Fundamentals of Cost Accounting
6th Edition
ISBN: 9781260708783
Author: LANEN, William
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 14, Problem 11CADQ
To determine
Comment on the given statement.
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Students have asked these similar questions
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)
Which of the following describes the goal that should be pursued when setting transfer prices?
Allow top management to become actively involved when calculating the proper dollar amounts.
Minimize opportunity costs.
Maximize profits of the buying division.
Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence).
Maximize profits of the selling division.
Explain how EVA is a better measure for divisional performance evaluation, as compared to Residual Income(RI) and ROI
Chapter 14 Solutions
Fundamentals of Cost Accounting
Ch. 14 - What are the advantages of divisional income as a...Ch. 14 - How is divisional income like income computed for...Ch. 14 - How is return on investment (ROI) computed?Ch. 14 - What are the advantages of using an ROI-type...Ch. 14 - How can ratios, such as ROI, be used for control...Ch. 14 - How does residual income differ from ROI?Ch. 14 - How does EVA differ from residual income?Ch. 14 - What impact does the use of gross book value or...Ch. 14 - What are the dangers of using only business unit...Ch. 14 - A company prepares the master budget by taking...
Ch. 14 - Prob. 11CADQCh. 14 - What problems might there be if the same methods...Ch. 14 - Prob. 13CADQCh. 14 - The chapter identified some problems with ROI-type...Ch. 14 - Failure to invest in projects is not a problem...Ch. 14 - How would you respond to the following comment?...Ch. 14 - Prob. 17CADQCh. 14 - Prob. 18CADQCh. 14 - Prob. 19CADQCh. 14 - Prob. 20CADQCh. 14 - Prob. 21CADQCh. 14 - Compute Divisional Income Arlington Clothing,...Ch. 14 - Compute Divisional Income Refer to Exercise 14-22....Ch. 14 - Computing Divisional Income: Incomplete...Ch. 14 - Compute RI and ROI The Campus Division of...Ch. 14 - Prob. 26ECh. 14 - Compare Alternative Measures of Division...Ch. 14 - Comparing Business Units Using ROI Back Mountain...Ch. 14 - Comparing Business Units Using Residual Income...Ch. 14 - Prob. 30ECh. 14 - Universal Electronics, Inc. (UEI), which started...Ch. 14 - Comparing Business Units Using Residual...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Impact of New Asset on Performance Measures The...Ch. 14 - Refer to the data in Exercise 14–34. The division...Ch. 14 - Refer to the information in Exercises 14–34 and...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Compare Historical Cost, Net Book Value to Gross...Ch. 14 - Prob. 40ECh. 14 - Prob. 41ECh. 14 - Effects of Current Cost on Performance...Ch. 14 - Comparing Business Units Using Divisional Income,...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Prob. 45PCh. 14 - Equipment Replacement and Performance Measures...Ch. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Prob. 49PCh. 14 - Prob. 50PCh. 14 - Prob. 51PCh. 14 - Evaluate Performance Evaluation System: Behavioral...Ch. 14 - ROI, EVA, and Different Asset Bases Hys is a...Ch. 14 - Economic Value Added Bisbee Health Products...Ch. 14 - Prob. 55PCh. 14 - Prob. 56PCh. 14 - Refer to the information in Exercise 14-39. Assume...Ch. 14 - Refer to the information in Exercise 14-42. Assume...
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Similar questions
- “Management should always maximize sales of the product with the highest contribution margin per unit.” Do you agree? Why?arrow_forwardResidual 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.arrow_forward“A financial productivity measure contains more information than an operational productivity measure does.” Do you agree and why or why not?arrow_forward
- What is customer value? How is customer value related to a cost leadership strategy? To a differentiation strategy? To strategic positioning?arrow_forwardWhy do managers want a high ROI, and how would they strive to increase their ROI?arrow_forwardWhich of the following promotes goal congruence (aligned goals between segment managers and top management)? Residual Income as a performance evaluation measure O Return on Investment as a performance evaluation measure A positive residual income means O the investment has exceeded management's expectations based on their target rate of return. O the investment has not met management's expectations based on their target rate of return. O A positive or negative residual income does not tell us whether management's expectations were met.arrow_forward
- 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%…arrow_forwardPlease explain properly for upvotearrow_forwardDifferentiate between a cost center, profit center, and investment center. What is the major shortcoming of using operating income as a performance measure for investment centers? Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment? In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income? Does the concept of decentralization--top managers allowing middle and lower-level managers to make decisions--have application to God's plan for us? In other words, does God make decisions for us or does he allow us to make decisions in our own lives? Is this good or bad? How does using the return on investment facilitate comparability between divisions of decentralized companies?arrow_forward
- According to the Productivity Index, which project should be chosen? Explain why people use the Productivity Index. Explain why a Productivity Index so closely correlates with the results of the Net Present Value method.arrow_forwardLooking from a managerial perspective, why would a firm use a balanced scorecard in evaluating performance? What benefits would be derived from the use of this measure? Please provide at least 2 references to back up your opinion.arrow_forward2 Fill in the blank: ________ is an organization's ability to achieve low costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. Select one: a.Product leadership b.The balanced scorecard c. Strategy d.Cost leadership e.Product differentiationarrow_forward
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