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Chapter 24: Q21RQ (page 1355)
Question: How is RI calculated?
Answer
Residual income is computed by taking the difference between operating income and targeted return.
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Usually, which outweighs the other in decentralization—advantages ordisadvantages?
What is a transfer price?
Well-designed performance evaluation systems accomplish many goals. Describe the potential benefits performance evaluation systems offer.
One subunit of Track Sports Company had the following financial results last month:
Subunit X Actual Results Flexible Budget Flexible Budget % Variance
Variance (F or U) (F or U)
Net Sales
Revenue \( 474,000 \) 455,000
Variable
Expenses 261,000 255,000
Contribution
Margin 213,000 200,000
Traceable
Fixed Expenses 38,000 29,000
Divisional
Segment Margin \( 175,000 \) 171,000
Requirements
1. Complete the performance evaluation report for this subunit (round to two decimal places).
2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit?
3. Which items should be investigated if part of management’s decision criteria is to investigate all variances equal to or exceeding \(8,000 andexceeding 10% (both criteria must be met)?
4. Should only unfavorable variances be investigated? Explain.
5. Is it possible that the variances are due to a higher-than-expected sales volume? Explain.
6. Will management place equal weight on each of the variances exceeding \)8,000? Explain.
7. Which balanced scorecard perspective is being addressed through this performance report? In your opinion, is this performance report a lead or a lag indicator? Explain.
8. List one key performance indicator for the three other balanced scorecard perspectives. Make sure to indicate which perspective is being addressed by the indicators you list.
Financial performance is measured in many ways.
Requirements
1. Explain the difference between lag and lead indicators.
2. The following is a list of financial measures. Indicate whether each is a lag or a lead indicator:
a. Income statement shows net income of \(100,000
b. Listing of next week’s orders of \)50,000
c. Trend showing that average hits on the redesigned Web site are increasing at 5% per week
d. Price sheet from vendor reflecting that cost per pound of sugar for the next month is $2
e. Contract signed last month with large retail store that guarantees a minimum shelf space for Grandpa’s Overloaded Chocolate Cookies for the next year
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