Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 10, Problem 9E
Refer to the data given in Exercise 10.8.
Required:
- 1. Compute the residual income for each of the opportunities. (Round to the nearest dollar.)
- 2. Compute the divisional residual income (rounded to the nearest dollar) for each of the following four alternatives:
- a. The Espresso-Pro is added.
- b. The Mini-Prep is added.
- c. Both investments are added.
- d. Neither investment is made; the status quo is maintained.
Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose?
- 3. Based on your answer in Requirement 2, compute the profit or loss from the divisional manager’s investment decision. Was the correct decision made?
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Sunland Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional
managers are to decide which performance measure will be used to evaluate profitability. Sunland Corporation requires a 10%
minimum return on investment.
The following information is available for the year just ended.
Divisional
Divisional
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Invested
Division
Operating Assets
Income
Capital
Ashton
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$93,090
$197,000
Drye
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Direction: Read carefully and answer the questions below. Encircle the letter of the
correct answer.
1. Which of the following is an example of a variable cost?
а.
interest
b. ingredients
с.
insurance
d. lease
2. What type of cost varies depending on the quantity of products being
produced?
а.
fixed
b.
net sales
с.
total
d.
variable
3. Which among the following concepts is usually seen on the top item in an
income statement from which all costs and expenses is subtracted to arrive at
net income?
a. fixed cost
b.
net sales
с.
total cost
d. variable cost
4. When do we obtain the break-even point?
When the fixed cost is equal to the total cost
When the total cost is equal to the variable cost
When the variable cost is equal to the fixed cost
d. When the number of units of goods sold covers the all the costs
а.
b.
с.
5. Which of the following is NOT true?
а.
The fixed cost does not vary over time.
b. The total cost is the sum of the fixed cost and the variable cost.
с.
The total cost is…
Chapter 10 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - Prob. 1DQCh. 10 - Explain why firms choose to decentralize.Ch. 10 - Explain how access to local information can...Ch. 10 - What are margin and turnover? Explain how these...Ch. 10 - What are the three benefits of ROI? Explain how...Ch. 10 - What are two disadvantages of ROI? Explain how...Ch. 10 - What is residual income? Explain how residual...Ch. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is a transfer price?
Ch. 10 - Prob. 11DQCh. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Forchen, Inc., provided the following information...Ch. 10 - Refer to Cornerstone Exercise 10.1. Forchen, Inc.,...Ch. 10 - Ignacio, Inc., had after-tax operating income last...Ch. 10 - Prob. 4CECh. 10 - Prob. 5CECh. 10 - Prob. 6CECh. 10 - Jarriot, Inc., presented two years of data for its...Ch. 10 - Refer to Exercise 10.7 for data. At the end of...Ch. 10 - Refer to the data given in Exercise 10.8....Ch. 10 - Brewster Company manufactures elderberry wine....Ch. 10 - Xenold, Inc., manufactures and sells cooktops and...Ch. 10 - Prob. 12ECh. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Prob. 14ECh. 10 - Mossfort, Inc., has a division in Canada that...Ch. 10 - A multinational corporation has a number of...Ch. 10 - Consider the data for each of the following four...Ch. 10 - The following selected data pertain to the Argent...Ch. 10 - Prob. 19ECh. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Prob. 22ECh. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Prob. 25PCh. 10 - Raddington Industries produces tool and die...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Prob. 34PCh. 10 - Grate Care Company specializes in producing...
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