11. The performance of the manager of Division C is evaluated by residual income. Which of the following would improve the manager's performance? Select one: a. Decrease in operating income. b. Decrease in average operating assets. c. Increase in minimum required return. d. Increase in average operating assets.

11. The performance of the manager of Division C is evaluated by residual income. Which of the following would improve the manager's performance? Select one: a. Decrease in operating income. b. Decrease in average operating assets. c. Increase in minimum required return. d. Increase in average operating assets.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 13MC: A responsibility center structure that considers investments made by the operating segments by using...

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The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager's performance measure? a. Increase in average operating assets. b. Decrease in average operating assets. c. Increase in minimum required return. d. Decrease in net operating income.
The residual income approach to measuring divisional performance measurement is closely related to the ____________ method of performance measurement. Select one: a. Internal rate of return b. Payback period c. Return on capital employed d. Accounting rate of return e. Economic value added
Discuss how the behavior of division managers is likely to be affected by the use of: a. Return on Investment as a Performance Measure b. Residual Income as a performance measure (CMA Adapted)
____ 1.Which of the following is a responsibility center that incurs expenses, generates revenues, and is responsible for generating a return on assets? a. Cost center b. Revenue center c. Profit center d. Investment center ____ 2.Which one of the following is the most useful measure for evaluating a manager's performance in controlling revenues and costs in a profit center? a. Contribution margin b. Contribution net income c. Contribution gross profit d. Controllable margin ____ 3.Hanover Corporation desires to earn target net income of $42,000. The selling price per unit is $18, unit variable cost is $5.60, and total fixed costs are $123,912. How many units must the company sell to earn its target net income? a. 13,380 b. 9,993 c. 3,387 d. 9,217 ____ 4.Remark…
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If ROI is used to evaluate a manager’s performance for a relatively new division, which of the following measures for assets (or investment) will increase ROI? a. Gross book value used instead of net book value. b. Net book value using accelerated rather than straight-line depreciation. c. Gross book value used instead of replacement cost, if gross book value is higher. d. Replacement cost used instead of liquidation value, if replacement cost is higher.
Residual income should be used over return on investment (ROI) to evaluate managers’ performance because: Group of answer choices Residual income can be calculated more accurately than ROI. ROI is a ratio, but residual income is expressed in dollars. Residual income is more likely to align a division’s goal with the company’s goal. ROI is complicated to calculate.
Which of the following statements is true? Return on investment (ROI) equals margin multiplied by sales. When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets. An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.
In a decentralized organization, Co. X, Division A is evaluated according to ROI, while Division B is evaluated according to residual income. Of Co.X, Div. A and Div.B, which is more likely to make an investment decision that will hurt Co. X's income? a. Co. X b. Division A d. All are equally likely to do this 9. c. Division B 10. Division A, an investment center, has operating income = $80,000 for the prior period. The residual income during this period is $20,000. If Division A’s investment assets = $300,000, then cost of capital set by the corporation's top management must be: a. 12%|c.20% b. 15% d. 25% 11. A division manager is considering investing in a new product. The division's income is currently $465,000 with operating assets of $8 million. The new product would increase income by $270,000 and would require an additional investment in equipment of $1.5 million. The ROI of the division before and after the investment is respectively: a. 5.8% and 7.7% c. 7.7% and 5.8% b. 11.6%…
3 Investment center analysis; ROI and residual income Romano Corporation has three operating divisions and requires a 12% return on all investments. Selected information is presented here: Division X Division Y Division Z Revenues $1,000,000 Operating income. Operating assets... Margin.... $ 120,000 $ 500,000 $100,000 $300,000 12% Turnover .. 1 turn 2 turns ROI..... Residual income . $25,000
Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income (LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $ 6,300,000 $ 1,260,000 340,200 Division B $ 10,300,000 $ 5,150,000 968,200 18.80% Division C $ 9,400,000 $ 1,880,000 24 Sales Average operating assets Net operating income Minimum required rate of return 2$ 249,100 20.00% 17.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 20% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or…
Which of the following statements regarding responsibility accounting systems is true? O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. O Residual income is a less effective metric for evaluating performance if there are significant differences in the size of the operating segments. O None of the above statements is true.