COB 242 - Unit 4

In a decentralized organization _____.

• decision-making authority is reserved for top management so lower level managers can concentrate on operations

• lower-level managers have low motivation and job satisfaction due to increased responsibility

• changes in the operating environment can be responded to rapidly

• top management can concentrate on issues such as overall strategy

• lower-level managers are trained for higher positions

Disadvantages of decentralization include _____.

• defining organization strategy is difficult

• clashing objectives between departments and the organization

• spreading innovative ideas may be difficult

• lack of coordination

The ROI formula typically uses ____.

• end of year operating assets

• average operating and non-operating assets for the year

• average operating assets for the year

• end of year operating and non-operating assets

EBIT is another terms for ____.

• net operating income

• income after taxes

• residual income

• operating assets

Operating assets include ____.

• investments in bonds

• inventory

• accounts receivable

• equipment

• land held for investment

ROI can be calculated as ____.

• net operating income ÷ average operating assets

• margin x turnover

• margin ÷ turnover

• average operating assets ÷ net operating income

Which of the following ratios are part of the ROI formula?

• Cost of goods sold ÷ Average inventory

• Sales ÷ Average operating assets

• Net operating income ÷ Sales

• Sales on account ÷ Average accounts receivable

When a manager is evaluated on residual income, an investment is acceptable when ____.

• net operating income for the new investment is above the current return on average operating assets

• net operating income for the investment is above the minimum required return on average operating assets

• it generates any positive net operating income

• the return on investment of the new project equals or exceeds current ROI

Valid criticism of evaluating performance based on return on investment (ROI) include managers may ____.

• reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI

• be put in charge of a business segment that includes committed costs over which a manager has no control

• take action that increase ROI in the short-run at the expense of long-term performance

• affect ROI by increasing sales or decreasing operating expenses for their division

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be ____ likely to pursue projects that will benefit the entire company.

• more

• less

• equally