Chap018
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Chap018

Course: ACCOUNTING 102, Spring 2011

School: Faculty of English...

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Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Chapter 18 Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance True / False Questions 1. Responsibility accounting refers to the various concepts and tools used to measure the performance of people and departments in order to foster goal or behavioral congruence. TRUE...

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18 Chapter - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Chapter 18 Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance True / False Questions 1. Responsibility accounting refers to the various concepts and tools used to measure the performance of people and departments in order to foster goal or behavioral congruence. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 1 2. Goal congruence results when the managers of subunits throughout an organization have incentives to perform in the common interest. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management Difficulty: Medium Learning Objective: 1 3. The fundamental purpose of a responsibility accounting system is to help an organization reap the benefits of decentralization while minimizing the costs. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 2 18-1 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 4. The manager of an investment center is held accountable for the subunit's profits and the invested capital used by the subunit to generate its profit. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 3 5. A responsibility center is a subunit in an organization whose manager is held accountable for specified financial and non-financial results of the subunit's activities. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 3 6. A cost center is an organizational subunit whose manager is held accountable for costs, but the subunit's input-output relationship is not well specified. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 3 7. The check processing department in a bank might be called a cost center. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 3 18-2 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 8. An airline's reservation department is an example of a profit center. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Easy Learning Objective: 3 9. A company-owned hotel in a hotel chain is an investment center. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 3 10. The primary goals of any profit-making enterprise include maximizing its profitability and using its invested capital as effectively as possible. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 4 11. Under activity-based responsibility accounting management's attention is directed not only to the cost incurred in an activity, but also to the activity itself. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 18-3 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 12. A performance report shows the budgeted and actual amounts of key financial results appropriate for the type of responsibility center involved. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 13. The proper focus of a responsibility accounting system is an emphasis on blame. FALSE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 4 14. In evaluating the investment center manager's performance, only revenues and costs that the manager can control or significantly influence should be included in the profit measure. TRUE AACSB: Analytic; Reflective Thinking; Ethics AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 15. The economic value added (EVA) of an investment center is its after-tax operating income minus the center's total assets (net of its current liabilities) times the company's ROI. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 18-4 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 16. Residual income is the amount of an investment center's profit that remains after subtracting an imputed interest charge. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 17. Residual income should not be used to compare the performance of different sized investment centers. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 18. The incentives of an investment center manager are not affected by the tendency for net book value to produce a misleading increase in return on investment over time. FALSE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 19. For purposes of measuring invested capital, centrally controlled assets are allocated to the investment centers. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 18-5 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 20. The myopia of a single-period measure such as return on investment is avoided by evaluating periodic profit through flexible budgeting and variance analysis coupled with a postaudit of major investment decisions. TRUE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 21. When computing ROI, it is may be appropriate to use average total assets as the denominator. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 22. The primary purpose of Responsibility Accounting is to access blame for suboptimal results. FALSE AACSB: Analytic; Ethics AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 2 23. In order to properly calculate the Residual Income for an investment center, it is necessary to know the imputed interest rate. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 18-6 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 24. When computing Residual Income, it is not correct to eliminate non-productive assets in the calculation. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 25. Because the accounting department provides information necessary to improve profitability, it is an example of a profit center. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 26. A department that has responsibility for both sales and expense is an example of a cost center. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 27. All other things remaining equal, increasing the imputed interest will increase residual income. FALSE AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 7 18-7 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Multiple Choice Questions 28. Bollwerk Company's records for Department Q provided the following information for last year: What is the return on investment if the division manager only utilizes the productive assets? a. 13.00% b. 12.00% C. 8.00% d. 6.