EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475950
Author: Datar
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 23.40P
1.
To determine
Residual Income:
Residual income is the leftover amount of total income of an individual after the payment for periodical expenses are made. It reflects the ability of an individual to earn over and above the required expenses.
To identify: The expected residual income in 2017.
2.
To determine
To identify: The effect of new order on expected residual income.
3.
To determine
To identify: The effect of make or buy decision on residual income.
4.
To determine
To identify: The minimum acceptable selling price per window.
5.
To determine
To identify: a. the effect on expected residual income and b. the reduction in units sold.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.
Q. The window latch Clear Panes manufactures for its windows has a variable cost of $20. An outside vendor has offered to supply the 150,000 units required at a cost of $21 per unit. If the component is purchased outside, fixed costs will decline by $100,000 and assets with a book value of $150,000 will be sold at book value. Will Clear Panes decide to make or buy the component? Explain your answer.
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.
Q. Clear Panes receives an external special order for 10,000 units at $120 each. If the order is accepted, Clear Panes will have to incur incremental fixed costs of $250,000 and invest an additional $450,000 in various assets. What is the effect on Clear Panes’s residual income of accepting the order?
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.
Q. What is the expected residual income in 2017?
Chapter 23 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 23 - Prob. 23.1QCh. 23 - Prob. 23.2QCh. 23 - What factors affecting ROI does the DuPont method...Ch. 23 - RI is not identical to ROI, although both measures...Ch. 23 - Describe EVA.Ch. 23 - Give three definitions of investment used in...Ch. 23 - Distinguish between measuring assets based on...Ch. 23 - Prob. 23.8QCh. 23 - Why is it important to distinguish between the...Ch. 23 - Prob. 23.10Q
Ch. 23 - Managers should be rewarded only on the basis of...Ch. 23 - Explain the role of benchmarking in evaluating...Ch. 23 - Explain the incentive problems that can arise when...Ch. 23 - Prob. 23.14QCh. 23 - Prob. 23.15QCh. 23 - During the current year, a strategic business unit...Ch. 23 - Assuming an increase in price levels over time,...Ch. 23 - If ROI Is used to evaluate a managers performance...Ch. 23 - The Long Haul Trucking Company is developing...Ch. 23 - ABC Inc. desires to maintain a capital structure...Ch. 23 - ROI, comparisons of three companies. (CMA,...Ch. 23 - Prob. 23.22ECh. 23 - ROI and RI. (D. Kleespie, adapted) The Sports...Ch. 23 - ROI and RI with manufacturing costs. Excellent...Ch. 23 - ROI, RI, EVA. Hamilton Corp. is a reinsurance and...Ch. 23 - Goal incongruence and ROI. Comfy Corporation...Ch. 23 - ROI, RI, EVA. Performance Auto Company operates a...Ch. 23 - Capital budgeting, RI. Ryan Alcoa, a new associate...Ch. 23 - Prob. 23.29ECh. 23 - ROI, RI, EVA, and performance evaluation. Cora...Ch. 23 - Prob. 23.31ECh. 23 - Prob. 23.32ECh. 23 - ROI performance measures based on historical cost...Ch. 23 - ROI, measurement alternatives for performance...Ch. 23 - Multinational firms, differing risk, comparison of...Ch. 23 - ROI, Rl, DuPont method, investment decisions,...Ch. 23 - Division managers compensation, levers of control...Ch. 23 - Executive compensation, balanced scorecard. Acme...Ch. 23 - Financial and nonfinancial performance measures,...Ch. 23 - Prob. 23.40PCh. 23 - Prob. 23.41PCh. 23 - RI, EVA, measurement alternatives, goal...
Knowledge Booster
Similar questions
- ROI, RI, decision making. The following data refer to the successful Munger division of Buffett, Inc. Munger makes and sells high-end cordless drills. The drills sell for $80 each, and Munger expects sales of 300,000 units in 2014. Munger’s annual fixed costs are $4 million. The variable cost per drill is $48. Buffett evaluates Munger based on residual income. The total investment attributed to Munger is $16 million, and Buffett has a required rate of return on investment of 20%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.1. What is the expected residual income in 2014?2. Munger receives an external special order for 100,000 units at $60 each. If the order is accepted,Munger will have to incur incremental fixed costs of $850,000 and invest an additional $2 million in various assets.What is the effect on Munger’s residual income of accepting the order?3. One of the components Munger manufactures for its drill has a…arrow_forwardDescribe the advantages and disadvantages of each type of sales alternative.arrow_forwardKirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. Fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets. a. Compute a markup percentage based on the variable costs concept. Round your answer to one decimal place.fill in the blank 1 % b. Determine a selling price. Round your answer to two decimal places.$fill in the blank 2arrow_forward
- Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 61,000 units during the quarter. RTD carries no inventories. Sales revenue Costs of fitting produced Gross profit Administrative costs Operating profit Required A Fixed costs included in this income statement are $396,500 for depreciation on plant and machinery and miscellaneous factory operations and $102,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.60 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed…arrow_forwardRowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 55,000 units during the quarter. RTD carries no inventories. Sales revenue Costs of fitting produced Gross profit Administrative costs Operating profit Required A Fixed costs included in this income statement are $357,500 for depreciation on plant and machinery and miscellaneous factory operations and $99,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.00 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed…arrow_forwardPepper’s Automotive produces auto parts for various automotive retailers. Pepper’s is evaluatingthe exhaust system division of the company and has come up with the following data for the year:net revenues are $1,000,000, variable costs are $300,000, and fixed costs are $400,000. Of the fixedcosts, controllable fixed costs are $100,000 and noncontrollable fixed costs are $300,000. What arethe controllable margin and total contribution by profit center (CPC), respectively?a. Controllable margin: $600,000; CPC: $400,000b. Controllable margin: $700,000; CPC: $300,000c. Controllable margin: $700,000; CPC: $100,000d. Controllable margin: $600,000; CPC: $300,000arrow_forward
- Rooney Company is considering adding a new product. The cost accountant has provided the following data: Expected variable cost of manufacturing $ 49 per unit Expected annual fixed manufacturing costs $ 68,000 The administrative vice president has provided the following estimates: Expected sales commission $ 3 per unit Expected annual fixed administrative costs $ 52,000 The manager has decided that any new product must at least break even in the first year. Required Use the equation method and consider each requirement separately. If the sales price is set at $67, how many units must Rooney sell to break even? Rooney estimates that sales will probably be 10,000 units. What sales price per unit will allow the company to break even? Rooney has decided to advertise the product heavily and has set the sales price at $72. If sales are 7,000 units, how much can the company spend on advertising and still break even?arrow_forwardLakeside Incorporated produces a product that currently sells for $62 per unit. Current production costs per unit include direct materials, $16.5; direct labor, $18.5; variable overhead, $11.5; and fixed overhead, $11.5. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit. What would be the incremental profit or loss if Lakeside could sell the refined version of its product for $68 per unit?arrow_forwardKatayama Company produces a variety of products. One division makes neoprene wetsuits. Thedivision’s projected income statement for the coming year is as follows:Sales (65,000 units) $15,600,000Less: Variable expenses 8,736,000Contribution margin $ 6,864,000Less: Fixed expenses 4,012,000Operating income $ 2,852,000 Required:1. Compute the contribution margin per unit, and calculate the break-even point in units.Repeat, using the contribution margin ratio.2. The divisional manager has decided to increase the advertising budget by $140,000 and cutthe average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division’s financial situation? Prepare a new income statement to sup-port your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by$612,000. Without preparing a new income statement, determine by how much profits areunderestimated.4. How many…arrow_forward
- Meargia Plastics is evaluating its plastic bottles division. The accounting manager has come up with the following data for the year: contribution margin of $570,000, controllable fixed of $228,000, and noncontrollable fixed costs of $57,000. Required: 1. What is the controllable margin? Controllable Margin 2. What is the total contribution by profit center (CPC)?arrow_forwardQuest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit. Q. Using the general guideline presented in the chapter, what is the minimum price at which the airbag division would sell airbags to the Vivo division?arrow_forwardDarius Manufacturing Company manufactures and sells parts for various musical gadgets. The businessearned Operating Income of $420,000 in 2018, when selling price per unit was $200 and the president ofDarius is under pressure to increase operating income in 2019 and is therefore considering the implementationof strategies geared at increasing revenues. Data for variable cost per unit and total fixed costs were asfollows: Variable expense per unit: Direct Material $20 Direct Labour $50 Variable maufacturing overhead $10 Fixed Expenses: Fixed manufacturing overhead $125000 Fixed selling cost $75000 Fixed administrative cost $100000 You have just begun your internship at the company. The financial controller, Dave Miller, has indicated thatthe business is considering paying a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning