Which statement is true regarding divisional performance? O If a division's return on investment is less than its margin, then the division's sales are greater than its average operating assets. O A reduction in selling and administrative expenses increases a division's margin but does not increase its return on investment if the division's turnover is less than one. O If a division's return on investment is greater than its margin, then the division's sales are less than its average operating assets. O An increase in labor costs will reduce a division's margin and its return on investment even if the division's vision turnover is less than one.

Which statement is true regarding divisional performance? O If a division's return on investment is less than its margin, then the division's sales are greater than its average operating assets. O A reduction in selling and administrative expenses increases a division's margin but does not increase its return on investment if the division's turnover is less than one. O If a division's return on investment is greater than its margin, then the division's sales are less than its average operating assets. O An increase in labor costs will reduce a division's margin and its return on investment even if the division's vision turnover is less than one.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

QUESTION 17 A division is evaluated on ROI, based on ending balances for investment base. The manager has an incentive to: A. acquire assets early in a year and dispose of them late in the same year. B. dispose of assets early in a year and do not acquire assets for years. C. acquire assets late a year and dispose them late in the same year D. keep acquiring assets without disposing any. E. dispose assets late in a year and do not acquire assets for years.
Coronado Division has the following data: Sales Variable expenses Fixed expenses $509000 231000 286000 The fixed costs are not avoidable and must be allocated to profitable divisions if the segment is eliminated. What will be the incremental effect on net income if Coronado Division is eliminated? O $223000 increase O $278000 decrease O $286000 decrease Cannot be determined from the data provided
If the percentage change in operating income resulting from a given percentagechange in sales is higher than the percentage change in sales itself, thena. an increase in the selling price would not alter the contribution marginper unit.b. variable costs per unit have increased.c. variable costs have decreased in total.d. the company has operating leverage.e. the company has no fixed costs.
The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2. 3. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. Return on Investment $2,950,000 1,947,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $155,000. Reduce average operating assets by 4%. Action 1 595,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%.) Action 2 5,000,000 Action 3 (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g. 1.57%.) Return on investment do % % % %
Return on Investment; Present Value Depreciation; Spreadsheet Application As indicatedin the chapter, there are goal congruence problems associated with the use of ROI as an indicator ofbusiness unit financial performance. One such problem relates to the bias against accepting new investments because of the adverse effect on a business unit’s ROI metric. Assume, for example, that themanager of a business unit can invest in a new, depreciable asset costing $75,000 and that this asset hasa 3-year life with no salvage value. Cash inflows associated with this investment are projected to beas follows: $30,000, $35,000, and $43,200. (Ignore taxes.) This scenario leads to an estimated internalrate of return (IRR) of 19.44%. Assume that the minimum required rate of return is 15%.Required1. Demonstrate, using the IRR function in Excel, that the IRR on this proposed investment is indeed19.44%.2. Calculate the year-by-year return on investment (ROI) on this proposed investment. For this…
A department’s profit is equal to a. the department's revenue less divisional variable costs. b. the department’s revenue less their share of corporate costs only. c. the department’s revenue less divisional variable costs and less investment costs. d. the department’s revenue less divisional variable and less their share of corporate costs.
Departmental direct operating margin less departmental indirect expenses equals a.direct operating expenses. b.total operating income. c.departmental operating income. d.departmental income.
The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division. True False
The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2 $3,000,000 1,950,000 Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 3. 600,000 5,000,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $150,000. Reduce average operating assets by 6.25%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%)
The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment (assets) is directly considered and thus, comparability of divisions is facilitated. True 2 False
Which of the following items will not cause the company's ROA to increase? Multiple Choice O O Reducing costs. Reducing company assets without impacting sales. Increasing company assets. Increasing the selling price per unit. $
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…