Which one of the following individuals is most likely to be an investment centremanager?
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1 .Melton Co has many divisions which it evaluates using Return on Investment (ROI) andResidual Income (RI) measures. The Mowbray division has net assets of USD24 million at 30September 2014. In the year to 30 September 2014 it earned profit before interest and tax of USD3.6 million. The appropriate cost of capital for the Mowbray division is 12%.During the year to 30 September it paid interest of $0.6 million.What are the ROI and RI for the year to 30 September 2014?
A ROI 12.5%; RI USD0.12 million B ROI 12.5%; RI USD0.72 million C ROI 15%; RI USD0.72 million D ROI 15%; RI USD3 million
2 .Tom Hopkin is responsible for managing the volume, quality and cost of production withinhis responsibility centre.A new management accountant has suggested that the following performance measuresshould be included in assessing Tom’s performance:(1) Return on investment.(2) Materials usage variances.(3) Percentage of products that are defective after inspection.Which of the above performance measures would be appropriate for measuring Tom’sperformance?
A 1 and 2 only B 1 and 3 only C 2 and 3 only D All of the above
3 .The plastics division of Ladmar has just reported a divisional return on capital employed of30% for the last twelve months. The capital employed in the plastics division is $1,200,000.The company’s overall return on capital employed is 18%, and the overall cost of capital is14%. The plastics division’s cost of capital is 13%.What is the plastic division’s residual income?
A $144,000 B $192,000 C $204,000 D $360,000
4 .In relation to residual income, which of the following statements is correct?
A Residual income is calculated by adding back depreciation and deducting thenotional interest charge B Residual income eliminates the effect of accounting policies from the assessment ofperformance C Residual income assesses divisional income based on the book value of theinvestment which has been ...
5 .The Northern division of Gemas Co currently earns a return on investment of 15·5%, basedon capital employed of $2,680,000. The divisional management team have decided toimplement a project which will require an investment of $320,000. The project is expected togenerate a profit of $53,000 per annum. The Northern division’s cost of capital is 13%.What will be the residual income of the division after the project is implemented?
A $67,000 B $78,400 C $120,000 D $468,400
7 .Which of the following statements about the return on investment method ofperformance measurement are true?(1) It enables comparison of performance of divisions which are not of common size.(2) Managers’ decisions will be congruent with the goals of the organisation.(3) It does not take account of the risk of project investments being undertaken.(4) Managers will be encouraged to invest in projects with higher returns.
A 1, 2 and 3 only B 1, 2 and 4 only C 1, 3 and 4 only D 2, 3 and 4 only
8 .John is the manager of a branch of a fast food restaurant. He is responsible for purchasing,hiring staff and managing the staff rotas for each shift. He is also responsible for advertising.He cannot make investment decisions.Which of the following performance measures would be appropriate for assessingJohn’s performance?(1) Residual income(2) Customer satisfaction rankings(3) Contribution
A 2 only B 1 and 2 only C 1 and 3 only D 2 and 3 only
9 .Currently, each division of Wescon Co is required to generate a return on investment (ROI) ofat least 20%. The bonus paid to divisional managers increases in direct proportion to the ROIachieved by their division.The ROI of the Eastern division has been above 25% for several years.The head office management are considering replacing ROI with residual income (RI). Theimputed interest charge would be calculated using book values and an interest rate of 20%,with bonuses paid on any RI generated by the division.A project with a projected ROI of 21·5% is currently being considered.What decision will be made using RI and ROI?
A RI Reject;ROI Accept B RI Accept;ROI Reject C RI Accept;ROI Accept D RI Reject;ROI Reject
10 .Which one of the following types of information system is most likely to be used byoperational managers within an organisation?
A Decision support systems B Business intelligence systems C Transaction processing systems D Executive information systems
