Chapter 24: Q24-11RQ (page 1355)
Explain the difference between a lag indicator and a lead indicator.
Answer
A lag indicator measures past performance while a lead indicator forecasts future performance.
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What is a responsibility center?
XTreme Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and inline skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and Non-snow Sports. The following divisional information is available for the past year:
Net Sales Revenue | Operating Income | Average Total Assets | ROI | |
Snow Sports | \(5,500,000 | \)990,000 | $4,100,000 | 24.1% |
Non-snow Sports | 8,500,000 | 1,530,000 | 6,100,000 | 25.1% |
XTreme’s management has specified a 13% target rate of return. Calculate each division’s profit margin ratio.
Interpret your results.
What are the goals of a performance evaluation system?
List the disadvantages of decentralization.
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?
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