Rundle Home Maintenance Company earned operating income of $6,512,000 on operating assets of $59,200,000 during Year 2. The Tree Cutting Division earned $1,179,860 on operating assets of $6,820,000. Rundle has offered the Tree Cutting Division $2,180,000 o additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $440,360. Rundle has a desired return on investment (ROI) of 9.00 percent. Required a. Calculate the return on investment for Rundle, the Tree Cutting Division, and the additional investment opportunity. b. Calculate the residual income for Rundle, the Tree Cutting Division, and the additional investment opportunity. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the return on investment for Rundle, the Tree Cutting Division, and the additional investment opportunity. (Round your answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45).) Return on Investment Rundle Home Maintenance Company % Tree Cutting Division % Additional investment opportunity

Rundle Home Maintenance Company earned operating income of $6,512,000 on operating assets of $59,200,000 during Year 2. The Tree Cutting Division earned $1,179,860 on operating assets of $6,820,000. Rundle has offered the Tree Cutting Division $2,180,000 o additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $440,360. Rundle has a desired return on investment (ROI) of 9.00 percent. Required a. Calculate the return on investment for Rundle, the Tree Cutting Division, and the additional investment opportunity. b. Calculate the residual income for Rundle, the Tree Cutting Division, and the additional investment opportunity. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the return on investment for Rundle, the Tree Cutting Division, and the additional investment opportunity. (Round your answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45).) Return on Investment Rundle Home Maintenance Company % Tree Cutting Division % Additional investment opportunity

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 2CE: Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each...

