The following data are available for Segment X of XYZ Company: Net income of the segment $50,000 Contribution to indirect expenses 40,000 Controllable income by manager 48,000 Assets directly used by the manager 360,000 Assets under the control of the segment manager 240,000 Determine the return on investment for evaluating 1. the income performance of the manager of Segment X and 2. the rate of income contribution of the segment.

The following data are available for Segment X of XYZ Company: Net income of the segment $50,000 Contribution to indirect expenses 40,000 Controllable income by manager 48,000 Assets directly used by the manager 360,000 Assets under the control of the segment manager 240,000 Determine the return on investment for evaluating 1. the income performance of the manager of Segment X and 2. the rate of income contribution of the segment.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 4BE: Profit margin, investment turnover, and ROI Briggs Company has operating income of 36,000, invested...

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Financial information for Lighthizer Trading Company for the fiscal year-ended September 30, 20xx, was collected. As part of a management training session, you have been asked to prepare an income statement format that will be used to distribute to management. Subtotals and totals are included in the information, but you will need to calculate the values. A. In the correct format, prepare the income statement using this information: B. Calculate the profit margin, return on investment, and residual income. Assume an investment base of $42,000 and 8% cost of capital. C. Prepare a short response to accompany the income statement that explains why uncontrollable costs are included in the income statement.
Classify each of the following actions as either being associated with the financial accounting information system (FS) or the cost management information system (CMS): a. Determining the total compensation of the CEO of a public company b. Issuing a quarterly earnings report c. Determining the unit product cost using TDABC d. Calculating the number of units that must be sold to break even e. Preparing a required report for the SEC f. Preparing a sales budget g. Using cost and revenue information to decide whether to keep, or drop, a product line h. Preparing an annual statement of financial position that conforms to generally accepted accounting principles (GAAP) i. Using cost and revenue information to decide whether to invest in a new production system or not j. Reducing costs by improving the overall quality of a product k. Using a debt-equity ratio and liquidity ratios from a balance sheet to assess the likelihood of bankruptcy l. Using a public companys financial statements to decide whether or not to buy its stock
Each of the following scenarios requires the use of accounting information to carry out one or more of the following managerial activities: (1) planning, (2) control and evaluation, (3) continuous improvement, or (4) decision making. a. MANAGER: At the last board meeting, we established an objective of earning an after-tax profit equal to 20 percent of sales. I need to know the revenue that we need to earn in order to meet this objective, given that we have 250,000 to spend on the promotional campaign. Once I have estimated sales in units, we then need to outline a promotional campaign that conforms to our budget and that will take us where we want to be. However, to compute the targeted sales revenue, I need to know the unit sales price, the unit variable cost, and the associated fixed production and support costs. I also need to know the tax rate. b. MANAGER: We have problems with our procurement process. Our accounts payable department is spending 80 percent of its time resolving discrepancies between the purchase order, receiving order, and suppliers invoice. Incorrect part numbers on the purchase orders, incorrect quantities ordered, and wrong parts sent (or the incorrect quantity) are just a few examples of sources of discrepancies. A complete redesign of the process has been suggested, which will allow us to eliminate virtually all of the errors and, at the same time, significantly reduce the number of clerks needed in purchasing, receiving, and accounts payable. This redesign promises to significantly reduce costs, decrease lead time, and increase customer satisfaction. c. MANAGER: This overhead cost report indicates that we have spent significantly more on inspection, purchasing, and production than was budgeted. An investigation has revealed that the source of the problem is faulty components from suppliers. A supplier evaluation has revealed that by selecting five suppliers with the best quality records (out of 15 currently used), the number of defective components will be dramatically reduced, thus producing significant overhead savings by reducing the demand for inspections, reordering, and rework. d. MANAGER: A large local firm has approached me and has offered to sell us one of the components used in our small enginesa component that we are currently producing internally. I need to know costs that we would avoid if this component is purchased so that I can assess the economic merits of this offer. e. MANAGER: Currently, our deluxe lawn mower is losing money. We need to increase profits. I would like to know how much our profits would be if we reduce our variable costs by 50 per mower while maintaining our current sales volume. Also, marketing claims that if we increase advertising expenditures by 1,000,000 and cut prices by 15 percent, we can increase the number of mowers sold by 25 percent. I would like to know which approach offers the most profit, or if a combination of the approaches may be best. f. MANAGER: We are implementing a major quality improvement program. We will be increasing the investment in prevention and detection activities with the expectation of driving down both internal and external failure costs. I expect to see trend reports for all categories of quality costs. I want to see if improving quality really does reduce costs and improve profitability. g. MANAGER: Our engineering design department has proposed a new design for our product. The new design promises to reduce post-purchase costs and, as a consequence, increase market share. I need to know the cost of producing this new design because it uses some new components and requires some different manufacturing processes. I would then like to have a projected income statement based on the new market share and new production costs. The planned selling price will be the same, or maybe even 10 percent lower. Projections based on the two price scenarios would be needed. h. MANAGER: My engineers have said that by redesigning our two main production processes, we can reduce move time by 90 percent and wait time by 85 percent. This would decrease cycle time and virtually eliminate the need to carry finished goods inventories. On-time deliveries would also increase dramatically. This would produce cost savings of nearly 20,000,000 per year. Market share and revenues would also increase. Required: 1. Describe each of the four managerial responsibilities. 2. Identify the managerial activity or activities applicable for each scenario, and indicate the role of accounting information in the activity.
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Kanye Achebe just became the operations manager of Weston Transportation. Weston transports large crates for online companies and transports containers overseas. Kanye would like to evaluate each divisional manager on a basis similar to segmental reporting required by generally accepted accounting principles (GAAP) financial statements contained in annual reports. These data include a presentation of net sales, operating profit and loss before and after taxes, total identifiable assets, and depreciation for segment reported. Kanye thinks that evaluating business division managers by the same criteria as the total company is appropriate. A. Explain why you think the chief financial officer (CFO) disagrees and tells Kanye that publicly reporting information might demotivate managers. B. For better evaluation of the managers, what type of information should Kanye propose that the CFO might accept?
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.
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Use the following information for Exercises 2-47 through 2-49. Jasper Company provided the following information for last year: Last year, beginning and ending inventories of work in process and finished goods equaled zero. Exercise 2-49 Income Statement Refer to the information for Jasper Company on the previous page. Required: 1. Prepare an income statement for Jasper for last year. Calculate the percentage of sales for each line item on the income statement. (Note: Round percentages to the nearest tenth of a percent.) 2. CONCEPTUAL CONNECTION Briefly explain how a manager could use the income statement created for Requirement 1 to better control costs.
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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?