
a.
Indicate the division manager with the highest
a.

Explanation of Solution
Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions of companies.
Formula of ROI:
Compute the ROI of Division AM, if operating income is $216,000, and operating assets are $1,800,000.
Compute the ROI of Division AS, if operating income is $100,000, and operating assets are $1,000,000.
Compute the ROI of Division E, if operating income is $96,000, and operating assets are $1,200,000.
Hence, the manager of Division AM produces highest ROI.
Hence, the manager of Division AM produces highest ROI.
b.
Indicate the manager that would be ready to accept the additional investment opportunity of $200,000, based on the ROI.
b.

Explanation of Solution
The manager of Division E would be eager to accept the additional investment opportunity of $200,000 because it would increase the ROI of the division to 9%, which is greater than the current ROI of 8% (Refer Requirement (a)). The other two divisions would not be eager to accept because the ROI is reduced due to increased operating assets.
c.
Indicate the manager that would be the least to accept the additional investment opportunity of $200,000, based on ROI.
c.

Explanation of Solution
The manager of Division AS would be the least eager to accept the additional investment opportunity of $200,000 because it would decrease the ROI of the division to 5.6%, which is lower than the current ROI of 10% (Refer Requirement (a)), and the ROI of the company, 6%, as well.
d.
Indicate the division that would provide the best investment opportunity for the company.
d.

Explanation of Solution
Division AM would provide the best investment opportunity for the company because the ROI of the division would be higher amongst the three divisions, though decreased from the current 12% (Refer Requirement (a)), to 10%, and yet be higher than the ROI of the company, 6%.
e.
Mention the term used to explain the conflict referred in the Requirements (b) and (d).
e.

Explanation of Solution
Sub-optimization: This is a condition in which the managers choose their personal benefit at the corporation’s expense. In the given case in Requirement (b), the manager of Division E eagerly accepts the investment opportunity to increase the ROI of his division. But according to Requirement (d), the company prospers, if Division AM is given the investment opportunity. So, the conflict in both the requirements to choose the personal benefit rather than the company benefit, at the corporation’s expense is termed as sub-optimization.
f.
Explain the way in which the managers could be convinced to use the additional investment opportunity by using the residual income approach.
f.

Explanation of Solution
Residual income: The excess of income from operations over the desired acceptable income is referred to as residual income.
Formula of residual income:
Company AT could convince the managers of the divisions to accept the investment opportunity because it would increase the residual income of the division, and yet achieving the desired
g-1.
Compute the residual income of Company AT, before the additional investment.
g-1.

Explanation of Solution
Compute the residual income of Company AT, if the operating income is $412,000, the operating assets are $4,000,000, and the desired rate of return is 6%.
2.
Compute the residual income of the divisions, before the additional investment.
2.

Explanation of Solution
Compute the residual income of the Division AM, if the operating income is $216,000, the operating assets are $1,800,000, and the desired rate of return is 6%.
Compute the residual income of the Division AS, if the operating income is $100,000, the operating assets are $1,000,000, and the desired rate of return is 6%.
Compute the residual income of the Division E, if the operating income is $96,000, the operating assets are $1,200,000, and the desired rate of return is 6%.
3.
Compute the residual income of the divisions, after the additional investment.
3.

Explanation of Solution
Compute the residual income of the Division AM, if the operating income is $200,000, the desired rate of return is 6% before investment, and 10% after investment.
Compute the residual income of the Division AS, if the operating income is $200,000, the desired rate of return is 6% before investment, and 5.6% after investment.
Compute the residual income of the Division E, if the operating income is $200,000, the desired rate of return is 6% before investment, and 9% after investment.
4.
Compute the residual income of the divisions, after the additional investment.
4.

Explanation of Solution
Compute the residual income of the Division AM, if the residual income, before investment is $108,000 (From Requirement (2)), the residual income after investment is $8,000.
Compute the residual income of the Division AS, if the residual income, before investment is $40,000 (From Requirement (2)), the residual income after investment is $(800).
Compute the residual income of the Division E, if the residual income, before investment is $24,000 (From Requirement (2)), the residual income after investment is $6,000.
h.
Indicate the manager that would be ready to accept the additional investment opportunity of $200,000, based on the residual income.
h.

Explanation of Solution
The managers of Division AM and Division E would be eager to accept the additional investment opportunity of $200,000 because it would increase the residual income of the divisions.
Want to see more full solutions like this?
Chapter 9 Solutions
Fundamental Managerial Accounting Concepts
- Hamilton Textiles has the following data: • Beginning raw materials inventory = $90,000 Materials purchased = $55,000 Ending raw materials inventory = $75,000 Calculate the cost of raw materials used.arrow_forwardprovide correct answerarrow_forwardPlease need help with this accounting questionarrow_forward
- Do fast answer of this accounting questionsarrow_forwardCountry Selection for your Portfolio Project First, review the Portfolio Project description and the grading rubric in the Module 7 folder. Then, choose a country you will study and become an expert in as you prepare for the final project. Once you have selected a country, select a product that is currently not available there. This country-product combination will be the focus of your Portfolio Project. There can be only one person per country. So post early to ensure you get your country choice. It is best if we have representation from different regions of the world (e.g., Africa, Asia-Pacific, Europe, Latin/Caribbean, the Middle East/North Africa, and Canada), so be aware of countries that have already been selected. Helpful Hint: The World FactbookLinks to an external site. is an excellent resource to use when deciding which country you want to study. You should respond to the product or service choice selection posted commenting on initial thoughts about appropriateness to the…arrow_forwardFor this discussion, address the questions below: Choose a global company that you feel does an excellent job of marketing its products and services. Discuss your perception of how the company avoids self-reference criterion to market effectively to different regions. You can structure your answer in the following manner: start your post with a well-developed paragraph to explain why you selected this company for this assignment. In the next paragraph, describe what you think drives this company's marketing strategy success. The third paragraph should discuss your perception of how the company avoids self-reference criterion to market effectively to different regions. Your fourth paragraph should focus on how you think the company avoids ethnocentric behavior in international markets where they are present.arrow_forward
- We are all strategists. That is, we set goals, navigate threats, and tap opportunities. We leverage our resources and implement decisions and actions to reach our goals. Sometimes we succeed and sometimes we fail. (Adapted from Figure 1.1, Grant, 2022, p. 7) Please share an experience in which you played the strategist. What was your goal? Did the goal fit (or not fit) with the realities of the external environment and your resources? What implementation decisions and efforts did you make? Was your strategy successful or not? Why? Did strategy execution (i.e., implementation, monitoring, and control) play a key role in your strategy’s success or failure?arrow_forwardFour factors are important when assessing the global business environment: Political Risk Economic Risk Legal Risk Technological Risk For your Portfolio Project, you have been asked to move to a country of your choice and take over as a manager at one of your company’s subsidies that isn’t performing to its potential. The discussion for this week pertains to that scenario. Choose one of these four factors and discuss a ‘risk’ that could affect or has affected the company operations in the country you have chosen for your expansion plan. Describe how this risk relates to your selected country and organization.arrow_forwardOriole Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2025. January 1, 2025 December 31, 2025 Projected benefit obligation $1,490,000 $1,517,000 Market-related and fair value of plan assets 793,000 1,124,300 Accumulated benefit obligation 1,614,000 1,736,100 Accumulated OCI (G/L)—Net gain 0 (199,000) The service cost component of pension expense for employee services rendered in the current year amounted to $77,000 and the amortization of prior service cost was $122,100. The company’s actual funding (contributions) of the plan in 2025 amounted to $252,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,221,000 on January 1, 2025. Assume no benefits paid…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





