Answer only 2,3,4,5,6 PROBLEM 11-21 Return on Investment (ROI) and Residual Income LO11-1, LO11-2"I know headquarters wants us to add that new product line," said Dell Havasi, manager ofBillings Company's Office Products Division. "But I want to see the numbers before I make anymove. Our division's return on investment (ROI) has led the company for three years, and I don'twant any letdown."Billings Company is a decentralized wholesaler with five autonomous divisions. The divi-sions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managerswho have the highest ROIS. Operating results for the company's Office Products Division for thisyear are given below:Sales$10,000,000Variable expenses6,000,000Contribution margin4,000,000Fixed expenses3,200,000$.800,000Net operating incomeDivisional average operating assets$4,000,000 The company had an overall return on investment (ROI) of 15% this year (considering alldivisions). Next year the Office Products Division has an opportunity to add a new product linethat would require an additional investment that would increase average operating assets by$1,000,000. The cost and revenue characteristics of the new product line per year would be:Sales$2,000,000Variable expenses60% of salesFixed expenses$640,000Required:1.Compute the Office Products Division's margin, turnover, and ROI for this year.2.Compute the Office Products Division's margin, turnover, and ROI for the new product lineby itself.3. Compute the Office Products Division's margin, turnover, and ROI for next year assumingthat it performs the same as this year and adds the new product line.4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain.5. Why do you suppose headquarters is anxious for the Office Products Division to add the newproduct line?6. Suppose that the company's minimum required rate of return on operating assets is 12% andthat performance is evaluated using residual income.Compute the Office Products Division's residual income for thisCompute the Office Products Division's residual income for the new product line by itself.Compute the Office Products Division's residual income for next year assuming that itperforms the same as this year and adds the new product line.Using the residual income approach, if you were in Dell Havasi's position, would youaccept or reject the new product line? Explain.year.a.b.с.d.

“Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

PROBLEM 11-21 Return on Investment (ROI) and Residual "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. “But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divi- sions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIS. Operating results for the company's Office Products Division for this year are given below: Sales $10,000,000 Variable expenses 6,000,000 Contribution margin 4,000,000 Fixed expenses 3,200,000 Net operating income $ 800,000 Divisional average operating assets $4,000,000

PROBLEM 11-21 Return on Investment (ROI) and Residual "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. “But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divi- sions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIS. Operating results for the company's Office Products Division for this year are given below: Sales $10,000,000 Variable expenses 6,000,000 Contribution margin 4,000,000 Fixed expenses 3,200,000 Net operating income $ 800,000 Divisional average operating assets $4,000,000

Financial & Managerial Accounting

14th Edition

ISBN:9781337119207

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter20: Variable Costing For Management Analysis

Section: Chapter Questions

Problem 20.5BPR: Variable costing income statement and effect on income of change in operations Kimbrell Inc....