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 Use the following to answer questions 29-30: McGowan Inc. has two divisions that operate as investment centers. The data for each follows: 18-8 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 29. What is the return on investment for the Trim Line Division? a. 45.90% B. 22.00% c. 12.00% d. 7.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 30. What is the capital turnover for the Regular Division? a. 1.35 B. 5.00 c. 6.20 d. 6.60 AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 31. Which of the following actions will not increase the return on investment? a. Increase sales b. Decrease invested capital C. Increase long-term liabilities d. Decrease costs AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 18-9 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 32. The Cherry Division of the Jolly Fruit Candies had profits of $618,000 last year while the Pineapple Division had $176,000. Using this information, which division had the better return on investment. a. Jolly Fruit Candies b. Cherry Division c. Pineapple Division D. Insufficient information provided AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 5 Use the following to answer questions 33-35: The records of the Barnholtz Division of Silberman Corporation showed the following for last year: 33. What is the sales margin for the Barnholtz Division? A. 6.00% b. 12.00% c. 15.00% d. 25.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 18-10 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 34. What is the capital turnover for the Barnholtz Division? A. 2.50 b. 6.00 c. 12.00 d. 15.00 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 35. What is the return on investment for the Barnholtz Division? a. 6.00% b. 12.00% C. 15.00% d. 25.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 36. The _______ is more likely to promote goal congruence when used as a performance measure. a. Inventory turnover b. Marginal income C. Residual income d. Return on investment AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 18-11 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Use the following to answer questions 37-38: Daniels Co. uses long-term debt and equity capital as primary sources of funds. The long-term debt has a market value and book value of $8.5 million and was issued at a 9 percent interest rate. The equity capital has a book value of $3 million and a market value of $7.5 million. Daniels has 3 major centers located around the country with the following operating income, total assets and current liabilities: The cost of equity capital is 12 percent, with a 40 percent tax rate. 37. What is the EVA for the Midwest Division? a. $213,740 B. $143,300 c. $75,460 d. $487,240 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 8 38. What is the EVA for the West Division? a. $213,740 b. $143,300 C. $(43,450) d. $487,240 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 8 18-12 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 39. Activity-based responsibility accounting attempts to a. Improve the efficiency of necessary activities b. Identify and eliminate activities deemed unnecessary c. Add new activities that will increase value D. Do all of the above AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 Use the following to answer questions 40-43: Belsky Bay Inc. has two divisions. The company, in trying to develop performance measures has noted that different accounting methods and inflation rates exist for the assets of the divisions. Because of the difference, the company is considering the use of multiple performance measures. The following information for the divisions for last year is below: The company's required rate of return is 12 percent. 40. What are Division A and B's ROIs based on net book values, respectively (round to two decimals)? A. 64.65%; 23.23% b. 48.55%; 41.74% c. 41.74%; 46.38% d. 23.65%; 65.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 18-13 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 41. What are Division A and B's ROIs based on gross book values, respectively (round to two decimals)? a. 64.65%; 23.23% B. 48.55%; 41.74% c. 41.74%; 48.55% d. 23.65%; 65.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 42. What are Division A and B's residual income, based on gross book values, respectively? a. $85,500; $126,100 B. $126,100; $85,500 c. $55,600; $130,300 d. $130,300; $55,600 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 43. What are Division A and B's residual income, based on net book values, respectively? a. $85,500; $126,100 b. $126,100; $85,500 c. $55,600; $130,300 D. $130,300; $55,600 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 18-14 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 44. Which of the following must occur before one can calculate the return on investment ratios for the subunits of an organization? a. All investment costs must be collected and divided according to the number of subunits in the organization b. The total revenues must be allocated according to the number of subunits that will be calculating a return on investment c. The total costs of the organization must be allocated evenly to all subunits of the organization D. The corporate assets must be allocated appropriately to each responsibility subunit of the organization AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 45. Where there is a lack of good performance measures, it is difficult to motivate managers by using A. Performance-based incentives b. Monetary rewards c. Compensation d. Rewards for products AACSB: Analytic; Reflective Thinking; Ethics AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 46. Which of the following is a true statement regarding performance evaluation? A. Managers should be evaluated on those things over which they have influence b. Managers should be evaluated on the performance of the entire organization c. Sales personnel do not have complete control over the level of sales d. Managers should not be evaluated on those things over which they have influence, if they do not have complete control over them AACSB: Analytic; Reflective Thinking: Ethics AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 18-15 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 47. A cost center is a subunit a. In which managers are evaluated on their ability to generate revenues B. In which managers are evaluated on their ability to keep costs and expenses on budget c. In which managers are evaluated on their ability to generate profits d. Both A and B AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 48. ____________ is the delegation of decision-making authority to lower management levels within the organization. a. Transfer pricing b. Centralization C. Decentralization d. Goal congruence AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 2 18-16 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 