice)

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Question 68

Residual income is a better measure for performance evaluation of an investment center manager than return on investment (ROI)because: (CMA adapted)

(Multiple Choice)

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Question 69

In determining the dollar amount to use for operating assets in the return on investment (ROI)calculation,companies will generally use either net book value or gross cost of the assets.Which of the following is an argument for the use of net book value rather than gross cost?

(Multiple Choice)

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Question 70

Residual income is a performance evaluation that is used in conjunction with,or instead of,return on investment (ROI).In many cases,residual income is preferred to ROI because: (CIA adapted)

(Multiple Choice)

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Question 71

The following information is available about the Appliance Division of Rainier Company.Rainier requires a return of 9% from all divisions. Appliance Division Earnings from operations Appliance Division Sales Appliance Division Identifiable Assets \ 18,462,000 \ 112,600,000 \ 173,700,000 Required:(usefourdecimalplacesinyourcalculation)a.ComputetheROIfortheApplianceDivision.b.ComputetheresidualincomefortheApplianceDivision.

(Essay)

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Question 72

Danali Fabrication is a division of a major corporation.Last year the division had total sales of $21,120,000,net operating income of $2,006,400,and average operating assets of $6,000,000.The company's minimum required rate of return is 12%.Required: What is the division's return on investment (ROI)?

(Essay)

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Question 73

The following information pertains to Artemis Co.for the year ended December 31: (CPA adapted) Sales \ 600,000 Income \ 100,000 Capital investment \ 400,000 Which of the following equations should be used to compute Artemis' return on investment (ROI)?

(Multiple Choice)

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Question 74

Use the following information to compute residual income: Sales \ 320,000 Operating inc ome \ 60,000 Average current assets \ 250,000 Cost of capital 12\% Return on inw estment 15\%

(Multiple Choice)

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(80)

Question 75

The Labrador Falls Company has three divisions: A Division,B Division,and C Division. A B c Sales \ 320,000 \ 540,000 ? Net operating income 60,000 ? \ 24,000 Residual income ? 36,000 14,400 Average Division Assets 250,000 320,000 80,000 Cost of Capital 12\% 16\% Profit Margin 20\% 5\% Asset Turnover ? 4.0 Return on irwestment 15\% What was A Division's residual income last year?

(Multiple Choice)

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Question 76

Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation?

(Multiple Choice)

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Question 77

One problem with economic value added (EVA)adjustments is determining the appropriate life for expenditures that benefit multiple periods

(True/False)

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Question 78

Which of the following should not be used for the cost of capital to compute residual income?

(Multiple Choice)

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Question 79

How does the use of residual income overcome the limitations of using return on investment?

(Essay)

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Question 80

Economic value added (EVA)assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?

The following data are available for the South Division of Manhattan Products,Inc.and the single product it makes: Unit selling price \ 20 Variable cost per unit \ 12 Annual fixed costs \ 280,000 Average operating assets \ 1,500,000 How many units must South sell each year to have an ROI of 16%?

The use of residual income reduces,but does not eliminate,the suboptimization problem.

Most organizations use residual income instead of return on investment (ROI)as a performance measure.

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: (CMA adapted)

Residual income is a better measure for performance evaluation of an investment center manager than return on investment (ROI)because: (CMA adapted)

In determining the dollar amount to use for operating assets in the return on investment (ROI)calculation,companies will generally use either net book value or gross cost of the assets.Which of the following is an argument for the use of net book value rather than gross cost?

Residual income is a performance evaluation that is used in conjunction with,or instead of,return on investment (ROI).In many cases,residual income is preferred to ROI because: (CIA adapted)

The following information pertains to Artemis Co.for the year ended December 31: (CPA adapted) Sales \ 600,000 Income \ 100,000 Capital investment \ 400,000 Which of the following equations should be used to compute Artemis' return on investment (ROI)?

Use the following information to compute residual income: Sales \ 320,000 Operating inc ome \ 60,000 Average current assets \ 250,000 Cost of capital 12\% Return on inw estment 15\%

Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation?

One problem with economic value added (EVA)adjustments is determining the appropriate life for expenditures that benefit multiple periods

Which of the following should not be used for the cost of capital to compute residual income?

How does the use of residual income overcome the limitations of using return on investment?

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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