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Exam 11: Performance Measurement in Decentralized Organizations

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Question 21

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The following data pertains to Timmins Company's operations last year: Required: a. Compute the company's average operating assets. b. Compute the company's residual income for the year.

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a. ROI = Margin × Turnover
20% = 5% × Tu...

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Question 22

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Tallon Inc. has a $1,200,000 investment opportunity that involves sales of $1,680,000, fixed expenses of $336,000, and a contribution margin ratio of 30% of sales. The turnover for this investment opportunity is closest to:

A) 1.40
B) 0.10
C) 10.00
D) 0.71

E) None of the above
F) A) and B)

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Question 23

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Gauntlett Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 12,000,000 \\\text { Variable expenses } & 9,580,000 \\\text { Contribution margin } & 2,420,000 \\\text { Fixed expenses } & 1,460,000\\\text { Net operating income }&\$960,000\\\text { Average operating assets }&\$5,000,000\end{array}$ At the beginning of this year, the company has a $1,300,000 investment opportunity with the following characteristics: $\begin{array}{lc}\text { Sales } & \$ 4,680,000 \\\text { Contribution margin ratio } & 50 \% \text { of sales } \\\text { Fixed expenses } & \$ 2,059,200\end{array}$ If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:

Selma Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 13,800,000 \\\text { Variable expenses } & 9,950,000 \\\text { Contribution margin } & 3,850,000 \\\text { Fixed expenses } & 3,022,000 \\\text { Net operating income } & \$828,000 \\\text { Average operating assets } & \$ 6,000,000 \\\end{array}$ Last year's margin was closest to:

Dacker Products is a division of a major corporation. The following data are for the most recent year of operations: $\begin{array}{lr}\text {Sales }&\$36,480,000\\\text {Net operating income }&\$2,808,960\\\text {Average operating assets }&\$8,000,000\\\text { The company's minimum required rate of return }&16\%\end{array}$ The division's residual income is closest to:

Gauntlett Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 12,000,000 \\\text { Variable expenses } & 9,580,000 \\\text { Contribution margin } & 2,420,000\\\text { Fixed expenses }& 1,460,000 \\\text { Net operating income }&\$960,000 \\\text { Average operating assets }&\$5,000,000\end{array}$ At the beginning of this year, the company has a $1,300,000 investment opportunity with the following characteristics: $\begin{array}{lc}\text { Sales } & \$ 4,680,000 \\\text { Contribution margin ratio } & 50 \% \text { of sales } \\\text { Fixed expenses } & \$ 2,059,200\end{array}$ Last year's turnover 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 return on investment was:

The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000. The corporation requires a return on investment of 18%. Required: a. Calculate the company's return on investment (ROI) and residual income (RI). b. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. Would it be in the best interests of the company to make this investment? c. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a return on investment of 20% and its manager is evaluated based on the division's ROI, will the division manager be inclined to request funds to make this investment? d. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a residual income of $50,000 and its manager is evaluated based on the division's residual income, will the division manager be inclined to request funds to make this investment?

Gabbe Industries is a division of a major corporation. Last year the division had total sales of $8,910,000, net operating income of $962,280, and average operating assets of $3,000,000. The company's minimum required rate of return is 10%. Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)?

Minar Inc. reported the following results from last year's operations: $\begin{array}{lrr}\text { Sales } & \$ 5,700,000 \\\text { Variable expenses } & 3,510,000 \\\text { Contribution margin } & 2,190,000 \\\text { Fixed expenses } & 1,734,000 \\\text { Net operating income } & \$ 456,000 \\\text { Average operating assets } & \$ \quad 3,000,000\end{array}$ At the beginning of this year, the company has a $900,000 investment opportunity with the following characteristics: $\begin{array}{lc}\text { Sales } & \$ 1,530,000 \\\text { Contribution margin ratio } & 60 \% \text { of sales } \\\text { Fixed expenses } & \$ 810,900\end{array}$ 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:

Last year a company had sales of $600,000, a turnover of 3.6, and a return on investment of 18%. The company's net operating income for the year was:

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 ROI for this year's investment opportunity considered alone is closest to:

Financial measures tend to be lag indicators that report on the results of past actions.

The Hum Division of the Ho Company reported the following data for last year: The residual income for the Hum Division last year was:

Alghamdi Corporation keeps careful track of the time required to fill orders. The times required for a particular order appear below: $\begin{array}{lr} & \text { Hour } \\\text { Wait time } & 10.4 \\\text { Processtime } & 1.1 \\\text { Inspection time } & 0.1 \\\text { Move time } & 2.4 \\\text { Queue time } & 9.3\end{array}$ Required: a. Determine the throughput time. Show your work! b. Determine the manufacturing cycle efficiency (MCE), Show your work! c. Determine the delivery cycle time. Show your work!

Throughput time is the amount of time required to move a completed unit from the factory floor to the warehouse.

Leete Inc. reported the following results from last year's operations: $\begin{array}{lr}\text { Sales } & \$ 14,000,000 \\\text { Variable expenses } & 9,660,000 \\\text { Contribution margin } & 4,340,000 \\\text { Fixed expenses } & 2,940,000 \\\text { Net operating income } & \$ 1,400,000 \\\end{array}$ Last year's margin was closest to:

The West Division of Cecchetti Corporation had average operating assets of $240,000 and net operating income of $42,200 in August. The minimum required rate of return for performance evaluation purposes is 19%. What was the West Division's minimum required return in August?

The Consumer Products Division of Goich Corporation had average operating assets of $800,000 and net operating income of $81,300 in May. The minimum required rate of return for performance evaluation purposes is 10%. What was the Consumer Products Division's minimum required return in May?

The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1. The average operating assets for Year 2 were: