Tan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Sales Net operating income Average operating assets Division Osaka $ 9,400,000 $ 752,000 $ 2,350,000 Yokohama $ 24,000,000 $ 2,400,000 $ 8,000,000 Required: 1. For each division, compute the return on investment (ROI). 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division.

Tan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Sales Net operating income Average operating assets Division Osaka $ 9,400,000 $ 752,000 $ 2,350,000 Yokohama $ 24,000,000 $ 2,400,000 $ 8,000,000 Required: 1. For each division, compute the return on investment (ROI). 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division.

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 16E: A multinational corporation has a number of divisions, two of which are the North American Division...

See similar textbooks

Similar questions

The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as follows (assuming no support department allocations): The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that 143,750,000 of assets have been invested in the Consumer Products Division. b. If expenses could be reduced by 3,450,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division?
Forchen, Inc., provided the following information for two of its divisions for last year: Required: 1. For the Small Appliances Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 2. For the Cleaning Products Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 3. What if operating income for the Small Appliances Division was 2,000,000? How would that affect average operating assets? Margin? Turnover? ROI? Calculate any changed ratios (round to four significant digits).
Refer to the data given in Exercise 10.8. Required: 1. Compute the residual income for each of the opportunities. (Round to the nearest dollar.) 2. Compute the divisional residual income (rounded to the nearest dollar) for each of the following four alternatives: a. The Espresso-Pro is added. b. The Mini-Prep is added. c. Both investments are added. d. Neither investment is made; the status quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Based on your answer in Requirement 2, compute the profit or loss from the divisional managers investment decision. Was the correct decision made?
Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared: The support department allocation rates for the support department costs were based on revenues. Because the revenues of the two divisions were the same, the support department allocations to each division were also the same. The following additional information is available: a.Does the operating income (loss) for the two divisions accurately measure performance? Explain. b.Correct the divisional income statements, using appropriate support department cost drivers.
Communication The Norse Division of Gridiron Concepts Inc. experienced significant revenue and profit growth from 20Y4 to 20Y6 as shown in the following divisional income statements: There are no support department allocations, and the division operates as an investment center that must maintain a 15% return on invested assets. Determine the profit margin, investment turnover, and return on investment for the Norse Division for 20Y420Y6. Based on your computations, write a brief memo to the president of Gridiron Concepts Inc., Knute Holz, evaluating the divisions performance.
Divisional performance analysis and evaluation The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Instructions 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place. 3. If managements minimum acceptable return on investment is 10%, determine the residual income for each division. 4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).
Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Washingtons actual cost of capital was 12%. Exercise 11-32 Residual Income Refer to the information for Washington Company above. In addition, Washington Companys top management has set a minimum acceptable rate of return equal to 8%. Required: 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.
Two departments within Cougar Gear Inc. are Production and Sales. Each department has a unique scorecard, as follows: The Production Department scorecard focuses on the learning and growth and internal processes perspectives. The Sales Department scorecard focuses on the learning and growth and customer perspectives. Both scorecards have the learning and growth performance metrics of median training hours per employee and average employee tenure. The Production scorecard has the unique metrics of production time per unit and number of production shutdowns. The Sales scorecard has the unique metrics of percentage of customers who shop again and online customer satisfaction rating. The performance targets for each metric are shown in the tan boxes just under the performance metrics. The actual achieved metrics are shown in the red boxes just below the tan boxes. When evaluating both departments, Cougar Gears management looks at the median training hours per employee and average employee tenure metrics and subsequently decides to give the Sales Department a large bonus while giving the Production Department a minimal bonus. a. Determine and define the type of cognitive bias Cougar Gears management has exhibited in this instance. b. Determine which department would have received the larger bonus had the companys management not been biased in the evaluation. c. Discuss one advantage and one disadvantage of using unique balanced scorecards for different departments or divisions of a company.
The three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior year: a. Which division is making the best use of invested assets and should be given priority for future capital investments? b. b. Assuming that the minimum acceptable return on new projects is 19%, would all investments that produce a return in excess of 19% be accepted by the divisions? Explain. c. c. Identify opportunities for improving the companys financial performance.
Katayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions projected income statement for the coming year is as follows: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. 2. The divisional manager has decided to increase the advertising budget by 140,000 and cut the average selling price to 200. These actions will increase sales revenues by 1 million. Will this improve the divisions financial situation? Prepare a new income statement to support your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by 612,000. Without preparing a new income statement, determine by how much profits are underestimated. 4. How many units must be sold to earn an after-tax profit of 1.254 million? Assume a tax rate of 34 percent. (Round your answer up to the next whole unit.) 5. Compute the margin of safety in dollars based on the given income statement. 6. Compute the operating leverage based on the given income statement. (Round to three significant digits.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?
Dantrell Palmer has just been appointed manager of Kirchner Glass Products Division. He has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Dantrell will be reassigned as an assistant divisional manager in another division. The divisional income statement for the most recent year is as follows: Upon arriving at the division, Dantrell requested the following data on the divisions three products: He also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products; the quantity that could be produced and sold would equal the quantity sold of the product it displaces, although demand limits the maximum quantity that could be sold to 20,000 units. Because of specialized production equipment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows: Required: 1. Prepare segmented income statements for Products A, B, and C. 2. Determine the products that Dantrell should produce for the coming year. Prepare segmented income statements that prove your combination is the best for the division. By how much will profits improve given the combination that you selected? (Hint: Your combination may include one, two, or three products.)
Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The divisions projected income statement for the coming year is: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. (Note: Round answer to the nearest unit.) Calculate the contribution margin ratio and use it to calculate the break-even sales revenue. (Note: Round contribution margin ratio to four decimal places, and round the break-even sales revenue to the nearest dollar.) 2. The divisional manager has decided to increase the advertising budget by 250,000. This will increase sales revenues by 1 million. By how much will operating income increase or decrease as a result of this action? 3. Suppose sales revenues exceed the estimated amount on the income statement by 1,500,000. Without preparing a new income statement, by how much are profits underestimated? 4. Compute the margin of safety based on the original income statement. 5. Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income? (Note: Round operating leverage to two decimal places.)