College Acct 2- Chapter 10

Leete Incorporated reported the following results from this year’s operations:

Sales $16,000,000

Variable expenses 11,200,000

Contribution margin 4,800,000

Fixed expenses 2,800,000

Net operating income $2,000,000

This year's margin was closest to:

• 10.0%

• 75.0%

• 25.0%

• 12.5%

A segment of a business that is responsible for generating its own revenue and managing its own costs is referred to as:

• a profit center.

• an investment center.

• a revenue center.

• a cost center.

Which performance metric incentivizes an investment center to grow as long as it earns a return greater than the minimum required return on its average operating assets?

• return on investment

• transfer pricing

• residual income

• the contribution approach

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

• Increase in net operating income.

• Decrease in expenses.

• Decrease in minimum required return.

• Increase in average operating assets.

Which of the following will result in an increase in return on investment (ROI), assuming other factors remain the same?

• A decrease in sales.

• A decrease in operating assets.

• A decrease in net operating income.

• An increase in expenses.

Which of the following will increase a company's manufacturing cycle efficiency (MCE)?

• both a decrease in inspection time and a decrease in queue time

• a decrease in inspection time only

• a decrease in queue time only

• neither a decrease in inspection time or a decrease in queue time

A company has provided the following data for its most recent year of operations:

Return on investment 18%

Average operating assets $120,000

Minimum required rate of return 12%

The residual income for the year was closest to:

• $21,600

• $7,200

• $14,400

• $4,800

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

Move time 3.6 hours

Wait time 11.5 hours

Queue time 5.7 hours

Process time 2.1 hours

Inspection time 0.5 hours

The total throughput time was:

• 12.4 hours

• 11.9 hours

• 23.4 hours

• 15.4 hours

Which performance metric might lead a manager to reject a beneficial investment for the company?

• contribution margin.

• residual income.

• segment margin.

• return on investment.

Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. The company's minimum required rate of return is 8%.

Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?

• Choice A

• Choice B

• Choice C

• Choice D