The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows: (P14-5) Touring Bike Division Trail Bike Division Sales $1,500,000 $5,400,000 Cost of goods sold Operating expenses 900,000 4,000,000 495,000 968,000 Invested assets 750,000 3,600,000 Instructions 1. Prepare condensed divisional income statements for the year ended October 31, 20Y9, assuming that there were no service department charges. Touting Bike Division Trial Bike Division

The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows: (P14-5) Touring Bike Division Trail Bike Division Sales $1,500,000 $5,400,000 Cost of goods sold Operating expenses 900,000 4,000,000 495,000 968,000 Invested assets 750,000 3,600,000 Instructions 1. Prepare condensed divisional income statements for the year ended October 31, 20Y9, assuming that there were no service department charges. Touting Bike Division Trial Bike Division

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 11E: The operating income and the amount of invested assets in each division of Conley Industries are as...

See similar textbooks

Similar questions

The following selected data pertain to the Argent Division for last year: Required: 1. How much is the residual income? 2. How much is the return on investment? (Rounded to four significant digits.)
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.
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?
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?
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.
A multinational corporation has a number of divisions, two of which are the North American Division and the Pacific Rim Division. Data on the two divisions are as follows: Round all rates of return to four significant digits. Required: 1. Compute residual income for each division. By comparing residual income, is it possible to make a useful comparison of divisional performance? Explain. 2. Compute the residual rate of return by dividing the residual income by the average operating assets. Is it possible now to say that one division outperformed the other? Explain. 3. Compute the return on investment for each division. Can we make meaningful comparisons of divisional performance? Explain. 4. Add the residual rate of return computed in Requirement 2 to the required rate of return. Compare these rates with the ROI computed in Requirement 3. Will this relationship always be the same?
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.
Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for the last year: At the beginning of last year, Elway had 28,300,000 in operating assets. At the end of the year, Elway had 23,700,000 in operating assets. Required: 1. Compute average operating assets. 2. Compute the margin and turnover ratios for last year. (Note: Round the answer for margin ratio to two decimal places.) 3. Compute ROI. (Note: Round answer to two decimal places.) 4. CONCEPTUAL CONNECTION Briefly explain the meaning of ROI. 5. CONCEPTUAL CONNECTION Comment on why the ROI for Elway Company is relatively high (as compared to the lower ROI of a typical manufacturing company).
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).
a. Compute the rate of return on investment for each division. b. Which division is the most profitable per dollar invested? Assume that management has established a 10% minimum acceptable rate of return for invested assets. c. Determine the residual income for each division. d. Which division has the most residual income?
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 7% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C Sales $ 15,950,000 $ 28,760,000 $ 25,950,000 Average operating assets $ 3,190,000 $ 7,190,000 $ 5,190,000 Net operating income $ 733,700 $ 373,880 $ 752,550 Minimum required rate of return 6.00 % 6.50 % 14.50 %