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Exam 11: Performance Measurement in Decentralized Organizations

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Question 61

Multiple Choice

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All other things equal, which of the following would increase a division's residual income?

A) Increase in expenses.
B) Decrease in average operating assets.
C) Increase in minimum required return.
D) Decrease in net operating income.

E) A) and D)
F) B) and D)

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Question 62

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Robichau Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 20%. The residual income for this year's investment opportunity when considered alone is closest to:

A) $0
B) $179,100
C) $153,000
D) ($27,000)

E) B) and D)
F) All of the above

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Question 63

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Verbeke Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$, 300,000 \\\text { Variable expenses } & 3,890,000 \\\text { Contribution margin } & 2,410,000 \\\text { Fixed expenses } & 2,032,000\\\text { Net operating income }& \$ 378,000 \\\text { Average operating assets }& \$ 3,000,000\end{array}$ Last year's turnover was closest to:

Craycraft Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: Required: 1. What was last year's margin? (Round to the nearest 0.1%.) 2. What was last year's turnover? (Round to the nearest 0.01.) 3. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) 4. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall margin this year? (Round to the nearest 0.1%.) 5. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall turnover this year? (Round to the nearest 0.01.) 6. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)

A change in sales has no effect on margin and turnover.

Shrewsbury Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 14%. Last year's residual income was closest to:

Bungert Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 15,200,000 \\\text { Variable expenses } & 9,470,000 \\\text { Contribution margin } & 5,730,000 \\\text { Fixed expenses } & 4,818,000 \\\text { Net operating income } & \$ \quad 912,000 \\\end{array}$ The company's minimum required rate of return is 12% and its average operating assets were $8,000,000. Last year's residual income was closest to:

Rotan Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below: The throughput time was:

The following information relates to last year's operations at the Legumes Division of Gervani Corporation: $\begin{array}{lc}\text { Minimum required rate of return } & 12 \% \\\text { Return on investment (ROI) } & 15 \% \\\text { Sales } & \$ 900,0000 \\\text { Turnover (on operating assets) } & 3 \text { times }\end{array}$ What was the Legume Division's net operating income last year?

Move time is considered non-value-added time.

Wiswell Inc. reported the following results from last year's operations: The average operating assets were $8,000,000. At the beginning of this year, the company has a $900,000 investment opportunity that would involve sales of $2,070,000, a contribution margin ratio of 30% of sales, and fixed expenses of $538,200. The company's minimum required rate of return is 10%. If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:

Nasser Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 1,600,000 \\\text { Variable expenses } & 7,760,000 \\\text { Contribution margin } & 4,840,000 \\\text { Fixed expenses } & 3,706,000 \\\text { Net operating income } & \$ 1,134,000 \\\text { Average operating assets } & \$ 16,000,000\end{array}$ Last year's return on investment (ROI) was closest to:

Worley Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $1,000,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 17%. Required: 1. What was last year's residual income? 2. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall residual income this year? 3. If Westerville's CEO earns a bonus only if residual income for this year exceeds residual income for last year, would the CEO pursue the investment opportunity?

Schurz Corporation's management reports that its average delivery cycle time is 26.7 days, its average throughput time is 10.0 days, its manufacturing cycle efficiency (MCE) is 0.22, its average move time is 0.6 day, and its average queue time is 6.7 days. Required: a. What is the wait time? b. What is the process time? c. What is the inspection time?

During the most recent month at Schwab Corporation, queue time was 7.8 days, inspection time was 0.3 day, process time was 1.3 days, wait time was 9.7 days, and move time was 0.7 day. Required: a. Compute the throughput time. b. Compute the manufacturing cycle efficiency (MCE). c. What percentage of the production time is spent in non-value-added activities? d. Compute the delivery cycle time.

Tadman Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$, 400,000 \\\text { Variable expenses } & 5,120,000 \\\text { Contribution margin } & 3,280,000 \\\text { Fixed expenses } & 2,944,000 \\\text { Net operating income } & \$ \quad 336,000 \\\end{array}$ At the beginning of this year, the company has a $800,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $756,000, and a contribution margin ratio of 30% of sales. If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:

Simkin Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below: $\begin{array}{lr} & \text { Hours } \\\text { Wait time } & 20.6 \\\text { Process time } & 1.9 \\\text { Inspection time } & 0.1 \\\text { Move time } & 2.7 \\\text { Queue time } & 4.8\end{array}$ The manufacturing cycle efficiency (MCE) was closest to:

The following data are for the Akron Division of Consolidated Rubber, Inc.: $\begin{array}{lrr}\text { Sales } & \$ & 750,000 \\\text { Net operating income } & \$ & 45,000 \\\text { Average operating assets } & \$ & 250,000 \\\text { Stockholder's' equity } & \$ & 75,000 \\\text { Residual income } & \$ & 15,000\end{array}$ For the past year, the margin used in ROI calculations was:

The following data pertain to Turk Company's operations last year: If the residual income for the year was $9,000, the minimum required rate of return must have been:

Robichau Inc. reported the following results from last year's operations: At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 20%. Last year's residual income was closest to: