A) Gives managers of profitable business units an incentive to reject projects that would benefit the organization as a whole.
B) It is not easily understood by managers.
C) Usually uses a blended rate of capital as the required rate of return.
D) Has a long-term (strategic) focus and therefore is not useful in terms of evaluating short-term performance.
E) Favors large units (investment centers) .
G) A) and C)
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A) Sales increased by the same dollar amount as expenses and total assets increased.
B) Sales remained the same and expenses were reduced by the same dollar amount that total assets increased.
C) Sales decreased by the same dollar amount that expenses increased.
D) Sales and expenses increased by the same percentage that total assets increased.
E) Net profit margin on sales increased by the same percentage that total assets increased.
G) A) and C)
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A) The rate of return on average shareholders' equity.
B) Only earnings as a percent of sales.
C) Both asset turnover (AT) and return on sales (ROS) .
D) Asset turnover (AT) and earnings as a percent of sales, correcting for the effects of differing depreciation methods.
E) Operating income less a charge for divisional investment (assets) .
G) A) and D)
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A) Historical accuracy.
B) Being a sound and relevant measure of the level of investment in a continuing business.
C) Objectivity.
D) Consistency with generally accepted accounting principles (GAAP) .
E) Avoiding the need for developing estimates of current cost.
G) None of the above
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A) When the average age of assets differs substantially across divisions of a business the use of ROI may not be appropriate.
B) ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation.
C) The use of ROI may lead manages to reject capital investment projects that can be justified using discounted cash flow (DCF) models.
D) The use of ROI can make it undesirable for a skillful manager to take on trouble-shooting assignments such as those involving turning around unprofitable divisions.
E) The use of ROI can lead managers to emphasize the ROI of his/her division over the profitability of the organization as a whole.
G) A) and E)
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A) When average age of assets differs substantially across segments of a business, the use of ROI may not be appropriate.
B) ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation.
C) The use of ROI may lead managers to reject capital investment projects that can be justified using discounted cash flow (DCF) decision models.
D) The use of ROI can make it undesirable for a skillful manager to take on trouble-shooting assignments such as those involving turning around unprofitable divisions.
E) The use of ROI can lead managers to emphasize the ROI of a division over the profitability of the parent organization.
G) None of the above
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A) Between $20 and $50.
B) Between $50 and $70.
C) Any amount less than $50.
D) $50 is the only acceptable price.
E) $20 is the only acceptable pricE.The minimum transfer price acceptable to the Fabricating Division = out-of-pocket cost + opportunity cost, in this case $20 . The maximum price the Assembly Division would be willing to pay would be the external market price, $50. Thus, the transfer price range would be between $20/unit and $50/unit.
G) A) and D)
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A) Return on investment (ROI) rate.
B) Imputed interest rate charge.
C) Cash flows, after taxes.
D) Cash flows in excess of a desired minimum amount.
E) Operating income in excess of an imputed charge for capital invested in the division.
G) All of the above
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A) Market price.
B) Variable cost.
C) Fixed cost.
D) Full cost.
E) Negotiated price.
G) B) and C)
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