Explanation Working note (a): Calculate the amount of sales margin for Division A. Sales margin = Income Sales revenue 20 % = $ 400 , 000 Sales revenue Sales revenue = $ 400 , 000 20% = $ 2 , 000 , 000 Thus, the amount of sales margin for Division A is $2,000,000. Working note (b): Calculate the amount of capital turnover for Division A. Capital turnover = Sales revenue Invested capital 1 = $ 2 , 000 , 000 Invested capital = $ 2 , 000 , 000 Thus, the amount of capital turnover for Division A is $2,000,000. Working note (c): Calculate the amount of return on investment (ROI) for Division A. Return on investment = Sales margin × Capital turnover = 20 % × 1 = 20 % Thus, the return on investment for Division A is 20%. Working note (d): Calculate the amount of residual income for Division A. Residual income = Income − ( Inputed interest rate ) ( Invested capital ) = $ 400 , 000 − ( 8 % ) ( $ 2 , 000 , 000 ) = $ 240 , 000 Thus, the amount of residual income for Division A is $240,000. Working note (e): Calculate the amount of sales margin for Division B. Sales margin = Income Sales revenue = $ 2 , 000 , 000 $ 10 , 000 , 000 = 20 % Thus, the sales margin for Division B is 20%. Working note (f): Calculate the amount of capital turnover for Division B. Capital turnover = Sales revenue Invested capital = $ 10 , 000 , 000 $ 2 , 500 , 000 = 4 times Thus, the capital turnover for Division B is 4 times. Working note (g): Calculate the return on investment for Division B. Return on investment = Sales margin × Capital turnover = 20 % × 4 = 80 % Thus, the return on investment for Division B is 80%. Working note (h): Calculate the amount of residual income for Division B. Residual income = Income − ( Imputed interest rate ) ( Invested capital ) = $ 2 , 000 , 000 − ( 8% ) ( $ 2 , 500 , 000 ) = $ 1 , 800 , 000 Thus, the amount of residual income for Division B is $1,800,000

Managerial Accounting: Creating Value in a Dynamic Business Environment

12th Edition

ISBN: 9781260417074

Author: HILTON, Ronald

Publisher: MCGRAW-HILL HIGHER EDUCATION

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Chapter 13, Problem 37P

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Chapter 13 Solutions

Managerial Accounting: Creating Value in a Dynamic Business Environment

Ch. 13 - What is the managerial accountants primary...Ch. 13 - Define goal congruence, and explain why it is...Ch. 13 - Describe the managerial approach known as...Ch. 13 - Prob. 4RQ Ch. 13 - Prob. 5RQ Ch. 13 - Prob. 6RQ Ch. 13 - Create an example showing how residual income is...Ch. 13 - What is the chief disadvantage of ROI as an...Ch. 13 - Why is there typically a rise in ROI or residual...Ch. 13 - Define the term economic value added. How does it...

Ch. 13 - Distinguish between the following measures of...Ch. 13 - Why do some companies use gross book value instead...Ch. 13 - Explain why it is important in performance...Ch. 13 - How do organizations use pay for performance to...Ch. 13 - Describe an alternative to using ROI or residual...Ch. 13 - Prob. 16RQ Ch. 13 - Prob. 17RQ Ch. 13 - Discuss the importance of nonfinancial information...Ch. 13 - Identify and explain the managerial accountants...Ch. 13 - Describe four methods by which transfer prices may...Ch. 13 - Explain the significance of excess capacity in the...Ch. 13 - Why might income-tax laws affect the...Ch. 13 - Prob. 23RQ Ch. 13 - The following data pertain to Dakota Divisions...Ch. 13 - Refer to the preceding exercise. Requited:...Ch. 13 - Refer to the data for Exercise 1324. Assume that...Ch. 13 - Golden Gate Construction Associates, a real estate...Ch. 13 - Prob. 28E Ch. 13 - Prob. 29E Ch. 13 - Refer to Exhibit 133. Assume that you are a...Ch. 13 - Prob. 32E Ch. 13 - Prob. 33E Ch. 13 - Prob. 34E Ch. 13 - Prob. 35E Ch. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 37P Ch. 13 - Prob. 38P Ch. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 40P Ch. 13 - Prob. 41P Ch. 13 - Megatronics Corporation, a massive retailer of...Ch. 13 - Prob. 43P Ch. 13 - Prob. 44P Ch. 13 - Prob. 45P Ch. 13 - Clearview Window Company manufactures windows for...Ch. 13 - Prob. 47P Ch. 13 - Alpha Communications, Inc., which produces...Ch. 13 - Prob. 49P Ch. 13 - Holiday Entertainment Corporation (HHC), a...Ch. 13 - InterGlobal Industries is a diversified...Ch. 13 - Prob. 52C

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