Multiple-Choice Questions
1. The key difference between residual income and economic value added is that EVA
a. Uses the actual cost of capital for the company rather than a minimum required cost of capital.
b. Uses the minimum required cost of capital for a company rather than the actual percentage cost of capital.
c. Is a ratio rather than an absolute dollar amount.
d. Cannot be negative.
e. There is no difference between residual income and EVA.
2. If return on investment for a division is 15 percent and the company’s minimum required cost of capital is 18 percent, then
a. Residual income for the division is negative.
b. Residual income for the division takes on a value between zero and positive one.
c. Residual income cannot be computed.
d. EVA must be negative.
e. Residual income is positive.
3. Division A, operating at full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. The maximum transfer price (the ceiling of the bargaining range) is
a. $38.
b. $50.
c. $44.
d. $47.
e. There is no bargaining range.
4. Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. The minimum transfer price (the floor of the bargaining range) is
a. $38.
b. $50.
c. $44.
d. $47.
e. There is no bargaining range.
5. (Appendix) Which of the following is not a perspective of the Balanced Scorecard?
a. Learning and growth (infrastructure)
b. Internal business process
c. Customer
d. Financial
e. All of the above are perspectives of the Balanced Scorecard.
6. The number of units of output that can be produced in a given period of time is called
a. Velocity.
b. Cycle time.
c. Manufacturing cycle efficiency.
d. Theoretical cycle time.
e. Theoretical MCE.