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Renslen, Inc., a truck manufacturing conglomerate, has recently purchased two divisions: Meyers Service Company and Wellington Products, Inc. Meyers provides maintenance service on large truck cabs for 10-wheeler trucks, and Wellington produces air brakes for the 10-wheeler trucks. The employees at Meyers take pride in their work, as Meyers is proclaimed to offer the best maintenance service in the trucking industry. The management of Meyers, as a group, has received additional compensation from a 10 percent bonus pool based on income before income taxes and bonus. Renslen plans to continue to compensate the Meyers management team on this basis as it is the same incentive plan used for all other Renslen divisions, except for the Wellington division. Wellington offers a high-quality product to the trucking industry and is the premium choice even when compared to foreign competition. The management team at Wellington strives for zero defects and minimal scrap costs; current scrap levels are at 2 percent. The incentive compensation plan for Wellington management has been a 1 percent bonus based on gross margin. Renslen plans to continue to compensate the Wellington management team on this basis. The following condensed income statements are for both divisions for the fiscal year ended May 31, 20x1: Renslen, Inc. Divisional Income Statements For the Year Ended May 31, 20x1 Each division has 1,000,000 of management salary expense that is eligible for the bonus pool. Renslen has invited the management teams of all its divisions to an off-site management workshop in July where the bonus checks will be presented. Renslen is concerned that the different bonus plans at the two divisions may cause some heated discussion. Required: 1. Determine the 20x1 bonus pool available for the management team at: a. Meyers Service Company b. Wellington Products, Inc. 2. Identify at least two advantages and disadvantages to Renslen, Inc., of the bonus pool incentive plan at: a. Meyers Service Company b. Wellington Products, Inc. 3. Having two different types of incentive plans for two operating divisions of the same corporation can create problems. a. Discuss the behavioral problems that could arise within management for Meyers Service Company and Wellington Products, Inc., by having different types of incentive plans. b. Present arguments that Renslen, Inc., can give to the management teams of both Meyers and Wellington to justify having two different incentive plans.
Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?
Campbell Home Maintenance Company earned operating income of $6,902,000 on operating assets of $59,500,000 during Year 2. The Tree Cutting Division earned $1,164,240 on operating assets of $6,930,000. Campbell has offered the Tree Cutting Division $2,060,000 of additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $426,420. Campbell has a desired return on investment (ROI) of 9.60 percent.Required Calculate the return on investment for Campbell, the Tree Cutting Division, and the additional investment opportunity. Calculate the residual income for Campbell, the Tree Cutting Division, and the additional investment opportunity.
Spacely Sprockets, Inc. invested $4,995,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 29,800 machine hours and a residual value of $507,000. In its first year in operation the equipment was used for 2,180 hours and an additional 2,700 hours in its second year of usage.The Income Statement for years 1 and 2 of Spacely Sprockets, Inc. are shown below.All items rounded to nearest whole dollar. Spacely Sprockets, Inc. Year 1 Year 2 Net Sales $35,590,000 $36,164,000 COGS $23,120,000 $22,978,000 Gross Profit $12,470,000 $13,186,000 Operating Expenses(before adding in Depreciation) $7,650,000 $8,152,000 Income from Operations $4,820,000 $5,034,000 Income Tax Expense (at 30%) $1,446,000 $1,510,200 Net Income $3,374,000 $3,523,800 Round all items to the nearest whole dollar and use rounded values for all future calculations.1. Calculate the depreciation expense for year 1 and 2 using…
Spacely Sprockets, Inc. invested $4,996,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 31,800 machine hours and a residual value of $496,000. In its first year in operation the equipment was used for 2,130 hours and an additional 2,990 hours in its second year of usage.The Income Statement for years 1 and 2 of Spacely Sprockets, Inc. are shown below.All items rounded to nearest whole dollar. Spacely Sprockets, Inc. Year 1 Year 2 Net Sales $34,491,000 $36,106,000 COGS $22,202,000 $22,388,000 Gross Profit $12,289,000 $13,718,000 Operating Expenses(before adding in Depreciation) $7,663,000 $8,113,000 Income from Operations $4,626,000 $5,605,000 Income Tax Expense (at 30%) $1,387,800 $1,681,500 Net Income $3,238,200 $3,923,500 Round all items to the nearest whole dollar and use rounded values for all future calculations.
Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $4.08 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $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 $ 16,120,000 Operating costs Variable 2,100,000 Fixed (all cash) 7,560,000 Depreciation New equipment 1,570,000 Other 1,380,000 Division operating profit $ 3,510,000 A sales representative from LSI Machine Company approached Oscar in October. LSI has for $6.15 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 percent while reducing cash fixed costs by 5 percent. It would be depreciated…
Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the costs associated with one product line were as follows: first cost of $23,000, and annual costs of $18,000. Annual revenue was $25,000 and the used equipment was salvaged for $5,000. What rate of return did the company make on this product? What is the rate of return that the company made on the product?
Demmert Manufacturing incurred the following expenditures during the current fiscal year: annual maintenance on its equipment, $5,400; remodeling of offices, $22,000; rearrangement of the shipping and receiving area resulting in an increase in productivity, $35,000; addition of a security system to the manufacturing facility, $25,000. How should Demmert account for each of these expenditures?
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 computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 310,000 $ 510,000 Annual revenues and costs: Sales revenues $ 360,000 $ 460,000 Variable expenses $ 164,000 $ 214,000 Depreciation expense $ 62,000 $ 102,000 Fixed out-of-pocket operating costs $ 81,000 $ 65,000 The company’s discount rate is 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product’s payback period. 2. Calculate each product’s net present value. 3. Calculate each product’s internal rate of return. 4. Calculate each…
EV Box is a manufacturer of electric vehicle charging stations and charging software. The initial cost of one part of their manufacturing process was $130,000 with annual costs of $49,000. Revenues were $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. Determine the rate of return the company made on the process.
Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $490,000 on sales of $1,800,000. The company’s average operating assets for the year were $2,000,000 and its minimum required rate of return was 12%. Required: Compute the company’s residual income for the year.
Abbott placed into service a flexible manufacturing cell costing $850,000 early this year for production of their analytical testing equipment. Gross income due to the cell is expected to be $750,000 with deductible expenses of $475,000. Depreciation is based on MACRS-GDS and the cell is in the 7-year property class calling for a depreciation percentage of 14.29% or $121,465 in the first year. Half of the cell cost is financed at 11% with principal paid back in equal amounts over 5 years. The first year’s interest is therefore $46,750 while the principal payment is $85,000. Solve, a. Determine the taxable income for the first year. b. Determine the tax paid due to the cell during the first year using a 25% income-tax rate. c. Determine the after-tax cash flow for the first year.