Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 26E
Refer to the data for Exercise 13–24. Assume that the company’s minimum desired
Required: Compute Dakota Division’s residual income for the year.
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Assume that Division Blue has achieved a yearly operating income of $162,000 using $973,000 of invested assets. If management has set a minimum acceptable return on investment of 7%, the residual income is
a. $75,112
b.$112,668
c.$93,890
d.$162,000
ABC Company has established a target rate of return of 12% for all of its divisions. In 2021, Division A generated sales of $16,000,000 and expenses of $14,000,000. Total assets at the beginning of the year were $10,000,000, and total assets at the end of the year were $8,000,000. For 2021, what was Division A's return on investment (rounded to the nearest whole percent)?
Assume that Division Blue has achieved a yearly income from operations of $157,000 using $956,000 of invested assets. If management has set a minimum acceptable rate of return of 10%, the residual income is
a.$157,000
b.$49,120
c.$61,400
d.$73,680
Chapter 13 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 13 - What is the managerial accountants primary...Ch. 13 - Define goal congruence, and explain why it is...Ch. 13 - Describe the managerial approach known as...Ch. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Create an example showing how residual income is...Ch. 13 - What is the chief disadvantage of ROI as an...Ch. 13 - Why is there typically a rise in ROI or residual...Ch. 13 - Define the term economic value added. How does it...
Ch. 13 - Distinguish between the following measures of...Ch. 13 - Why do some companies use gross book value instead...Ch. 13 - Explain why it is important in performance...Ch. 13 - How do organizations use pay for performance to...Ch. 13 - Describe an alternative to using ROI or residual...Ch. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Discuss the importance of nonfinancial information...Ch. 13 - Identify and explain the managerial accountants...Ch. 13 - Describe four methods by which transfer prices may...Ch. 13 - Explain the significance of excess capacity in the...Ch. 13 - Why might income-tax laws affect the...Ch. 13 - Prob. 23RQCh. 13 - The following data pertain to Dakota Divisions...Ch. 13 - Refer to the preceding exercise. Requited:...Ch. 13 - Refer to the data for Exercise 1324. Assume that...Ch. 13 - Golden Gate Construction Associates, a real estate...Ch. 13 - Prob. 28ECh. 13 - Prob. 29ECh. 13 - Refer to Exhibit 133. Assume that you are a...Ch. 13 - Prob. 32ECh. 13 - Prob. 33ECh. 13 - Prob. 34ECh. 13 - Prob. 35ECh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Megatronics Corporation, a massive retailer of...Ch. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Clearview Window Company manufactures windows for...Ch. 13 - Prob. 47PCh. 13 - Alpha Communications, Inc., which produces...Ch. 13 - Prob. 49PCh. 13 - Holiday Entertainment Corporation (HHC), a...Ch. 13 - InterGlobal Industries is a diversified...Ch. 13 - Prob. 52C
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- 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.)arrow_forwardThe income statement comparison for Forklift Material Handling shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the return on investment. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in part C.arrow_forwardThe income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.arrow_forward
- GGX is the general manager of the Jung Division, and his performance is measured using the residual income method. GGX is reviewing the following forecasted information for the division for next year. Category Amount (thousands) Working capital P 1,800 Revenue 30,000 Plant and equipment 17,200 To establish a standard of performance for the division’s manager using the residual income approach, four scenarios are being considered. Scenario 1 assumes an imputed interest charge of 12% and a target residual income of P1,500,000. Scenario 2 assumes an imputed interest charge of 15% and a target residual income of P2,000,000. Scenario 3 assumes an imputed interest charge of 18% and a target residual income of P1,250,000. Scenario 4 assumes an imputed interest charge of 10% and a target residual income of P2,500,000. What is the residual income for scenario 2?arrow_forwardThe income statement for Forklift Electrical Ltd for two years is attached as a pic. Required: Assuming an 8% cost of capital, calculate the residual income for each year. Would the management of Forklift Electrical Ltd have been more likely to accept the investment opportunity if the residual income had been used as a performance measure instead of ROI? Explain your answerarrow_forwardBased on the data in problem 24- 4 above, assume that management has established a 10%minimum acceptable rate of return for invested assets. a. Determine the residual income for each division.b. Which division has the most residual income?arrow_forward
- 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?arrow_forwardIf the average operating assets are P1,000,000, return on investment for the AB Division is (percent)arrow_forwardrequired: The residual income for the AB Division last year was The return on investment last year for the AB Company was (percent)arrow_forward
- The XYZ Division of ABC Corp. generated a residual income of $400,000 and a return on investment of 34% with average annual assets of $4,000,000. What was the target rate of return the company used to calculate the XYZ Division's residual income?arrow_forwardThe Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 27,700 Sales revenue $ 14,800 $ 16,400 $ 17,800 $ 14,300 Operating costs 3,600 3,450 5,600 4,200 Depreciation 6,925 6,925 6,925 6,925 Net working capital spending 370 270 365 220 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative…arrow_forwardMitsu Division has the following results for the year: Revenues $1,080,000Variable expenses 440,000Fixed expenses 400,000Total divisional assets are $1,600,000. The company's minimum required rate of return is 14 percent. What is the residual income for Scottso?arrow_forward
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