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Exam 15: Performance Evaluation

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Question 21

Multiple Choice

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The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{ll}\text { Revenues } & \$ 800,000 \\\text { Operating expenses } & \$ 656,000 \\\text { Operating income } & \$ 144,000 \\\text { Operating assets } & \text { \$ } 1,200,000\end{array}$ Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's return on investment is:

A) 11.25%.
B) 12%.
C) 66.7%.
D) 18%.

E) A) and B)
F) A) and C)

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Question 22

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Investment centers are often evaluated on the basis of return on investment.

A) True
B) False

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Question 23

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The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{ll}\text { Revenues } & \$ 481,000 \\\text { Operating expenses } & \$ 432,000 \\\text { Operating income } & \$ 49,000 \\\text { Operating assets } & \$ 590,000\end{array}$ Anton Company has set a target return on investment (ROI) of 10% for the Electronics Division. The Electronic Division's return on investment is:

Indicate whether each of the following statements is true or false.Return on investment often is used to evaluate cost centers within a company.Return on investment measures a manager's ability to maximize earnings above a target level.To calculate residual income, a company must first set a target or desired return on investment.Residual income is stated as a dollar amount.Suboptimization occurs when a departmental or division manager seeks maximize benefit for the company as a whole at the expense of his or her own best interest.

Management by exception means that only unfavorable cost variances are investigated.

The concept that says managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

Which of the following statements about residual income is true?

A favorable flexible budget materials variance may indicate that the price per unit of materials was lower than expected and that less material was used than expected or either of these.

Achieving the sales volume in the master budget is known as:

In responsibility accounting systems, managers are only held responsible for items over which they have absolute control.

An investment center of Lannigan Company reported operating income of $330,000 on total operating assets of $2,600,000 during the current year. The company has established a target ROI of 13% for the investment center. Last year, the investment center's ROI was 12.2%.Required:Calculate the return on investment for the investment center for the current year. Compare its performance with both the performance from the previous year and the target ROI.

The Vermont Company has requested a performance report that reports both sales activity variances and flexible budget variances. The following table of information is provided: Required:Compute and enter variances in columns 3 and 6. In column 3, enter the variance (difference) between column 2 and column 5; in column 4, label the variance as favorable (F) or unfavorable (U). In column 6, enter the variance between columns 5 and 8, and in column 7 indicate whether this variance is favorable or unfavorable.Which column contains sales volume variances and which column contains flexible budget variances?Comment on this company's performance.

Under all circumstances, unfavorable variances are bad; favorable variances are good.

Huang Company reported the following information for the current year: $\begin{array}{lr}\text { Sales } & \$ 400,000 \\\text { Average operating assets } & \$ 250,000\\\text { Margin }&10\%\end{array}$ The company's return on investment was: (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Which of the following income statement formats is most commonly used with flexible budgeting?

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually made and sold 13,000 units. What was the sales volume variance?

Perfect Products provided the following selected information about its consumer products division for the current year: $\begin{array}{llr} \text {Desired ROI } &14\%\\ \text {Net income } &\$220,000\\ \text { Residual income } &\$15,000\end{array}$ Required:Based on this information, calculate the company's investment amount. Round your answer to the nearest dollar.

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units and average selling price was $5.95. The sales volume variance was:

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units and average selling price was $6.12. The sales price variance was:

When the manager's evaluation is based on residual income, the manager should accept a project if the residual income is: