Question 1

Last year a company had sales of $400,000, a turnover of 2.4, and a return on investment of 36%. The company's net operating income for the year was:

Accepted Answer

The answer of Last year a company had sales of...

Question 2

CS Company has a profit margin of 11%. Sales are $320,000, net operating income is $35,200, and average operating assets are $128,000. What is the company's return on investment (ROI)?

Accepted Answer

ROI = Net Operating Income / Average Operating Assets

ROI = ($35,200 / $128,000) x 100

ROI = 27.5%

Therefore, the best choice is C, which correctly identifies the ROI as 27.5%. Other choices are incorrect as they either give the wrong answer or fail to answer the question.

Question 3

All other things being the same, which of the following would increase the residual income?

Accepted Answer

Residual income is calculated as net operating income minus the minimum required return multiplied by average operating assets. Therefore, if there is a decrease in average operating assets, the residual income will increase.

Question 4

Throughput time is the amount of time required to process raw materials into completed products.

Accepted Answer

Throughput time refers to the time required for a product to go through all the steps of production, from raw material to finished product. Therefore, the statement is true.

Question 5

All profit centers are responsibility centers, but not all responsibility centers are profit centers.

Accepted Answer

This statement is true. All profit centers, which are departments or units within an organization that generate revenue and incur expenses, are responsible for their financial performance and are therefore considered responsibility centers. However, not all responsibility centers have the goal of generating profit, such as cost centers, which are responsible for managing costs within an organization but do not directly generate revenue.

Question 6

Throughput Time consists of:

Accepted Answer

Throughput Time includes all of the time it takes for a task to move through a system, from beginning to end. This includes Process Time, Inspection Time, Move Time, and Queue Time. Therefore, choice D is the best answer.

Question 7

Net operating income is defined as:

Accepted Answer

The answer of Net operating income is defined as:
...

Question 8

Residual income:

Accepted Answer

Residual income is the net operating income earned above a certain minimum required return on average operating assets. It measures how effectively a company utilizes its assets to generate profits. Therefore, option C is the correct choice. Options A and B are incorrect because they do not accurately describe residual income. Option D is also incorrect because the residual income can be zero or negative if the net operating income does not cover the required return on assets.

Question 9

A balanced scorecard should not contain any performance measures concerning customer satisfaction since the extent to which customers are satisfied is beyond the control of any manager in the company.

Accepted Answer

Customer satisfaction is a key aspect of a company's performance and managers can have an impact on it through various means such as improving product quality, customer service, and communication. Therefore, customer satisfaction measures should be included in a balanced scorecard to assess the effectiveness of the company's strategies and operations in meeting customer needs and expectations.

Question 10

A company that is seeking to increase ROI should attempt to decrease:

Accepted Answer

Return on Investment (ROI) is calculated by dividing net income by average operating assets. Therefore, if a company wants to increase its ROI, it should aim to decrease its average operating assets. This can be achieved by reducing excess inventory, selling off unused equipment, or streamlining operations to make them more efficient. Lowering sales, turnover, or margin could potentially have a negative impact on the company's overall profitability and should be avoided.

Question 11

Consider the following three conditions: I. An increase in sales
II) An increase in operating assets
III) A reduction in expenses
Which of the above conditions provide a way in which a manager can improve return on investment?

Accepted Answer

Return on investment (ROI) is calculated by dividing net income by total assets. Therefore, any action that leads to an increase in net income or a decrease in total assets will improve ROI. 
Condition I (an increase in sales) directly increases the numerator (net income) of the ROI formula, and Condition III (a reduction in expenses) directly decreases the numerator (net income) of the ROI formula. Condition II (an increase in operating assets), however, leads to an increase in the denominator (total assets) of the ROI formula, which will decrease the overall ROI. Therefore, only Conditions I and III provide a way in which a manager can improve ROI.

Question 12

Which of the following performance measures will decrease if the minimum required rate of return increases?

Accepted Answer

The answer of Which of the following performance measures will...

Question 13

Manufacturing Cycle Efficiency (MCE) is computed as:

Accepted Answer

The answer of Manufacturing Cycle Efficiency (MCE) is computed as:
...

Question 14

Which of the following would be an argument for the use of net book value in the computation of operating assets in return on investment calculations?

Accepted Answer

Using the net book value in return on investment calculations is consistent with reporting plant and equipment on the balance sheet. This provides a more accurate representation of the value of the company's assets, which in turn can help in making informed decisions about the company's financial performance.

Question 15

A profit center is responsible for generating revenue and for controlling costs.

Accepted Answer

A profit center is a business unit within an organization that is responsible for generating revenue and controlling costs, with the goal of earning a profit. This is in contrast to a cost center, which is responsible for controlling costs but not necessarily generating revenue, and a revenue center, which is responsible for generating revenue but not controlling costs.

Question 16

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is:

Accepted Answer

Residual income encourages managers to accept projects that exceed the minimum required return, aligning their decisions with the company's overall profitability goals, unlike ROI which might lead to rejecting beneficial projects if they lower the overall ROI.

Question 17

A cost center is not a responsibility center.

Accepted Answer

A cost center is a type of responsibility center focused on controlling costs, where the manager is responsible for managing expenses but not for generating revenue.

Question 18

Given the following data:  Return on investment (ROI) would be:

Accepted Answer

The answer of Given the following data:  Return on...

Question 19

Because continuous improvement is very difficult, the emphasis in the balanced scorecard tends to be on meeting preset standards.

Accepted Answer

The balanced scorecard actually emphasizes continuous improvement, and includes measures for tracking progress towards strategic goals over time. While standards and targets may be set, these are meant to be dynamic and adjusted based on ongoing performance evaluations and feedback.

Question 20

Contribution income statements are used to measure the performance of:

Accepted Answer

Contribution income statements are used to measure the performance of profit centers and investment centers by focusing on variable costs and contribution margin.

Quiz 6: Performance Measurement in Decentralized Organizations