Question 1

Inspection Time is generally considered to be non-value-added time.

Accepted Answer

Inspections are meant to detect defects and errors in a product or process, but they do not directly add value to the final product or service being delivered to the customer. Thus, inspection time is typically classified as non-value-added time.

Question 2

Return on investment (ROI)equals margin multiplied by turnover.

Accepted Answer

ROI is calculated by multiplying the margin (profit margin or net income / net revenue) by the turnover (total revenue).

Question 3

All other things being the same, a decrease in average operating assets will decrease return on investment (ROI).

Accepted Answer

False

Question 4

A disadvantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

Accepted Answer

The answer of A disadvantage of using ROI to evaluate...

Question 5

Land held for possible plant expansion would not be included as an operating asset when computing return on investment (ROI).

Accepted Answer

Land held for possible plant expansion is not being used in current operations and therefore would not be included as an operating asset when computing return on investment (ROI).

Question 6

ROI and residual income are tools used to evaluate managerial performance in profit centers.

Accepted Answer

The answer of ROI and residual income are tools used...

Question 7

Residual income is the net operating income that an investment center earns above the minimum required return on the investment in fixed assets.

Accepted Answer

The answer of Residual income is the net operating income...

Question 8

Queue time is considered value-added time.

Accepted Answer

Queue time is not considered value-added time as it does not contribute to the transformation of the product/service in any way. It is considered as non-value-added time and is a form of waste in the process.

Question 9

Suppose a company evaluates divisional performance using both ROI and residual income.The company's minimum required rate of return for the purposes of residual income calculations is 12%.If a division has a residual income of $6, 000, then its ROI is greater than 12%.

Accepted Answer

If a division has a residual income of $6,000, it means the division has generated income in excess of the company's minimum required rate of return of 12%. Therefore, the division's ROI must be greater than 12%.

Question 10

Wait time is considered non-value-added time.

Accepted Answer

Wait time does not add any value to the final product or service and is considered as waste.

Question 11

Process Time is the only non-value-added component of Throughput Time.

Accepted Answer

Process Time can be a value-added component of Throughput Time if it directly contributes to the creation of the final product or service. However, if it is simply a delay or wait time during the production process, then it is indeed a non-value-added component.

Question 12

A manufacturing cycle efficiency (MCE)ratio close to 1.00 is desirable because this is the ratio of value-added time to throughput time.

Accepted Answer

A manufacturing cycle efficiency (MCE) ratio close to 1.00 indicates that the value-added time is almost equal to the total throughput time, which is desirable as it implies that the manufacturing process is efficient and productive.

Question 13

Move time is considered value-added time.

Accepted Answer

The answer of Move time is considered value-added time....

Question 14

Return on investment is superior to residual income as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.

Accepted Answer

The answer of Return on investment is superior to residual...

Question 15

Average operating assets is used in the numerator to compute turnover in an ROI analysis.

Accepted Answer

Average operating assets is used in the numerator to calculate turnover in an ROI analysis.

Question 16

Net operating income is income after interest and taxes.

Accepted Answer

Net operating income is income before interest and taxes.

Question 17

Operating assets include cash, accounts receivable, and inventory but not any depreciable fixed assets.

Accepted Answer

Operating assets include all assets used to generate revenue, including cash, accounts receivable, inventory, and depreciable fixed assets such as equipment and property.

Question 18

Margin equals net operating income divided by sales.

Accepted Answer

Margin equals net operating income divided by total revenue, not just sales.

Question 19

Residual income should not be used to evaluate a profit center.

Accepted Answer

The answer of Residual income should not be used to...

Question 20

When used in return on investment (ROI)calculations, operating assets do not include investments in land held for future use and investments in other companies.

Accepted Answer

Operating assets are the assets that are directly used in the operations of a business that generate revenue. Land held for future use and investments in other companies are not considered operating assets as they do not directly contribute to generating revenue for the business.

Quiz 11: Performance Measurement in Decentralized Organizations