Question 1

Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.

Accepted Answer

A) True 
 B)False

Question 2

Stock based performance evaluation of managers is considered more risky than accounting based performance evaluation.

Accepted Answer

A) True 
 B)False

Question 3

Calculate the residual income assuming the following information:

Accepted Answer

A) $156,000 
B) $108,000 
C) $219,000 
D) $45,000 
A) $156,000 
B) $108,000 
C) $219,000 
D) $45,000

Question 4

Residual income can be defined as:

Accepted Answer

A) Income remaining after dividends are paid out. 
B) Operating earnings minus return on investment. 
C) Operating earnings plus a minimum acceptable return times average invested capital. 
D) Operating earnings minus a minimum acceptable return times average invested capital. 
A) Income remaining after dividends are paid out. 
B) Operating earnings minus return on investment. 
C) Operating earnings plus a minimum acceptable return times average invested capital. 
D) Operating earnings minus a minimum acceptable return times average invested capital.

Question 5

Which of the following is not a criticism of using ROI as the only performance measure?

Accepted Answer

A) It may incentivize short-term decisions at the expense of long-term planning. 
B) It may incentivize decisions that are effective at the division-level,but not necessarily at the enterprise-level. 
C) It may incentivize employees to act in ways that are consistent with the overall goals and objectives of the organization. 
D) It may be too reliant on subjective or arbitrary allocations of capital. 
A) It may incentivize short-term decisions at the expense of long-term planning. 
B) It may incentivize decisions that are effective at the division-level,but not necessarily at the enterprise-level. 
C) It may incentivize employees to act in ways that are consistent with the overall goals and objectives of the organization. 
D) It may be too reliant on subjective or arbitrary allocations of capital.

Question 6

[The following information applies to the questions displayed below.]
The following information regarding Mahen,Inc.is available:
  
-What is the return on sales for Mahen,Inc.?

Accepted Answer

A) 5% 
B) 6% 
C) 10% 
D) 20% 
A) 5% 
B) 6% 
C) 10% 
D) 20%

Question 7

Which of the following is not one of the components of the DuPont system for measuring and evaluating business performance?

Accepted Answer

A) Return on sales 
B) Return on investment 
C) Inventory turnover 
D) Capital turnover 
A) Return on sales 
B) Return on investment 
C) Inventory turnover 
D) Capital turnover

Question 8

Using only ROI as a business performance measure often leads to the best decisions.

Accepted Answer

A) True 
 B)False

Question 9

Morgan Company has a ROI of 5% and a capital turnover of 8%.What is its return on sales?

Accepted Answer

A) 133% 
B) 75% 
C) 62.5% 
D) Some other percentage 
A) 133% 
B) 75% 
C) 62.5% 
D) Some other percentage

Question 10

The following information regarding the Duncan Company is available:
   Compute the answers for items A-D.

Accepted Answer

(A)$396,50

Question 11

Capital turnover can be improved by reducing invested capital while keeping sales constant.

Accepted Answer

A) True 
 B)False

Question 12

The value chain starts with the supplier and ends with the consumer.

Accepted Answer

A) True 
 B)False

Question 13

[The following information applies to the questions displayed below.]
The following information regarding Brookes,Inc.is available:
  
-What is the capital turnover for Brookes,Inc.? (Round your percentage answer to the nearest whole number. )

Accepted Answer

A) 38% 
B) 54% 
C) 70% 
D) 86% 
A) 38% 
B) 54% 
C) 70% 
D) 86%

Question 14

[The following information applies to the questions displayed below.]
Division Y of the Mortisen Company produces and sells two products.Each product's operating income and average capital resources are shown below:
Product A: Operating Income $500,000;Average capital $5,000,000.
Product B: Operating Income $350,000;Average capital $4,100,000.
-What is division Y's ROI for product A?

Accepted Answer

A) 12.0% 
B) 10.0% 
C) 11.0% 
D) 12.5% 
A) 12.0% 
B) 10.0% 
C) 11.0% 
D) 12.5%

Question 15

EVA stands for "evaluating value added" performance.

Accepted Answer

A) True 
 B)False

Question 16

[The following information applies to the questions displayed below.]
The following information regarding Mahen,Inc.is available:
  
-What is the return on investment for Mahen,Inc.?

Accepted Answer

A) 5% 
B) 6% 
C) 10% 
D) 20% 
A) 5% 
B) 6% 
C) 10% 
D) 20%

Question 17

Identify the criticisms of using Return on Investment (ROI)as the only performance measure.

Accepted Answer

Return on investment provides a systemat

Question 18

Which of the following accounting system characteristics cannot generate motivation?

Accepted Answer

A) Creating and setting goals 
B) Measuring progress towards those goals 
C) Allocating rewards towards goal achievement 
D) Balancing debits and credits 
A) Creating and setting goals 
B) Measuring progress towards those goals 
C) Allocating rewards towards goal achievement 
D) Balancing debits and credits

Question 19

Which of the following is not a strategy of the learning and growth lens of a balanced scorecard?

Accepted Answer

A) Improve employee relations 
B) Improve customer relations 
C) Improve employee productivity 
D) Increase new product development 
A) Improve employee relations 
B) Improve customer relations 
C) Improve employee productivity 
D) Increase new product development

Question 20

Assuming division Y's manager has an opportunity to undertake an investment that would require a $500,000 investment and yield $40,000 in net operating income for its product B,what would the ROI be for the entire division? (Round your percentage answer to the nearest whole number. )

Accepted Answer

A) 11% 
B) 10% 
C) 9% 
D) 8% 
A) 11% 
B) 10% 
C) 9% 
D) 8%

Exam 25: Rewarding Business Performance

Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.

Stock based performance evaluation of managers is considered more risky than accounting based performance evaluation.

Calculate the residual income assuming the following information:

Residual income can be defined as:

Which of the following is not a criticism of using ROI as the only performance measure?

[The following information applies to the questions displayed below.] The following information regarding Mahen,Inc.is available: -What is the return on sales for Mahen,Inc.?

Which of the following is not one of the components of the DuPont system for measuring and evaluating business performance?

Using only ROI as a business performance measure often leads to the best decisions.

Morgan Company has a ROI of 5% and a capital turnover of 8%.What is its return on sales?

The following information regarding the Duncan Company is available: Compute the answers for items A-D.

Capital turnover can be improved by reducing invested capital while keeping sales constant.

The value chain starts with the supplier and ends with the consumer.

[The following information applies to the questions displayed below.] The following information regarding Brookes,Inc.is available: -What is the capital turnover for Brookes,Inc.? (Round your percentage answer to the nearest whole number. )

EVA stands for "evaluating value added" performance.

[The following information applies to the questions displayed below.] The following information regarding Mahen,Inc.is available: -What is the return on investment for Mahen,Inc.?

Identify the criticisms of using Return on Investment (ROI)as the only performance measure.

Which of the following accounting system characteristics cannot generate motivation?

Which of the following is not a strategy of the learning and growth lens of a balanced scorecard?

Assuming division Y's manager has an opportunity to undertake an investment that would require a $500,000 investment and yield $40,000 in net operating income for its product B,what would the ROI be for the entire division? (Round your percentage answer to the nearest whole number. )

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Capital Budgeting

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

Filters