# Managerial Accounting Chapter 9 – Part 2 – Flashcards

## Unlock all answers in this set

question
In computing the margin in a ROI analysis, which of the following is used?
Sales in the denominator
question
The purpose of the data processing department of Falena Corporation is to assist the various departments of the corporation with their information needs free of charge. The Data Processing Department would be evaluated as:
Cost Center
question
All other things the same, which of the following would increase residual income?
Decrease in operating assets
question
Average operating assets are \$110,000 and net operating income is \$23,100. The company invests \$25,000 in new assets for a project that will increase next operating income by \$4,750. What will the return on investment (ROI) be for the new project?
ROI = NOI/Assets ROI = 4,750/25,000 = 19%
question
Last year a company had a stockholder's equity of \$160,000, net operating income of \$16,000 and sales of \$100,000. The turnover was 0.5. The return on invest (ROI) is:
ROI = Net profit margin x Turnover ROI = 0.16 x 0.5 = 8% Margin = NOI/Sales Margin = 16,000/100,000 = 16%
question
A company's current net operating income is \$16,800 and its average operating assets are \$80,000. The company's required rate of return is 18%. A new project being considered would require an investment of \$15,000 and would generate annual net operating income of \$3,000. What is the residual income of the new project?
RI = NOI (Desired/Minimum ROI x Assets Invested) RI = 3,000 - (18% x 15,000) = \$300
question
Aide Industries is a division of a major corporation. Data concerning the most recent years appears below: Sales = \$17,400,000 NOI = \$870,000 Average Operating Assets = \$4,000,000 What is the margin?
Margin = NOI/Sales Margin = 870,000 / 17,400,000 = 5%
question
Beal Industries is a division of a major corporation. Last year the division had total sales of \$20,160,000, net operating income of \$1,592,640, and average operating assets of \$8,000,000. What is the turnover?
Turnover = Sales/Assets Turnover = \$20,160,000/8,000,000 = 2.52
question
How many different responsibility centers exist?
3
question
Determine the October 2012 ROI for an investment center providing the following information: Assets at 9/30/12 \$20,000,000 Assets at 10/15/12 \$18,595,000 Assets at 10/31/12 \$22,000,000 Operating income for the month ended 10/31/12 \$5,678,395
ROI = NOI/Assets ROI = 5,678,395/20,000,000 = 28%
question
decision making is spread throughout the organization
Decentralization
question
an information system that classifies data according to areas of responsibility and reports each area's activity based on categories that the assigned manager controls
Responsibility Accounting
question
Used by organizations to assist in performance management and evaluation especially in a decentralized organization
Responsibility Accounting
question
Use for any part of an organization whose manager has control and is accountable for cost, profit, and investments
Responsibility Accounting
question
Cost, Profit, Investment
What are the three primary types of responsibility accounting?
question
Manager has control over cost, but not revenue or investments (i.g. accounting)
Cost Centers
question
standard costs
How are cost centers evaluated?
question
Manager has responsibility for control over both cost and revenue
Profit Centers
question
it is evaluated by comparing actual to budget
How are profit responsibility centers evaluated?
question
manager has control over cost, revenue, and investments
Investment Centers
question
evaluated using ROI and residual income
How are Investment centers evaluated?
question
What is an investment center responsible for?
earning an adequate return on investment or ROI
question
income before interest and taxes
Net operating income
question
The percentage of each sales dollar that resulted in profit
Margin
question
Measures the productivity of assets or the number of sales dollars generated by each dollar invested in assets
Turnover
question
Increase sales, or reduce operating expenses or operating assets
To increase ROI you must
question
another way to measure investment center's performance
Residual Income
question
Net operating income that an investment center earns above a minimum required rate of return on its operating assets
Residual Income
question
A variation of ____ is EVA (Economic Value Added)
residual income
question
the shareholder wealth created by an investment center
Economic Value Added (EVA)
question
Economic Activity (EVA)
EVA = (after tax operating income - cost of capital in dollars) or (after tax operating income) - cost of capital x (total assets - current liabilities)
question
time from the receipt of a customer order to when it is completed and shipped
Delivery Cycle Time
question
time required to turn raw materials into completed products
Throughout or Manufacturing Cycle Time
question
focus on eliminating non-value added activities
Manufacturing Cycle Efficiency
question
Who developed the balanced scorecard?
Robert Kaplan and David Norton
question
Set of performance measures designed to support the company's strategy (or how to achieve the organization's goals)
Balanced Scorecard
question
framework that links the perspectives of an organization four basic stakeholder groups with an organization's mission and vision ect.
Balanced Scorecard
question
Organizations must add value to all groups in ___ and ____ in order to succeed
long term and short term
question
financial (investors), learning and growth (employees), internal business processes, customers
What are the 4 balanced scorecard groups?
question
A major disadvantage of decentralization is that lower-level managers may _____
make decisions without fully understanding the big picture.
question
Under an ___ evaluation system, managers are encouraged to make investments that are profitable for the entire company, but that would be rejected when using the residual income approach
ROI
question
Average operating assets \$ 37,000 Sales 118,400 Contribution margin 20,800 Net operating income 6,512 The company's ROI is:
Return on investment = (Sales ÷ Average operating assets) Return on investment = \$6,512/\$37,000
question
Sales \$ 856,980 Average operating assets 372,600 Stockholders' equity 246,000 Net operating income 81,000 Residual income 45,000 The division's turnover for the past year was:
Turnover = Sales ÷ Average operating assets Turnover = \$856,980 ÷ \$372,600 = 2.30
question
A company reported the following results: Average operating assets \$ 380,000 Stockholders' equity \$ 58,000 Sales \$ 980,000 Net operating income \$ 83,000 Minimum required rate of return 16 % The company's residual income is:
Residual Income = NOI - (Minimum/Desired return x operating assets) Residual Income = 83,000 - (16% x \$38,000)
question
Sales \$ 300,000 Average operating assets 100,000 Stockholders' equity 60,000 Net operating income 27,000 Residual income 16,000 What was the company's minimum required rate of return for the past year?
Minimum required return = Net operating income - Residual income Minimum required return = \$27,000 - \$16,000 = \$11,000 Minimum required rate of return = Minimum required return ÷ Average operating assets Minimum required rate of return = \$11,000 ÷ \$100,000 = 11.00%
question
Wait time 15.7 days Inspection time 0.7 days Process time 3.7 days Move time 1.5 days Queue time 7.7 days The manufacturing cycle efficiency (MCE) would be: