Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4)Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, andassets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance.Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost ofsales).The following information is from Lauderdale's first year of operations:RevenuesCost of salesSelling, General andAdministrative (all fixed)Corporate overheadRegion I$ 1,206,000453,000429,000Region II$ 1,656,000813,000639,000R&D expendituresCurrent liabilitiesInformation on the division assets in the three regions of Lauderdale Corporation follows:Region III$ 2,256,0001,143,000859,000Region I$ 706,000Region II636,0001,296,500Region IIILauderdale Corporation has a cost of capital of 8.6 percent.The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&Dexpenditures (which are included in SG&A) for the year and current liabilities for the three regions follows:$ 162,000102,000Region I Region II$ 222,000152,000R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years.TotalCorporation$ 5,118,0002,409,0001,927,000444,000Region III$ 462,000202,000Required:a. Compute economic value added for the three regions. Ignore taxes.b. How have these regions performed? a. Compute economic value added for the three regions. Ignore taxes.b. How have these regions performed?Complete this question by entering your answers in the tabs below.Required A Required BCompute economic value added for the three regions. Ignore taxes.Note: Do not round your intermediate calculations. Round your answers to the nearest whole dollaramount.Economic value addedRegion I< Required ARegion IIRegion IIIRequired B>

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Description: Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4)Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, andassets in their respective regio

Economic Value Added (EVA) is a financial performance measure that evaluates the value a company…

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a. Compute economic value added for the three regions. Ignore taxes. b. How have these regions performed?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.8E: Corrections to service department charges Panda Airlines Inc. has two divisions organized as profit...

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Corrections to service department charges Panda Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared The service department charge rate for the service department costs was based on revenues. The following additional information is available a.Does the operating income for the two divisions accurately measure performance? b.Using service charge rates for service department charges, correct the divisional income statements.
Profit center responsibility reporting for a service company Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31: The company operates three support departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the companys point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: Instructions 1. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: East, West, and Central. 2. Identify the most successful division according to the profit margin. Round to the nearest whole percent. 3. Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method.
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