49. The following is a summarized income statement for Royal Manor Co.'s profit center 12608 for April Which of the following amounts is most likely subject to the control of the profit center's manager? A. Contribution Margin of $175,000 b. Contribution Margin of $175,000 and Period Expenses of $11,000 c. Contribution Margin of $175,000 and Period Expenses of $13,000 d. Contribution Margin of $175,000 and Period Expenses of $21,000 AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 3 50. Which of the following departments would not be a cost center? a. County fire department B. University book store c. University power plant d. City building and grounds department AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 18-17 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 51. If the capital turnover increases by 20 percent and the sales margin decreases by the same percentage, the return on investment will a. Increase by 20 percent B. Decrease by 4 percent c. Increase by 4 percent d. Stay the same AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 6 52. In order to improve the return on investment, which of the following changes should be made? a. Decrease sales revenue and expenses by the same percentage b. Decrease sales revenue and expenses by the same dollar amount C. Increase sales revenue and expenses by the same percentage d. Increase sales dollars by the same amount as expenses AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 53. One possible disadvantage that arises in a decentralized organization is that a. Divisional managers are not specialists b. Divisional managers have less motivation C. Divisional managers suboptimize in their decision making in that they make decisions that benefit themselves d. All of the above are disadvantages AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 2 18-18 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 54. Which of the following would not change the return on investment? a. Decreasing sales revenue and expenses by the same percentage B. Decreasing sales revenue and expenses by the same dollar amount c. Increasing sales dollars and total assets by the same amount d. Increasing sales revenue and expenses by the same percentage AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 55. Revenue center and profit center managers are both responsible for meeting a. Budgeted income b. Budgeted costs C. Budgeted revenues d. Minimum return on investment as established by the company as a whole AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 56. Which of the following subunits is most likely to be considered an investment center? a. Accounting department b. Assembly department C. Petrochemical division d. Research and development department AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 18-19 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 57. Which of the following is considered a disadvantage of return on investment (ROI)? a. ROI encourages managers to look carefully at relationships between sales b. revenues, expenses, and investment c. ROI encourages cost efficiency D. ROI discourages managers of subunits with high ROIs to invest in projects with low ROIs that are acceptable to the organization as a whole e. ROI discourages excessive investment in operating assets AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 58. Which of the following subunits would most likely be considered a only cost center? a. Jewelry department b. Parts department C. Legal department d. Electronics department AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 3 59. If the sales margin of .4 percent remained unchanged and the capital turnover of 4.0 increased by 15 percent, the return on investment would a. Increase by 10 percent b. Decrease by 15 percent C. Increase by 15 percent d. Stay the same AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 6 18-20 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 60. Which of the following is considered a disadvantage of using residual income? a. Residual income is an absolute measure of return b. Residual income is difficult to calculate c. Residual income does nothing to discourage the myopic behavior of managers D. Both A and C are disadvantages AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 Use the following to answer questions 61-66: Chocolate Enterprise is a multi-division company. The current ROI for Chocolate Enterprise as a whole is 11%, and Chocolate Enterprise has a minimum required rate of return on all investments of 10%. The most successful division within Chocolate Enterprise is the Boxed Candy division. Currently the boxed candy division has total assets of $2,000,000 with operating income of $400,000. The manger of the Boxed Candy division is considering the purchase of a small company called Truffles Inc. The purchase of Truffles Inc. will require an investment of $800,000 and with the synergy between the two companies will increase the Boxed Candy Division operating income by $76,000. Bonuses in all the Chocolate Enterprise Divisions are awarded to mangers with increasing ROI's. 61. The ROI for the Boxed Candy Division, before the proposed purchase of Truffles Inc. is: a. 11.00% b. 13.00% c. 17.00% D. 20.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 5 18-21 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 62. The ROI for the Boxed Candy Division, after the purchase of Truffles Inc. would be: a. 11.00% b. 13.00% C. 17.00% d. 20.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 5 63. The Residual Income for the Boxed Candy Division, before the purchase of Truffles Inc. would be: A. $200,000 b. $204,000 c. $400,000 d. $504,000 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 8 64. The Residual Income for the Boxed Candy Division, after the purchase of Truffles Inc. would be: A. $196,000 b. $200,000 c. $224,000 d. $504,000 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 8 18-22 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 65. If the Boxed Candy Division purchases Truffle, Inc., and income increases as expected, what will happen to the ROI of Chocolate Enterprise? A. It will go down b. It will stay the same c. It will go up d. Cannot be determined from the information given AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 66. Given the current bonus structure within Chocolate Enterprise and assuming the managing of the Boxed Candy Division is a self maximizing individual, you would expect the Boxed Candy Division to: a. Purchase Truffles, Inc. with the current bonus structure B. Not purchase Truffles, Inc. with the current bonus structure c. Purchase Truffles, Inc. if bonuses are based upon increasing Residual Income d. Not purchase Truffles Inc. if bonuses are