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38 Cards in this Set
- Front
- Back
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True or False: In strongly decentralized organizations, even the lowest-level managers can make decisions |
True |
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Which organization - centralization or decentralized decision-making authority is spread intentionally throughout the organization |
Decentralized... lower level managers are empowered to make unlimited decisions. Therefore, centralization organizations are reluctant to give authorize decision-making to their lower management |
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Which is considered not an advantage or having a decentralize organization 1. free up management 2. the ability to fully understand the bigger picture 3. better on the spot decision-making 4. great training for future topper managers 5. quicker to respond to customers and changes 6. increase motivation and job satisfaction |
2. the ability to fully understand the bigger picture as well as failure to coordinate with other departments leaving to clashes in addition difficult to spread best practices
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Residual income is a measure used to evaluate managers of ________ centers |
Investment centers |
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If your business segment's ROI is high, what does that mean for your profit earned per dollar invested in the segment's operating assets |
the greater profit earned per dollar invested in the segment's operating assets |
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How can a company increase its return on investment (ROI)? |
Reduce operating expenses and increase sales or decrease cost and increase sales |
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The net operating income that an investment center earns above the minimum required return on its average operating assets is its ______ _______ |
Residual Income, The net operating income that an investment center earns above the minimum required return on its average operating assets |
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Last year a company had net operating income of $600,000 on sales of $3,000,000. The company's average assets for the year were $2,800,000 and its minimum required rate of return was 18% What is the company's residual income? |
Net operating income - (minimum rate of return x average operating assets ) $600,000 - (18% x $2,800,000) = $96,000 |
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When managers are evaluated on residual income, they will be more or less likely to purse projects that will benefit the entire company |
More
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What are the three responsibility centers |
Cost, profit and investment centers |
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Cost Centers managers are responsible for only ______ and were managers must _____ _____ while providing products and services demanded by other parts of the organization.
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Cost Centers were managers are responsible for only costs and were managers must control cost while providing products and services demanded by other parts of the organization |
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Which responsibilitycenter is where managers are responsible for revenue and cost? |
Profit center where managers are responsible for revenue and cost |
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Which responsibility center is evaluated by comparing actual profit to budgeted profit. |
Profit Centers and Investment Center |
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Investment center are responsible for ______, ________, and __________ in operate asset such as long term property plant equipment. |
Investment center are responsible for cost, revenue and investment in operate asset such as long term property plant equipment.
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What are the two measures of performance used to evaluate investment |
1. Rate of Return on Investment (ROI) and 2. Residual Income |
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What is the reason why company's prefer residual income over ROI? |
because managers are more likely ot appropriately make profitable investment , Meaning ROI above minimum required rate of return increases the current residual income |
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When does it become challenging to use residual income 1. comparing residual income with revenue center 2. comparing residual income with revenue and profit centers 3. comparing residual income with investment center 4. comparing residual income with investment center with different sizes |
4. comparing residual income with investment center with different size when there's a disadvantage of using residual income |
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*If a company has $7,500,000 in sales, $600,000 in Net Operating Income, and $5,000,000 in Average operating assets. What is the company's Rate of Return? |
Margin; Net Operating Income divided by sales equal a percentage Turnover; Sales divided by Average Operating Assets = times Rate of return; Margin divided by Turnover |
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*What is the reason why company's proper residual income over return on investment? |
Managers are more likely to appropriately make profitable investments |
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If residual income replaces return on investment, the division will be evaluates based on the decline or growth in residual income fro year to year? |
the division will be evaluated based on the GROWTH in residual income from year to year |
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If the ROI is above the minimum required rate of return will the company's current residual income increase or decrease. |
Current residual income increase therefore, project will be accepted. |
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True or false net operating income after the deduction of other revenues, expenses and income taxes? |
False, this income refers the amount BEFORE the deduction of revenue, expenses and income taxes |
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Which operating assets include current and long term assets held for operating purposes? |
Average Operating Assets |
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What are the two ways ROI can be approved? |
1. Increase in Net Operating Income 2. Decrease in Average Operating Assets |
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Margin and Turnovers are concerned to be improved when there is an increase in cost and decrease in sale increase in cost and increase in sale decrease in cost and increase in sales |
decrease in costs and increase in sales |
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True or False, company's prefer to use residual income because of the flexible it has to compare residual income between investment centers of all sizes |
False, the disadvantage of using a residual income, its not useful to compare residual income between investment centers of different sizes |
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If a company's residual income is $5000 and their rate on investment is 20%. What would the company's projects residual income and their new rate of return be if their average operating assets are $100,000, net operating income $20,000, Minimum required rate of return 15%, and the project cost $25,000. However, their expected project net operating income is $4500 and their expected rate of return on new assets is 18%. |
New residual income = (expected net operating income - (minimum required rate of return x project cost)) + residual income (4500 - (.15 X 25000)) + 5000 = $5750 New ROI = ((Net Operating Income + Expected Net Operating Income) / (Average Assets + New Project Cost)) x100 = % ((20,000+4500)/(100,000+25000)) x 100% = 19.6% |
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When wanting to measure what drive organizational performance company's use what measurement tool? |
A non-financial to measure a company's improving quality reaching more customers' and filling orders in a timely fashion |
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Which measurement tool is used to improve quality reaching more customers and filling orders in a timely fashion? |
Non-financial measurements |
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What does a delivery cycle time measure? |
Elapse time between
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What does it mean when the amount of time between taking the customer's order and the start of processing that order? |
Wait Time is when the amount of time between taking the customer's order and the start of processing that order |
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What does it mean when the amount of time required to turn raw materials into finished products? |
Throughput time is when the amount of time required to turn raw materials into finished products. |
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There are four time in which make up "Throughput time". List all four in order. |
1. Process time 2. Inspection time 3. Move time 4. Queue time |
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The following information make up Throughput time. Place each time in order followed with the proper description. 1. Inspection, 2. Process, 3. Queue time and 4. Move time, a. quality, b. spends waiting, c. work and d. move
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1. Process time...amount of time work is done
2. Inspection time...amount on spent quality 3. Move time...amount of time move 4. Queue time.....amount of time spent waiting |
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What are the four non-financial measures? |
1. Financial 2. Customer 3. Internal Business Processes 4. Learning and Growth |
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Which out of the four throughput times add value to the product? |
Process time... value add time. |
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Throughput Time is also called |
Manufacturing Cycle Efficiency process time / (add all four throughput time) = M.C.E. |
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Wait Time 17.0 Process time 2.0 Inspection time .4 Move time .6 Queue time 5.0 What is the throughout time, MCE, what % of non-value added activities, the delivery cycle time and the new MCE is Queue time has been eliminated from production? |
Throughput time: 8 days MCE 2.0 / (2.0 + .4 + .6 + 5.0) = 25% Non-value added activities 100% - 25% = 75% Delivery Time 17 + 8 = 25 days 25 days to wait for a product New MCE: Process time/(Process + Inspection + Move) 2 / 3= 67% |
