Safari Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here: Boat Division Trailer Division Operating income $75,000 $36,000 $215,000 Total assets at Jan. 1 $700,000 Total assets at Dec .31 $750,000 $220,000 Which of the following statements would be the most meaningful interpretation of this data? O A. The Boat Division uses its assets less efficiently than the Trailer Division does because it has a lower return on investment. O B. The Boat Division shows a more efficient use of assets than the Trailer Division because it has a higher operating income. OC. The Boat Division is financially more successful than the Trailer Division because it shows an increase in assets. O D. The Boat Division's performance is better than that of the Trailer Division because it has higher assets.

Safari Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here: Boat Division Trailer Division Operating income $75,000 $36,000 $215,000 Total assets at Jan. 1 $700,000 Total assets at Dec .31 $750,000 $220,000 Which of the following statements would be the most meaningful interpretation of this data? O A. The Boat Division uses its assets less efficiently than the Trailer Division does because it has a lower return on investment. O B. The Boat Division shows a more efficient use of assets than the Trailer Division because it has a higher operating income. OC. The Boat Division is financially more successful than the Trailer Division because it shows an increase in assets. O D. The Boat Division's performance is better than that of the Trailer Division because it has higher assets.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...

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Last Resort Industries Inc. is a privately held diversified company with five separate divisions organized as investment centers. A condensed income statement for the Specialty Products Division for the past year, assuming no support department allocations, along with asset information is as follows: The manager of the Specialty Products Division was recently presented with the opportunity to add an additional product line, which would require invested assets of 14,400,000. A projected income statement for the new product line is as follows: The Specialty Products Division currently has 27,000,000 in invested assets, and Last Resort Industries Inc.s overall return on investment, including all divisions, is 10%. Each division manager is evaluated on the basis of divisional return on investment. A bonus is paid, in 8,000 increments, for each whole percentage point that the divisions return on investment exceeds the company average. The president is concerned that the manager of the Specialty Products Division rejected the addition of the new product line, even though all estimates indicated that the product line would be profitable and would increase overall company income. You have been asked to analyze the possible reasons the Specialty Products Division manager rejected the new product line. a. Determine the return on investment for the Specialty Products Division for the past year. b. Determine the Specialty Products Division managers bonus for the past year. c. Determine the estimated return on investment for the new product line. Round percentages to one decimal place and the investment turnover to two decimal places. d. Why might the manager of the Specialty Products Division decide to reject the new product line? Support your answer by determining the projected return on investment for 20Y6, assuming that the new product line was launched in the Specialty Products Division and 20Y6 actual operating results were similar to those of 20Y5. e. Suggest an alternative performance measure for motivating division managers to accept new investment opportunities that would increase the overall company income and return on investment.
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Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Wholesale Division Operating income $ 2,750,000 $ 6,250,000 Operating assets $ 18,500,000 $ 38,500,000 Terra Company has set a target return on investment (ROI) of 14% for both divisions. Which of the following statements is accurate? Residual income for the wholesale division was $160,000. Residual income for the wholesale division was $860,000. Residual income for the retail division was $860,000. None of these answers are correct.
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