1. Discuss whether the manager of Bell Division should be evaluated only on ROI? 2. Provide two (2) reasons why ROI, RI, and EVA may be inappropriate measures of performance. Bell DivisionPerformance Report for the Year Ended December 31, 2020Increase/(Decrease) from 2019% CHANGE20202019AMOUNTSummary DataNet Income ($000 omitted)$34,222$31,573$2,6498.4Return on Investment (ROI)(6%)(14.0)(4.8)37%43%Kits sold (units)2,0002,100(100)Production DataKits started2,4001,60080050.0Kits transferred to Cornish Div.2,0002,100(100)(4.8)Kits in process at year-endIncrease (Decrease) in kits in700300400133.3(500)process at year-endFinancial Data ($000)400Sales$138,000$162,800($24,800)(15.2)©The University of the West IndiesCourse Code: ACCT 303921/....page 3Production costs of units sold(8,000)(11,300)(8,000)($27,300)(20.0)(21.3)(21.6)Raw material32,00040,000Labor41,70053,000Factory overheadCost of units soldOther Costs: Corporate Charges for29,00037,000$102,700$130,000(21.0)Personnel services228210188.6Accounting servicesFinancing costs(15)(225)($222)(3.4)(42.9)425440300525Total other costs$953$1,175(18.9)Adjustments to IncomeUnreimbursed fire loss52(52)(100.0)Raw material losses due toimpropoer storage125125(100.0)(20.9)Total adjustments$125$52$73Total Costs$103,778$131,227($27,449)DIVISION INCOME$34,222$31,573$2,6498.4Division Investment$92,000$73,000$19,00026.0ROI37%43%(6%)(14.0) D Corporation is one of the major producers of pre-fabricated houses in the home buildingindustry. The corporation consists of two divisions:1. Bell Division, which acquires the raw materials to manufacture the basic house componentsand assembles them into kits.2. Cornish Division, which takes the kits and constructs the homes for final home buyers.The corporation is decentralized and the management of each division is measured by its income andreturn on investment.Bell Division assembles seven separate house kits using raw materials purchased at theprevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 toUS$98,000. The prices are set by corporate management of D Corporation using prices paid by Cornishwhen it buys comparable units from outside sources. The smaller kits with the lower prices havebecome a larger portion of the units sold because the final house buyer is face with prices that areincreasing more rapidly than personal income. The kits are manufactured and assembled in a new plantpurchased by Bell this year. The division had been located in a leased plant for the past four years.All kits are assembled upon receipt of an order from the Cornish Division. When the kit iscompletely assembled it is immediately taken by the Cornish Division for final construction. Thus, BellDivision has no finished goods inventory.The Bell Division's accounts and reports are prepared on an actual-cost basis. There is no budgetand standards have not been developed for each product. A factory overhead rate is calculated at thebeginning of each year. The rate is designed to charge all overhead to the product each year. Any under-or over- applied overhead is allocated to the cost of goods sold account and the WIP inventories.Bell Division's annual report is presented below. This report forms the basis of the evaluation ofthe division and its management by the corporation management.Additional information regarding corporate and division practices is as follows:The corporation office does all the personnel and accounting work for each division.The corporate personnel costs are allocated on the basis of number of employees in thedivision.The accounting costs are allocated to the division on the basis of total costs excludingcorporate charges.The division administration costs are included in factory overhead.The finance charges include a corporate-imputed interest charge on division assets and anydivisional lease payments.The division investment for the ROI calculation includes division inventory and plant andequipment at gross book value.

Financial ratios: The ratios calculated by using the various line items reported in the financial…

Answered: 1. Discuss whether the manager of Bell…

1. Discuss whether the manager of Bell Division should be evaluated only on ROI? 2. Provide two (2) reasons why ROI, RI, and EVA may be inappropriate measures of performance.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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