Bentler Industries provides high-technology navigation and communication equipment for the aerospace and shipbuilding industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision- making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division presidents on, among other things, ROI in their respective divisions. ROI is based on after-tax divisional income and beginning-of-year assets. Divisional income includes allocated corporate overhead. For the most recent year (year 3), data from the two divisions shows the following: Allocated corporate overhead ($000) Cost of sales Other general and administrative costs R&D costs Sales Total assets (January 1, Year 3) The tax rate applied at Bentler is 20 percent. Aeronautics Division $ 16,300 21,300 1,090 18,900 60,600 28,700 Marine Division $ 15,500 14,900 2,550 6,300 56,000 47,950 Problem 14-63 (Algo) Divisional Income, ROI, and Residual Income (LO 14-1, 2, 3) Required: a. Compute divisional income for year 3 for each of the divisions. b1. Evaluate the two divisions based on the information from the divisional income computed. b2. In terms of divisional income, which division performed better? c1. Compute ROI for year 3 for each of the divisions. c2. Which division performed better? d1. Compute residual income for year 3 for each of the divisions. Bentler uses a cost of capital of 12 percent. d2. Which division performed better?
Bentler Industries provides high-technology navigation and communication equipment for the aerospace and shipbuilding industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision- making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division presidents on, among other things, ROI in their respective divisions. ROI is based on after-tax divisional income and beginning-of-year assets. Divisional income includes allocated corporate overhead. For the most recent year (year 3), data from the two divisions shows the following: Allocated corporate overhead ($000) Cost of sales Other general and administrative costs R&D costs Sales Total assets (January 1, Year 3) The tax rate applied at Bentler is 20 percent. Aeronautics Division $ 16,300 21,300 1,090 18,900 60,600 28,700 Marine Division $ 15,500 14,900 2,550 6,300 56,000 47,950 Problem 14-63 (Algo) Divisional Income, ROI, and Residual Income (LO 14-1, 2, 3) Required: a. Compute divisional income for year 3 for each of the divisions. b1. Evaluate the two divisions based on the information from the divisional income computed. b2. In terms of divisional income, which division performed better? c1. Compute ROI for year 3 for each of the divisions. c2. Which division performed better? d1. Compute residual income for year 3 for each of the divisions. Bentler uses a cost of capital of 12 percent. d2. Which division performed better?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Bentler Industries provides high-technology navigation and communication equipment for the aerospace and shipbuilding
industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision-
making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division
presidents on, among other things, ROI in their respective divisions. ROI is based on after-tax divisional income and
beginning-of-year assets. Divisional income includes allocated corporate overhead.
For the most recent year (year 3), data from the two divisions shows the following:
Allocated corporate overhead ($000)
Cost of sales
Other general and administrative costs
R&D costs
Sales
Total assets (January 1, Year 3)
The tax rate applied at Bentler is 20 percent.
Aeronautics
Division
$ 16,300
21,300
1,090
18,900
60,600
28,700
Marine
Division
$ 15,500
14,900
2,550
6,300
56,000
47,950
Problem 14-63 (Algo) Divisional Income, ROI, and Residual Income (LO 14-1, 2, 3)
Required:
a. Compute divisional income for year 3 for each of the divisions.
b1. Evaluate the two divisions based on the information from the divisional income computed.
b2. In terms of divisional income, which division performed better?
c1. Compute ROI for year 3 for each of the divisions.
c2. Which division performed better?
d1. Compute residual income for year 3 for each of the divisions. Bentler uses a cost of capital of 12 percent.
d2. Which division performed better?
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