See similar textbooks

Similar questions

Problem 11-21 (Algo) Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] “I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,900,000 Variable expenses 14,313,400 Contribution margin 8,586,600 Fixed expenses 6,205,000 Net operating income $ 2,381,600 Divisional average operating assets $ 4,580,000 The company had an overall return on investment (ROI) of 17.00% this year (considering…
Problem 10-18 (Algo) Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] “I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 21,600,000 Variable expenses 13,622,600 Contribution margin 7,977,400 Fixed expenses 6,010,000 Net operating income $ 1,967,400 Divisional average operating assets $ 4,499,200 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions).…
Problem 8-23 Comprehensive Problem [LO8-1, LO8-2, LO8-3, LO8-5, LO8-6] Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 290,000 $ 500,000 Annual revenues and costs: Sales revenues $ 350,000 $ 450,000 Variable expenses $ 160,000 $ 210,000 Depreciation expense $ 58,000 $ 100,000 Fixed out-of-pocket operating costs $ 80,000 $ 60,000 The company’s discount rate is 16%. Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each product.…
Exercise 12-9 Return on Investment (ROI) and Residual Income Relations [LO12-1, LO12-2] A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to nearest whole number.) Company A B C Sales $310,000 $770,000 $670,000 N. Oper Inc. $45,000 Avg. Oper. Ass. $165,000 $141,000 ROI 18% 17% % Minimum required rate of return: Percentage 16% % 13% Dollar…
Exercise 12-16 (Algo) Calculate selling price of new product; what-if questions; breakeven LO 8, 9, 10, 11 D&R Corp. has annual revenues of $262,000, an average contribution margin ratio of 33%, and fixed expenses of $101,800. Required: Management is considering adding a new product to the company's product line. The new item will have $8.7 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. If the new product adds an additional $29,100 to D&R's fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product? If 20,900 units of the new product could be sold at a price of $14.2 per unit, and the company's other business did not change, calculate D&R's total operating income and average contribution margin ratio.
Exercise 12-2 Residual Income [LO12-2] Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $410,000 on sales of $2,100,000. The company’s average operating assets for the year were $2,300,000 and its minimum required rate of return was 12%. Required: Compute the company’s residual income for the year.
Problem 12-15 Return on Investment (ROI) and Residual Income [LO12-1, LO12-2] Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc.Balance Sheet BeginningBalance EndingBalance Assets Cash $ 129,000 $ 140,000 Accounts receivable 336,000 473,000 Inventory 561,000 477,000 Plant and equipment, net 834,000 810,000 Investment in Buisson, S.A. 400,000 432,000 Land (undeveloped) 254,000 247,000 Total assets $ 2,514,000 $ 2,579,000 Liabilities and Stockholders' Equity Accounts payable $ 384,000 $ 346,000 Long-term debt 967,000 967,000 Stockholders' equity 1,163,000 1,266,000 Total liabilities and stockholders' equity $ 2,514,000 $ 2,579,000 Joel de Paris, Inc.Income Statement Sales $ 4,324,000 Operating expenses 3,805,120 Net operating income 518,880 Interest and taxes: Interest expense 124,000 Tax expense 193,000 317,000 Net income $ 201,880…
Problem 11-17 (Algo) Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc.Balance Sheet BeginningBalance EndingBalance Assets Cash $ 138,000 $ 134,000 Accounts receivable 342,000 483,000 Inventory 580,000 473,000 Plant and equipment, net 810,000 820,000 Investment in Buisson, S.A. 400,000 435,000 Land (undeveloped) 248,000 250,000 Total assets $ 2,518,000 $ 2,595,000 Liabilities and Stockholders' Equity Accounts payable $ 375,000 $ 340,000 Long-term debt 1,046,000 1,046,000 Stockholders' equity 1,097,000 1,209,000 Total liabilities and stockholders' equity $ 2,518,000 $ 2,595,000 Joel de Paris, Inc.Income Statement Sales $ 5,103,000 Operating expenses 4,235,490 Net operating income 867,510 Interest and taxes:…
Problem 14-46 (Algo) Equipment Replacement and Performance Measures (LO 14-2) Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $3.5 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $3.5 million in automated equipment for test machine assembly. The division's expected income statement at the beginning of the year was as follows. Sales revenue $ 15,600,000 Operating costs Variable 2,000,000 Fixed (all cash) 7,100,000 Depreciation New equipment 1,490,000 Other 1,200,000 Division operating profit $ 3,810,000 A sales representative from LSI Machine Company approached Oscar in October. LSI has for $7.6 million a new assembly machine that offers significant improvements over the equipment Oscar bought at the beginning of the year. The new equipment would expand division output by 10…
Problem 11-17 (Algo) Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Financial data for Joel de Paris, Incorporated, for last year follow: Joel de Paris, IncorporatedBalance Sheet Beginning Balance Ending Balance Assets Cash $ 139,000 $ 133,000 Accounts receivable 340,000 489,000 Inventory 560,000 487,000 Plant and equipment, net 821,000 791,000 Investment in Buisson, S.A. 395,000 434,000 Land (undeveloped) 254,000 249,000 Total assets $ 2,509,000 $ 2,583,000 Liabilities and Stockholders' Equity Accounts payable $ 378,000 $ 333,000 Long-term debt 1,041,000 1,041,000 Stockholders' equity 1,090,000 1,209,000 Total liabilities and stockholders' equity $ 2,509,000 $ 2,583,000 Joel de Paris, IncorporatedIncome Statement Sales $ 5,264,000 Operating expenses 4,369,120 Net operating income 894,880 Interest and taxes: Interest expense $ 118,000 Tax expense 207,000 325,000 Net income $ 569,880 The…
Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, LO14-6] Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,170,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $ 4,500,000 Variable expenses 2,000,000 Contribution margin 2,500,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 780,000 Depreciation 1,034,000 Total fixed expenses 1,814,000 Net operating income $ 686,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required:…
EXERCISE 6–12 Target Profi t and Break-Even Analysis; Margin of Safety; CM Ratio [ LO1 , LO3 , LO5 , LO6 , LO7 ] Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Total Per UnitSales. . . . . . . . . . . . . . . . . . . . . . . . $450,000 $30Variable expenses . . . . . . . . . . . . . 180,000 12Contribution margin . . . . . . . . . . . . 270,000 $18Fixed expenses. . . . . . . . . . . . . . . . 216,000Net operating income . . . . . . . . . . . $ 54,000 Required: 1. What is the monthly break-even point in units sold and in sales dollars? 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3. How many units would have to be sold each month to earn a target profi t of $90,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target sales level4. Refer to the original data. Compute the company’s margin of safety in both dollar and…