Chapter 24: 20RQ (page 1324)
What is the biggest disadvantage of using ROI to evaluate investment centers?
The absence of consideration for a cash as a measure is one of the drawbacks of ROI.
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Classify each key performance indicator according to the balancedscorecard perspective it addresses. Choose from the following: financialperspective, customer perspective, internal business perspective, or learning andgrowth perspective.
9. Number of repeat customers
10. Employee turnover
11. Revenue growth
12. Number of on-time deliveries
13. Number of defects found during the manufacturing process
Question: What is the purpose of a responsibility accounting system?
Refer to the data in Exercise E24-17. Calculate each division’s RI. Interpret your results.
Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:
Net Sales Revenue Operating Income Average Total Assets
Residential \( 550,000 \) 65,280 $ 192,000
Professional 1,090,000 164,820 402,000
Management has a 26% target rate of return for each division.
Requirements
1. Calculate each division’s ROI. Round all of your answers to four decimal places.
2. Calculate each division’s profit margin ratio. Interpret your results.
3. Calculate each division’s asset turnover ratio. Interpret your results.
4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?
Well-designed performance evaluation systems accomplish many goals. Consider the following actions, and state which goal is being achieved by the action:
a. Comparing targets to actual results
b. Providing subunit managers with performance targets
c. Comparing actual results with industry standards
d. Providing bonuses to subunit managers who achieve performance targets
e. Aligning subunit performance targets with company strategy
f. Comparing actual results of competitors
g. Taking corrective actions
h. Using the adage “you get what you measure” when designing the performance evaluation system
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