Performance Management & Variance

What is the primary purpose of "exception reporting"? (

• To highlight only the positive achievements within the organisation.

• To ensure all managers receive reports on all activities.

• To focus management attention on significant deviations from the plan.

• To report only on activities that are controllable by the manager receiving the report.

Which type of responsibility centre manager has accountability for revenues, costs, and capital investment?

• Cost centre

• Revenue centre

• Profit centre

• Investment centre

Return on Investment (ROI) is typically calculated as:

• Controllable Profit / Non-Controllable Assets

• Total Revenue / Total Assets

• Controllable Profit / Controllable Investment (Capital Employed)

• Net Profit / Sales Revenue

Residual Income (RI) is calculated as:

• Controllable Profit - (Total Assets × Cost of Capital Rate)

• Controllable Profit - (Controllable Investment × Imputed Interest Rate)

• Sales Revenue - (Controllable Investment × Imputed Interest Rate)

• Net Profit - Dividends Paid

Division Alpha has controllable profits of £200,000 and controllable assets (capital employed) of £1,000,000. What is Division Alpha's ROI?

• 10%

• 15%

• 20%

• 25%

Division Beta has controllable profits of £150,000 and controllable assets of £1,200,000. The company's imputed interest charge (cost of capital) is 10%. What is Division Beta's Residual Income (RI)?

• £15,000

• £30,000

• £120,000

• £135,000

Division Gamma has a current ROI of 18% on assets of £500,000. It is considering a new project requiring an investment of £100,000 that is expected to generate additional profit of £15,000. What would be the division's new ROI if the project is accepted?

• 15.0%

• 17.5%

• 18.0%

• 19.5%

Division Delta reported profits of £4.5 million on capital employed of £25 million. The target ROI is 20%. The manager disposes of assets with a book value of £5 million for £5 million cash, reducing annual profit by £0.5 million (due to lost contribution from those assets). What is the division's ROI after the disposal?

• 16.0%

• 18.0%

• 20.0%

• 22.5%

Division Epsilon has controllable profit of £80,000 and an RI of £20,000. If the capital employed is £500,000, what is the imputed interest rate used by the company?

• 10%

• 12%

• 16%

• 20%

A key difference between a budget and a standard is that:

• Budgets apply only to costs, while standards apply to costs and revenues.

• Standards typically represent a target for a single unit, while budgets represent a total plan for a period.