Which statement is true regarding divisional performance? O If a division's return on investment is less than its margin, then the division's sales are greater than its average operating assets. O A reduction in selling and administrative expenses increases a division's margin but does not increase its return on investment if the division's turnover is less than one. O If a division's return on investment is greater than its margin, then the division's sales are less than its average operating assets. O An increase in labor costs will reduce a division's margin and its return on investment even if the division's vision turnover is less than one.

Which statement is true regarding divisional performance? O If a division's return on investment is less than its margin, then the division's sales are greater than its average operating assets. O A reduction in selling and administrative expenses increases a division's margin but does not increase its return on investment if the division's turnover is less than one. O If a division's return on investment is greater than its margin, then the division's sales are less than its average operating assets. O An increase in labor costs will reduce a division's margin and its return on investment even if the division's vision turnover is less than one.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 44MCQ: When a Dupont analysis reveals that a company has much higher than average asset turnover and much...

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A department’s profit is equal to a. the department's revenue less divisional variable costs. b. the department’s revenue less their share of corporate costs only. c. the department’s revenue less divisional variable costs and less investment costs. d. the department’s revenue less divisional variable and less their share of corporate costs.
Differentiate between a cost center, profit center, and investment center. What is the major shortcoming of using operating income as a performance measure for investment centers? Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment? In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income? Does the concept of decentralization--top managers allowing middle and lower-level managers to make decisions--have application to God's plan for us? In other words, does God make decisions for us or does he allow us to make decisions in our own lives? Is this good or bad? How does using the return on investment facilitate comparability between divisions of decentralized companies?
5. In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations? 6. How does using the return on investment facilitate comparability between divisions of decentralized companies?
Which of the following statements is true? Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is less than 12%. If a company contains a number of investment centers of differing sizes, return on investment (ROI) should be used rather than residual income to rank the financial performance of the divisions. ROI and residual income are tools used to evaluate managerial performance in investment centers.
The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager's performance measure? a. Increase in average operating assets. b. Decrease in average operating assets. c. Increase in minimum required return. d. Decrease in net operating income.
A. Compute divisional operating income for the two divisions. Ignore taxes. B-1. What are the gross margin and operating margin percentages for both divisions? B-2. How well have these division performed?
1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 12%. Compute the residual income for each division. 3. Is Yokohama's greater amount of residual income an indication that it is better managed?
If a division has negative net operating income, the company's profits might not increase even if the division is discontinued. O True O False
In a decentralized organization, Co. X, Division A is evaluated according to ROI, while Division B is evaluated according to residual income. Of Co.X, Div. A and Div.B, which is more likely to make an investment decision that will hurt Co. X's income? a. Co. X b. Division A d. All are equally likely to do this 9. c. Division B 10. Division A, an investment center, has operating income = $80,000 for the prior period. The residual income during this period is $20,000. If Division A’s investment assets = $300,000, then cost of capital set by the corporation's top management must be: a. 12%|c.20% b. 15% d. 25% 11. A division manager is considering investing in a new product. The division's income is currently $465,000 with operating assets of $8 million. The new product would increase income by $270,000 and would require an additional investment in equipment of $1.5 million. The ROI of the division before and after the investment is respectively: a. 5.8% and 7.7% c. 7.7% and 5.8% b. 11.6%…
Which of the following is not an objective or potential advantage of transfer pricing? A) A realistic measurement of performance of each division B) A reduction in goal congruence between divisions and overall company C) More autonomy and motivation for divisional managers D) The maximisation of company profits
3 Investment center analysis; ROI and residual income Romano Corporation has three operating divisions and requires a 12% return on all investments. Selected information is presented here: Division X Division Y Division Z Revenues $1,000,000 Operating income. Operating assets... Margin.... $ 120,000 $ 500,000 $100,000 $300,000 12% Turnover .. 1 turn 2 turns ROI..... Residual income . $25,000
Which of the following statements is true? Return on investment (ROI) equals margin multiplied by sales. When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets. An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.