based upon increasing EVA AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 8 67. The Gold Division of the Currency Company has net income in the amount of $500,000, an average total asset base of $3,000,000 and residual income of $50,000. The imputed interest would be a. 20% B. 15% c. 10% d. 5% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 18-23 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Use the following to answer questions 68 & 69: The Mercury Division of Planet Enterprises had pre-tax income of $1,500,000. Total assets were $13,000,000 while current liabilities were $3,000,000. The weighted average cost of capital is 10.0%. The tax rate for Planet Enterprises is 25% 68. What is the EVA for the Mercury Division? a. ($125,000) B. $125,000 c. $500,000 d. $750,000 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 69. What is the ROI for the Mercury Division? a. 6.72% b. 10.00% C. 11.54% d. 15.00% AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 18-24 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Which Performance 70. of the following is not a benefit of decentralization? a. Allowing managers some autonomy in decision making provides managerial training for future higher-level managers B. In a decentralized organization some tasks or services may be duplicated unnecessarily c. Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others d. Managers of the organization's subunits are specialists, thereby enabling them to manage their departments most effectively AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 1 71. Which of the following is not a cost of decentralization? a. Managers in a decentralized organization might have a narrow focus on their own unit's performance rather than the attainment of their organization's overall goals b. Managers might have a tendency to ignore the consequences of their actions on the organization's other subunits C. Delegating decision making to the lowest level possible enables an organization to respond in a timely way to opportunities and problems d. Both A and B AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 2 72. Which of the following is considered a responsibility center? a. Investment center b. Discretionary cost center c. Revenue center D. All are responsibility centers AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Easy Learning Objective: 3 18-25 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 73. Use of activity-based responsibility accounting leads to which of the following questions about the activity? a. Is the activity necessary? b. Can the activity be improved? c. Does the activity add value to the organization's product or service? D. All are possible questions AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement Difficulty: Medium Learning Objective: 4 74. Which of the following is not used to evaluate investment center performance? a. Return on investment B. Cash c. Residual income d. Economic value added AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 75. Which of the following is not a possible measure of divisional invested capital? a. Total assets B. Stockholders' equity c. Total assets less current liabilities d. Total productive assets AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 8 18-26 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 76. Last year Buchanan Company's divisional operating income was $400,000. The investment for the year was $5,000,000. What is the return on investment? a. 7.750% B. 8.000% c. 12.500% d. 12.500 AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Easy Learning Objective: 5 18-27 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance Essay Questions 77. There are five common types of responsibility centers listed below. Briefly describe each and give an example. Cost Center Discretionary Cost Center Revenue Center Profit Center Investment Center Answer: (a) Cost center: an organizational subunit whose manager is responsible for the cost of an activity for which a well-defined relationship exists between inputs and outputs. Production department in a manufacturing firm; check processing department in a bank; laundry, laboratory, food service department in a hospital. (b) Discretionary cost center: an organizational subunit whose manager is held accountable for costs, but the subunit's input-output relationship is not well specified. Administrative and marketing departments such as legal, accounting, research and development, advertising. (c) Revenue center: an organizational subunit whose manager is held accountable for the revenue attributed to the subunit. Reservations department of an airline; sales department of a manufacturer. (d) Profit center: an organizational subunit whose manager is held accountable for profit both revenues and expenses attributed to the subunit. Company-owned restaurant in a fastfood chain. (e) Investment center: an organizational subunit whose manager is held accountable for the subunit's profit and the invested capital used by the subunit to generate its profit. Divisions of a large corporation. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 3 18-28 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 78. What is meant by the hierarchy of performance reports? Answer: The hierarchy of performance reports starts at the lowest level of responsibility and builds towards the top. Each manager receives the performance report for his or her own subunit in addition to the performance reports for the major subunits for the major subunits in the next lower level that he or she manages. As the reports are prepared, the total cost line, for example, from the cost center is included as one line in the performance report of the production department along with total costs for the production departments other work centers. The production department's total cost is included as a single line item in the report for the next level up, and so on. As one moves up the organization chart, the reports get more and more aggregated; as one moves down, they get more disaggregated. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 79. Briefly discuss the possible measures that can be used for divisional invested capital. Answer: Total assets: this is appropriate as long as the division manager has considerable authority in making decisions about all of the division's assets, including nonproductive assets. Total productive assets: this is appropriate when the division manager has no authority regarding nonproductive assets even though they may appear in the report. Total assets less current liabilities: this would be appropriate in situations where division managers are allowed to secure short-term bank loans and other short-term credit. This approach encourages investment-center managers to maximize resources tied up in assets and maximize the use of short-term credit to finance operations. Difficulty: Medium Learning Objective: 8 18-29 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 80. Briefly describe the advantages and disadvantages of using net book value as a measure of invested capital. Answer: Advantages (a) Net book value is consistent with the balance sheet prepared for external reporting purposes thus allowing for more meaningful comparisons of return on investment measures across different companies. (b) Net book value is more consistent with the definition of income in the ROI numerator since in the calculation of income, the current period's depreciation on long-lived assets is deducted as an expense. Disadvantages (a) The usual methods of computing depreciation are arbitrary and should not affect ROI, residual income or EVA calculations. (b) When long-lived assets are depreciated, their net book value declines over time which will show a misleading increase in ROI, residual income and EVA over time. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 18-30 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 81. Eiffel Inc. has two divisions it treats as investment centers. The results for last year were as follows: Required: Compute the following amounts for each division: 1) Return on investment, desired rate of return is 11% 2) Residual income, desired rate of return is 18% 3) Capital turnover, desired rate of return is 25% 4) Sales margin, desired rate of return is 10% Answer: (1) Division A ROI = $23,400/$117,000 = 20% Division B ROI = $72,900/$243,000 = 30% (2) Division A RI = $23,400 - .18($117,000) = $23,400 - $21,060 = $2,340 Division B RI = $72,900 - .18($243,000) = $72,900 - $43,740 = $29,160 (3) Division A capital turnover = $234,000/$117,000 = 2 Division B capital turnover = $486,000/$243,000 = 2 (4) Division A sales margin = $23,400/$234,000 = 10% Division B sales margin = $72,900/$486,000 = 15% AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 18-31 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 82. You are given partial information for three investment centers of Carter Co. Find the missing information. Answer: (a) Income = .12($200,000)=$24,000 (b) ROI = $24,000/120,000 = 20% (c) Capital turnover = $200,000/$120,000 = 1.67 (d) Invested capital = $42,750/.15 = $285,000 (e) Sales margin = $42,750/$300,000 = 14.25% (f) Capital turnover = $300,000/$285,000 = 1.0526 (g) Sales = $400,000/.15=$2,666,667 (h) Invested capital = $400,000/.20=$2,000,000 (i) Capital turnover - $2,666,667/$2,000,000 = 1.333 AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 18-32 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 83. Engels, Inc. has the following data available for two of its divisions for last year: The imputed interest for Marx Inc. is 24%. The tax rate for Marx Inc. is 18%. Required: (1) Compute the following for each division (a) Sales margin (b) Capital turnover (c) ROI (d) Residual income (e) EVA, (Assume there are no current liabilities) (2) Briefly discuss which division appears most successful and why? Answer: (1) (a) Asian Sales margin = $92,000/$460,000 = 20% European Sales margin = $90,000/$900,000 = 10% (b) Asian Capital turnover = $460,000/$368,000 = 1.25 European Capital turnover = $900,000/$750,000 = 1.20 (c) Asian ROI = $92,000/$368,000 = 25% European ROI = $90,000/$750,000 = 12% (d) Asian Residual income = $92,000-.24(368,000)=$3,680 European Residual income = $90,000-.24(750,000)=($90,000) (e) Asian EVA = $92,000(1-.18)-.14(368,000-0)=$23,920 European EVA = $90,000(1-.18)-.14(750,000-0)=($31,200) (2) The Asian Division has exceeded the target ROI, has a positive residual income and a higher EVA. Using these single point estimates, Asian Division appears to be the better division. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 5 18-33 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 84. What are advantages and disadvantages of ROI and residual income as performance measures? Answer: ROI does not facilitate goal congruence while residual income does since investment decisions are compared to the firm's minimum desired rate of return on invested capital (a part of the residual income calculation) as opposed to the division's ROI. Residual income should not be used when comparing investment centers of different sizes because there is a bias in favor of the larger investment center. ROI, because it uses percentages rather than absolute amounts does not have this problem. ROI does not consider the firm's cost of raising investment capital while residual income does through the minimum desired rate of return on invested capital. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 85. Briefly describe EVA. Answer: EVA is a more recent measure of investment center performance. It is a dollar amount like residual income but differs in two ways. First, the investment center's current liabilities are subtracted from its total assets. Second, a weighted average cost of capital (WACC) is used in the calculation rather than a minimum desired rate of return on invested capital. The WACC considers both the cost of debt and the cost of equity capital. EVA analysis shows how much shareholder wealth is being created by each investment center. Since a company usually wants to have this performance measure showing improvement to keep shareholders happy, EVA becomes an important calculation. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 7 18-34 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 86. Discuss the problems involved in measuring investment center income for evaluating the performance of the investment center and evaluating the center's manager. Answer: In the measurement of investment center income a key issue is controllability, which becomes a subjective matter. When evaluating the center one might use profit margin traceable to the division which is basically sales revenue less [(unit-level, batch-level, product-line-level, and customer-level expenses) plus general and facility-level expenses controllable by the division manager plus general and facility-level expenses traceable to the division but controllable by others)]. When evaluating the manager the calculation stops before the last item in the formula above and one looks at the profit margin controllable by the division manager. This is done to provide incentives for goal congruent behavior and emphasizes the concept that managers don't like to be evaluated on, or to make decisions about, costs they cannot control. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 8 18-35 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 87. Traffic Services Company has recently expanded by acquiring two smaller companies in the transportation industry. Prior to these acquisitions, Traffic Services used a centralized style of organization because it was small enough that the top management team was heavily involved in the day-to-day activities of the firm. Ms. Causeway, the CEO, feels that this style is no longer suitable to the larger, more diverse organization. She has hired a consultant to help her and her management team create a new structure which, when developed on paper, will be described to the affected employees and their inputs will be sought. Since no one in the company knows much about management styles, Ms. Causeway felt this would be an efficient way to get the ball rolling but realized the consultants would not have the specialized knowledge about her company plus the two acquisitions. One of the first things she feels she will need to do is explain the benefits of decentralization that will accrue to both the company and the affected employees. She asks you, as the consultant, to provide her with a general list of advantages of decentralization that she will tailor to her company before presenting it. Answer: (a) Managers of the organization's subunits are specialists. They have specialized information that enables them to manage their departments most effectively. (b) Allowing managers some autonomy in decision making provides managerial training for future higher-level managers. (c) Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others. (d) Delegating some decisions to lower-level managers provides time-relief to upper-level managers, enabling them to devote time to strategic planning. (e) Empowering employees to make decisions draws on the knowledge and expertise of those closest to day-to-day operations. (f) Delegating decision-making to the lowest level possible enables an organization to give a timely response to opportunities and problems as they arise. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 2 18-36 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 88. Ladue, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Trevino, has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions. Coupled with this are very high ROIs, especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets. She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem. Required: 1) What are the potential negative effects of decentralization? 2) Specifically discuss the issues involved in suboptimization. Answer: (1) (a) Managers in a decentralized organization sometimes have a narrow focus on their unit's performance, rather than the attainment of their organization's overall goals. (b) As a result of this narrow focus, managers may tend to ignore the consequences of their actions on the organization's other subunits. (c) In a decentralized organization, some tasks or services may be duplicated unnecessarily. (2) The divisions with the high ROI and low replacements of fixed assets are comparing the returns on potential replacements to their own high ROI and rejecting the replacements because they do not meet this number. Their fear is that these replacements would reduce their ROI, a valid concern because the invested capital component of the ROI formula would increase. The suboptimization occurs if these replacements meet the company's minimum desired rate of return on invested capital; it would have been to the overall benefit of the company to acquire the assets. This is the type of issue addressed by residual income. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 2 18-37 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 89. Mr. Chang is the production V.P. of Katrina Company. It is the beginning of the month and he storms into the controllers department, clutching a large folder of reports. "Why am I getting so many reports? I don't need them nor do I want all the details. I've delegated responsibility to my managers so I don't have to worry about details. You've got to do something about this, Juan." Juan, the controller, starts to think about the problem that seems to have come about as the company decentralized with many layers of responsibility. He has a vague memory of something he learned from his old cost accounting class and has called you, his former professor, for some advice or suggestions in order to reduce the paper flow. Required: Briefly describe the concept of the hierarchy of performance reports. Answer: The hierarchy of performance reports starts at the lowest level of responsibility and builds towards the top. Each manager receives the performance report for his or her own subunit in addition to the performance reports for the major subunits in the next lower level that he or she manages. As the reports are prepared, the total cost line, for example, from the cost center is included as one line in the performance report of the production department along with total costs for the production departments other work centers. The production department's total cost is included as a single line item in the report for the next level up, and so on. As one moves up the organization chart, the reports get more and more aggregated; as one moves down, they get more disaggregated. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 4 18-38 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 90. Ricardo, Inc. is just starting up. The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees. Mr. Pangea, the CEO, is unsure about the best way to evaluate his division managers. He has heard the terms return on investment, residual income, economic value added, and flexible budgets but wants to know the pros and cons of each. Required: Briefly describe ROI, residual income, EVA and other approaches to performance evaluation. Bring in, where appropriate, how to calculate the measure and problem areas in the development of some of the numbers. Answer: Formulas: ROI = divisional income/divisional invested capital = (divisional income/divisional sales revenue) times (divisional sales revenue/divisional invested capital) Residual income = divisional income - (divisional invested capital x imputed interest rate) where the imputed interest rate is the minimum desired rate of return on invested capital. EVA = divisional after-tax operating income -(divisional total assets - divisional current liabilities)(WACC) All three approaches use invested capital and divisional profit. Invested capital may be calculated using total assetsor total productive assets (which are total assets less current liabilities) A second issue relates to the method of measuring the invested capital: gross book value or net book value. One might say that net book value has some advantages because it is the approach used on the balance sheet and the income statement but it uses depreciation methods that are somewhat arbitrary and as time passes the ROI can increase just because the net book value of the assets declines. Common centrally controlled assets need to be allocated to the investment centers, e.g. cash, accounts receivable. Divisional income is measured using the concept of controllability; deciding which items are controlled by the division manager may not be clear cut. Alternative approaches include flexible budgets, variance analysis and postaudits of major investment decisions. While these are more complicated approaches, they help avoid the myopic problems of the single-period measures such as ROI, RI, and EVA AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Hard Learning Objective: 4 18-39 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 91. Mrs. Young is the manager of the Children's Toy division of Ferguson Corporation. Every year she just misses the cut off established by the company for the awarding of bonuses. She is concerned inasmuch as she believes she is running her division effectively and her income has been increasing slowly but steadily over the years she has been with the company. She knows that the company uses ROI as the performance measure to evaluate divisions and begins to study the formula to see what she should do to improve the ROI for her division. Required: Briefly discuss several ways to improve ROI. Answer: ROI = income/invested capital = (income/sales revenue) x (sales revenue/invested capital) = sales margin x capital turnover Looking at the formula shows that there are two components that might be looked at for improving the end result, capital turnover and sales margin. If the capital turnover is held constant, the sales margin can be improved either by decreasing unit sales by increasing the selling price (the idea being to hold the total sales revenue constant or increase it a bit) or decreasing costs. The first approach would work to decrease total variable costs related to units sold because fewer units would be involved which would raise the income. The problem here would be that raising the selling price might actually lead to lower total sales revenue because the company would lose more sales than it wanted. Decreasing costs while holding everything else constant would work to increase income. Depending on which costs were decreased, the company might lose sales due to poor quality products or less customer service. If the sales margin is held constant, the capital turnover can be improved by either increasing sales revenue or reducing the division's invested capital. Invested capital can by reduced in the short-run by reducing inventories. The idea of reducing inventories ties in with JIT but there could be problems if the reductions lead to stockouts and lost sales. Sales revenue can be increased by using the store space more effectively, e.g. pack more displays into the existing space. This could turn customers away because the overall store atmosphere has deteriorated; customers may become unhappy with the more crowded layout. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 6 18-40 Chapter 18 - Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance 92. Decentralization is lauded as important to good management. But it is not without its problems. What are the advantages and disadvantages of decentralization? How do ROI, Residual Income and EVA affect these issues? Answer: Advantages include When individuals are given decision-making opportunities and autonomy, they take ownership of their decisions, hopefully, leading to better decision. When decision-makings is delegated to the lowest possible level in the organization, individuals can react quickly to opportunities and threats and take advantage of their expertise. Giving the individual with the most knowledge and specialization in an area, often individuals at low level of power, more decision making authority should lead to better decisions and greater levels of motivation. Allowing individuals to make decisions and manage autonomously will provide training for the future. When people are given ownership of their decisions they make better decisions and devote the highest and best level of managerial effort. Allowing lower level managers to make decisions frees up time from upper management to devote to strategic decisions. Disadvantages A lack of goal congruence can result from decentralization. If individuals are making decisions in their own best interest, they may not be making them in the overall company best interest. Decentralization may mean the duplication of decision making - which can result in an inefficient use of resource and a lack of consistency in decision making Individuals making decisions at lower level might have a narrow focus and be unable to see the "big picture." ROI, Residual Income and EVA can be used as management evaluation tools. Bonuses and rewards are often based upon maintaining or increasing ROI, Residual Income and EVA. Their use can enhance a focus on the individual department, but may further enhance the problems of decentralization. Their use allows managers to focus on profit, but not a balance score card Their use allows comparisons among managers and subunits with different levels of resources Their use can encourage investment or inhibit investment if used improperly When the overall company ROI, Residual Income and EVA are used as well as those of the individual department, some decentralization problems are reduced. AACSB: Analytic; Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Reporting Difficulty: Medium Learning Objective: 2 Learning Objective: 7 Learning Objective: 8 18-41

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Faculty of English Commerce Ain Shams University - ACCOUNTING - 102
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Chapter 20 - Performance Measurement SystemsChapter 20Performance Measurement SystemsTrue / False Questions1. Leading indicators are measures that identify future financial and non-financial outcomesas guides to management decision making.TRUEAACSB
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Chapter 1: IntroductionMultiple Choice Questions1. Historians of economic thought often describe _ written by _ andpublished in _ as the first real exposition of an economic model.A."Of the Balance of Trade, David Hume, 1776B."Wealth of Nations," D
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Faculty of English Commerce Ain Shams University - ECONOMICS - 120
Chapter 5: The Standard Trade Model1. The concept terms of trade meansA.the amount of exports sold by a country.B.the price conditions bargained for in international markets.C.the price of a country's exports divided by the price of its imports.D.
