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Chapter 24: Q10RQ (page 1355)
What are the goals of a performance evaluation system?
Promoting goal unity and coordination.
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Wolf Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information for its two largest divisions: Paint Stores and Consumer.
Net Sales Operating Average
Revenue Income Total Assets
Paint Stores \( 3,980,000 \) 476,000 $ 1,380,000
Consumer 1,315,000 195,000 1,600,000
Management has specified a 21% target rate of return.
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. Interpret your results.
5. Calculate each division’s RI. Interpret your results, and offer a recommendation for any division with negative RI.
6. Describe some of the factors that management considers when setting its minimum target rate of return.
Preparing a financial budget—budgeted income statement and balance sheet
Bradley Company has the following post-closing trial balance on December 31, 2018:
The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:
Budgeted total sales, all on account $ 305,000 Budgeted direct materials to be purchased and used 32,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 2,100 Depreciation 1,300 Insurance and property taxes 1,350 Budgeted cost of goods sold 72,000 Budgeted selling and administrative expenses:
Salaries expense 7,000 Rent expense 2,000 Insurance expense 1,100 Depreciation expense 550 Supplies expense 15,250 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 41,000 Budgeted purchase and payment for capital expenditures (additional equipment) 43,000
Additional information:
a. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter.
b. Direct labor, manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.
c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements
1. Prepare Bradley Company’s budgeted income statement for the first quarter of 2019.
2. Prepare Bradley Company’s budgeted balance sheet as of March 31, 2019
List the disadvantages of decentralization.
What is a performance evaluation system?
Consider the following key performance indicators, and classify each indicator according to the balanced scorecard perspective it addresses. Choose from the financial perspective, customer perspective, internal business perspective, and the learning and growth perspective.
a. Number of customer complaints
b. Number of information system upgrades completed
c. Residual income
d. New product development time
e. Employee turnover rate
f. Percentage of products with online help manuals
g. Customer retention
h. Percentage of compensation based on performance
i. Percentage of orders filled each week
j. Gross margin growth
k. Number of new patents
l. Employee satisfaction ratings
m. Manufacturing cycle time (average length of production process)
n. Earnings growth
o. Average machine setup time
p. Number of new customers
q. Employee promotion rate
r. Cash flow from operations
s. Customer satisfaction ratings
t. Machine downtime u. Finished products per day per employee
v. Percentage of employees with access to upgraded system
w. Wait time per order prior to start of production
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