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?
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1 .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 ...
2 .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
3 .Which one of the following individuals is most likely to be an investment centremanager?
A The sales manager B The maintenance department manager C A portfolio manager D The manager of a factory, who has the authority to buy new machinery
4 .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
5 .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
7 .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
8 .Anthony’s model defines three levels of management – Strategic, Tactical and Operational.Which of the following tasks would NOT normally be performed by tactical managers?
A Preparation of budgets for the next financial year B Making pricing decisions for the local market C Deciding to move into new markets D Planning how many staff to recruit each year
9 .What type of information systems monitor the elementary activities and transactions ofthe organisations?
A Management-level systems B Transactions processing systems C Knowledge-level systems D Strategic-level systems
10 .Projections and responses to queries are typically outputs from what type of system?
A Decision Support Systems B Management Information Systems C Executive information systems D Transactions processing systems
