Responsibility Accounting and Performance Measures Paper 6


To properly motivate divisional management, the divisional ROIs should be


Which one of the following items would most likely not be incorporated into the calculation of a divisionís investment base when using the residual income approach for performance measurement and evaluation.


The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as


The imputed interest rate used in the residual income approach for performance measurement and evaluation can best be characterized as the


James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is reviewing the following forecasted information for his division for next year:
Category ............Amount (thousands)
Working capital .....$ 1,800
Revenue .................30,000
Plant and equipment 17,200
If the imputed interest charge is 15% and Webb wants to achieve a residual income target of $2,000,000, what will costs have to be in order to achieve the target?


The basic objective of the residual income approach to performance measurement and evaluation is to have a division maximize its


After investing in a new project, a company discovered that its residual income remained unchanged. Which one of the following must be true about the new project?


When comparing the residual income of several investment centers, the validity of comparisons may be destroyed by


The following information relates to Cinder Co.ís Northeast Division:
Sales $600,000
Variable costs 360,000
Traceable fixed costs 60,000
Average invested capital 120,000
Imputed interest rate 8%
Cinderís residual income was


KHD Industries is a multidivisional firm that evaluates its managers based on the return on investment (ROI) earned by their divisions. The evaluation and compensation plans use a targeted ROI of 15% (equal to the cost of capital), and managers receive a bonus of 5% of basic compensation for every one-percentage point that the divisionís ROI exceeds 15%. David Evans, manager of the Consumer Products Division, has made a forecast of the divisionís operations and finances for next year that indicates the ROI would be 24%. In addition, new short-term programs were identified by the Consumer Products Division and evaluated by the finance staff as follows.
Program ..Projected ROI
A .........13%
B .........19%
C .........22%
D .........31%
Assuming no restrictions on expenditures, what is the optimal mix of new programs that would add value to KHD Industries?


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