Faculty of English Commerce Ain Shams University - ECONOMICS - 120
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Chapter 7: International Factor MovementsMultiple Choice Questions1.Which of the following differs in its essential analytical framework?A.International trade in goodsB.International conflict resolutionC.International trade in servicesD.Interna
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Faculty of English Commerce Ain Shams University - ECONOMICS - 120
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Chapter 21: The Global Capital Market: Performance and Policy ProblemsMultiple Choice Questions1. What are three things to measure for in evaluating the performance of the capitalmarkets?A.Level of Intertemporal Trade, International Trade, Portfolio
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Chapter 22 Developing Countries: Growth, Crisis, and Reform Multiple Choice Questions 1. The worlds economies can be divided into four main categories according to their annual per-capita income levels: low-income, lower middle-income, upper middle- incom
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UCLA - MATH - 33a
UCLA - MATH - 33a
Math 33A, Section 3, Fall 2009Quiz #4 Solutions1.23= 2 6 3 4 = 12 12 = 0462.9 4= (9) 1 4 (2) = 9 + 8 = 12 13. There is only one non-zero pattern, and it has 3 inversions.0020 3 0 = 2 3 5 = 305004. We subtract 2 times row I from row II, and 3
Coppin - FIN - 655
YearB.C.D.ExpectedNetCashFlowsProjectA ProjectB0($300)($405)13871342193134310013446001345600134685013471800ProjectA ProjectBIRR=18.1%24.0%10% $283.34 $178.6017% $31.05 $75.95MIRR10% 14.07% 15.89%MIRR17% 17.57% 19.91%D
Sekolah Tinggi Akuntansi Negara - ECON - 101
UNDANG-UNDANG REPUBLIK INDONESIANOMOR 1 TAHUN 2004TENTANGPERBENDAHARAAN NEGARADENGAN RAHMAT TUHAN YANG MAHA ESAPRESIDEN REPUBLIK INDONESIA,Menimbang :bahwa penyelenggaraan pemerintahan negara untuk mewujudkantujuan bernegara menimbulkan hak dan ke
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 3Valuation ofshares andbondsOverview The purpose of this lecture is to introducemethods to valuing a company Specifically, we will discuss methods usedto value a firm: as an entire entity (Asset side), or by break
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 4Capitalbudgeting:basictechniquesOverview In this lecture we will: describe the process of capital budgeting calculate the merits of projects both individually and as alternatives compare and contrast the various
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 1PreliminaryconceptsOverview In this lecture we will discuss The corporate objective and corporate financialdecisions The nature of financial assets and capital markets The flow of funds through the economy The val
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 5Capitalbudgeting:further issuesOverviewCash flow estimation is themost important, and mostdifficult, procedure in capitalbudgeting In this lecture we will: Discuss issues associated with estimating cashflows whi
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 6Risk and returnOverview So far we have discussed the valuing ofassets with certain future cash flowsWhat if there is some element of riskattached to the future payoff? The investor would require a higher rate of ret
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 7Capital assetpricing modelOverview In this lecture we will: Introduce the capital asset pricing model (CAPM) Optimum portfolio selection Capital market line Security market line Estimation of company beta a measur
University of Sydney - FINC - 2011
PowerPoint to accompanyChapter 8Companycost ofcapitalOverview (cont) the company cost of capital isthe return required for the companya combination of the cost of debt and cost of equity The company cost of capital, with regard to:Calculation of