Question :
SHORT ANSWER.
Write the word or phrase that best completes each : 1196219
SHORT ANSWER.
Write the word or phrase that best completes each statement or answers the question. 71)
Designing an accounting based performance measure requires six steps. List each step. For three of the
steps, describe a question that must be resolved as part of the implementation process. 71)
_____________
72)
Batman Abstract Company has three divisions that operate autonomously. Their results for 2007 are as
follows:
Riddler
Joker
Penguin
Sales
$5,000,000
$7,000,000
$10,000,000
Contribution margin
1,440,000
1,700,000
3,500,000
Operating income
1,000,000
1,750,000
2,520,000
Investment base
9,000,000
10,000,000
14,000,000
The company’s desired rate of return is 20%.
Required:
a.Compute each division’s ROI.
b.Compute each division’s residual income.
c.Rank each division by both ROI and residual income.
d.Which division had the best performance in 2007? Why?
72)
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73)
Hargrave Products has three divisions which operate autonomously. Their results for 2001 were as follows:
East
West
International
Sales$30,000,000$40,000,000$50,000,000
Cost of goods sold$15,000,00025,000,00037,000,000
Operating income4,500,0004,750,0005,000,000
Investment base30,000,00030,500,00031,000,000
The company’s desired rate of return is 15 percent.
Required:
a.Compute each division’s ROI. Round to three decimal places.
b.Compute each division’s residual income. 73)
_____________
74)
Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 2007
follow:
Plows
Tractors
Combines
Revenues
$2,250,000
$500,000
$4,800,000
Accounts receivable
800,000
152,500
1,435,000
Operating assets
1,000,000
400,000
1,750,000
Net operating income
220,000
60,000
480,000
Taxable income
165,000
90,000
385,000
Required:
a.Compute the investment turnover for each division.
b.Compute the return on sales for each division
c.Compute the return on investment for each division.
d.Which division manager is doing best? Why?
e.What other factors should be included when evaluating the managers?
For parts (b) and (c) income is defined as operating income.
74)
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75)
An art distribution Company has three divisions which operate autonomously. Their results for 2001 were as follows:
R-divisionJ-divisionG-division
Sales$5,000,000$7,000,000$10,000,000
Contribution margin1,440,0001,700,0003,500,000
Operating income1,000,0001,750,0002,520,000
Investment base9,000,00010,000,00014,000,000
The company’s desired rate of return is 20 percent.
Required:
a.Compute each division’s ROI.
b.Compute each division’s residual income.
c.Rank each division by both ROI and residual income.
d.Which division had the best performance in 2001? Why? 75)
_____________
76)
Museum Corporation uses the investment centre concept for the museums that it manages. Select operating data for three of its museums for 2001 are as follows:
MontrealTorontoVancouver
Revenue$300,000$375,000$450,000
Total assets150,000125,000175,000
Net operating income25,50028,00029,500
Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers? 76)
_____________
77)
The Coffee Division of Canadian Products is planning the 2001 operating budget. Average Total assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each. Variable costs of the division are budgeted at $400,000 while fixed costs are set at $250,000. The company’s required rate of return is 18 percent.
Required:
a.Compute the volume necessary to achieve a 20 percent ROI.
b.The division manager receives a bonus of 50 percent of the residual income. What is his anticipated bonus for 2001 assuming he achieves the 20 percent ROI from part a? 77)
_____________
78)
LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2001 are budgeted as follows:
Sales$5,000,000
Less variable costs2,500,000
Contribution margin$2,500,000
Less fixed expenses1,800,000
Net operating income$
700,000
Total assets for the division are currently $3,600,000. For 2001 the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60 percent of selling price.
Required:
a.What is the effect on ROI of accepting the new product line?
b.If the company’s required rate of return is 6 percent, and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations. 78)
_____________
79)
Capital Investments has three divisions. Each division’s required rate of return is 15 percent. Planned operating results for 2001 are:
DivisionOperating incomeInvestment
A$15,000,000 $100,000,000
B25,000,000125,000,000
C11,000,00050,000,000
The company is planning an expansion requiring each division to increase its investments by $25,000,000 and its income by $4,500,000.
Required:
a.Compute the current ROI for each division.
b.Compute the current residual income for each division.
c.Rank the divisions according to their current ROIs and residual incomes.
d.Determine the effects after adding the new project to each division’s ROI and residual income.
e.Which Divisions are pleased with the addition and which ones are unhappy assuming the managers are evaluated on a combination of ROI and residual income? Is a combination of ROI and residual income appropriate for the divisions? 79)
_____________
80)
Kase Tractor Company allows its divisions to operate as autonomous units. The tax rate is 35% and other operating data for 2001 follow:
PlowsTractors Combines
Revenues $2,250,000 $500,000 $4,800,000
Accounts receivable 800,000152,5001,435,000
Total assets1,000,000400,0001,750,000
Net operating income220,000 60,000480,000
Taxable income165,000 90,000385,000
WACC11.5%11.5%11.5%
Required:
a.Compute the return on investment for each division.
b.Compute the EVA for each division
c.What other ratio could be calculated for performance evaluation? 80)
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