Evaluating Investment Centers Terry Enterprises, Inc. has two divisions-the Foods division and the Clothes division. Historically, Terry has used the division's ROI as the performance measure for the bonus determinations. Terry Foods division has gross total assets of $1,000,000, accumulated depreciation of $350,000, current liabilities of $250,000, and sales of $2,000,000. Foods' operati income is $320,000. Terry Clothes division has gross total assets of $5,000,000, accumulated depreciation of $2,100,000, current liabilities of $1,500,000, and sales of $8,000,000. Clothes operating income is $870,000. Use the DuPont formula to compute ROI for each division and for Terry Enterprises as a whole. Use operating income and gross total assets as the measures of income and investment. Round answers to the nearest whole percentage. Foods Clothes Terry Enterprises

Evaluating Investment Centers Terry Enterprises, Inc. has two divisions-the Foods division and the Clothes division. Historically, Terry has used the division's ROI as the performance measure for the bonus determinations. Terry Foods division has gross total assets of $1,000,000, accumulated depreciation of $350,000, current liabilities of $250,000, and sales of $2,000,000. Foods' operati income is $320,000. Terry Clothes division has gross total assets of $5,000,000, accumulated depreciation of $2,100,000, current liabilities of $1,500,000, and sales of $8,000,000. Clothes operating income is $870,000. Use the DuPont formula to compute ROI for each division and for Terry Enterprises as a whole. Use operating income and gross total assets as the measures of income and investment. Round answers to the nearest whole percentage. Foods Clothes Terry Enterprises

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...

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Forchen, Inc., provided the following information for two of its divisions for last year: Required: 1. For the Small Appliances Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 2. For the Cleaning Products Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 3. What if operating income for the Small Appliances Division was 2,000,000? How would that affect average operating assets? Margin? Turnover? ROI? Calculate any changed ratios (round to four significant digits).
The operating income and the amount of invested assets in each division of Conley Industries are as follows: a. Compute the return on investment for each division. b. Which division is the most profitable per dollar invested? Based on the data in Exercise 10 assume that management has established a 15% minimum acceptable return for invested assets. a. Determine the residual income for each division. b. Which division has the most residual income?
Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows: Division 1: Sales: Expenses: Asset investment: $200,000 $150,000 $1,000,000 Division 2: Sales: $45,000 Expenses: $35,000 Asset investment: $200,000 Conner currently requires investments to meet a rate of return on asset investment of 5%. Which division has the greatest level of "residual income"? Select one: O a. Division 1 O b. Division 2 O c. Both divisions have the same return on investment ratio
The Custodial Division of Clark's Corporate Services (CCS) has assets of $1.2 million. During the past year, the division had profits of $228,000. CCS has a cost of capital of 7.5 percent. Ignore taxes. Required: a. Compute the divisional ROI for the Custodial Division. b. Compute the divisional RI for the Custodial Division. Complete this question by entering your answers in the tabs below. Required A Required B Compute the divisional ROI for the Custodial Division. Divisional ROI % Required A Required B >
Augustus Electrical Company has 2 divisions, one in Georgetown and one in Berbice Guyana and information on the both divisions are as follows: Georgetown Berbice Total assets $100,000 $500,000 Current liabilities 25,000 150,000 Revenue 50,000 50,000 Income before tax 20,000 75,000 Required: Calculate the return on investment (ROI) using net income and total assets as the measure of income and investment for the Berbice division. a.150% b.1.5% c.15% d.20%
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The vice president of operations of Scott Hall and Associates is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Sales Cost of goods sold Operating expenses Invested assets C. Road Bike Division $1,750,000 1,300,000 202,000 1,400,000 Mountain Bike Division $1,810,000 1,440,000 236,800 800,000 Instructions a. Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management's minimum acceptable return on investment is 10%, determine the residual income for each division. d. In your own words evaluate the performance of the…
John Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as Investment center. The company’s cost of capital is 9%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in division A has argued that using residual income (RI) to make investment decisions would result in ‘better goal congruence’ throughout the company. The data below shows the current position of the division as at the end of 31 December, 2019: Details of Projects Project A Project B Capital required GH¢ 82.8 million GH¢ 40.6 million Sales generated GH¢44.6 million GH¢ 21.8 million Net Profit margin 18% 25% The company is seeking to maximize shareholders wealth. Assuming that, Division A acquires a more efficient asset at GH¢17 million and Division B sold one of its assets with written down value of GH¢21 million, and profits are expected to…
The vice president of operations of Pavone Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Business Division Consumer Division Sales $2,160,000 $2,520,000 Cost of goods sold 1,270,000 1,330,000 Operating expenses 652,400 837,200 Invested assets 744,828 2,100,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place. 3. If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest…
Giardin Outdoors is a recreational goods retaller with two divisions: Online and Stores. The two divisions both use the services of the corporate Finance and Accounting (F and A) Department. Annual costs of the F and A Department total $5.2 million a year. Managers In the two operating divisions are measured based on division operating profits. The following selected data are available for the two operating divisions: Revenues (5000) $ 74,100 39,900 Online Stores Required: Determine the cost allocation if $3.8 million of the F and A costs are fixed and allocated on the basis of revenues, and the remaining costs, which are variable, are allocated on the basis of transactions. Note: Do not round Intermediate calculations. Enter your answers in dollars, not in millions or thousands. Fixed Variable Total $ Transactions (000) 1,066.5 283.5 Online $ Stores
The following information is related to the current operation of Kenanga Branch. Operating income 5,000,000 Sales revenue 62, 500,000 Average operating asset 25,000,000 Average balance in current liabilities 13,400,000 The management of the company has decided that the minimum return required is 11 percent. Residual income is another approach that can be used to measure performance of an investment centre. Define residual income and determine the residual income for Kenanga Branch.
Giardin Outdoors is a recreational goods retailer with two divisions: Online and Stores. The two divisions both use the services of the corporate Finance and Accounting (F and A) Department. Annual costs of the F and A Department total $5.245 million a year. Managers in the two operating divisions are measured based on division operating profits. The following selected data are available for the two operating divisions: Online Stores Required A Revenues ($000) Required: a. What is the F and A cost that is charged to each division if divisional revenues are used as the allocation basis? b. What is the F and A cost that is charged to each division if the the number of transactions is used as the allocation basis? $ 75,900 41,700 Complete this question by entering your answers in the tabs below. Division Online Stores Transactions (000) 1,516.5 508.5 Required B What is the F and A cost that is charged to each division if divisional revenues are used as the allocation basis? Note: Do not…