CUSTOM COST ACCT 2521 SWP W/ ACCESS
17th Edition
ISBN: 9781323674116
Author: Pearson
Publisher: Pearson Custom Publishing
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 23, Problem 23.30E
- 1. Calculate the ROI and residual income for each division of Cora Manufacturing, and briefly explain which manager will get the bonus. What are the advantages and disadvantages of each measure?
Required
- 2. The CEO of Cora Manufacturing has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate adjusted incomes for clothing and cosmetics and finds that the adjusted after-tax operating incomes are $634,200 and $2,181,600, respectively. Also, the clothing division has $470,000 of current liabilities, while the cosmetics division has only $380,000 of current liabilities. Using the preceding information, calculate the EVA for each division and discuss which manager will get the bonus.
- 3. What nonfinancial measures could Cora use to evaluate divisional performances?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
ROI, RI, EVA, and performance evaluation. Cora Manufacturing makes fashion products and competes on the basis of quality and leading-edge designs. The company has two divisions, clothing and cosmetics. Cora has $5,000,000 invested in assets in its clothing division. After-tax operating income from sales of clothing this year is $1,000,000. The cosmetics division has $12,500,000 invested in assets and an after-tax operating income this year of $2,000,000. The weightedaverage cost of capital for Cora is 6%. The CEO of Cora has told the manager of each division that the division that “performs best” this year will get a bonus.
Cora Manufacturing makes fashion products and competes on the basis of quality and leading-edge designs. The company has two divisions, clothing and cosmetics. Cora has $5,000,000 invested in assets in its clothing division. After-tax operating income from sales of clothing this year is $1,000,000. The cosmetics division has $12,500,000 invested in assets and an after-tax operating income this year of $2,000,000. The weighted-a verage cost of capital for Cora is 6%. The CEO of Cora has told the manager of each division that the division that “performs best” this year will get a bonus.
Q.What nonfinancial measures could Cora use to evaluate divisional performances?
CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it.
The following data relate to the company for the year 2022:
In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years.
The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000.
The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax return on investment for each division was 15%.
The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries. However,…
Chapter 23 Solutions
CUSTOM COST ACCT 2521 SWP W/ ACCESS
Ch. 23 - Prob. 23.1QCh. 23 - Prob. 23.2QCh. 23 - What factors affecting ROI does the DuPont method...Ch. 23 - RI is not identical to ROI, although both measures...Ch. 23 - Describe EVA.Ch. 23 - Give three definitions of investment used in...Ch. 23 - Distinguish between measuring assets based on...Ch. 23 - Prob. 23.8QCh. 23 - Why is it important to distinguish between the...Ch. 23 - Prob. 23.10Q
Ch. 23 - Managers should be rewarded only on the basis of...Ch. 23 - Explain the role of benchmarking in evaluating...Ch. 23 - Explain the incentive problems that can arise when...Ch. 23 - Prob. 23.14QCh. 23 - Prob. 23.15QCh. 23 - During the current year, a strategic business unit...Ch. 23 - Assuming an increase in price levels over time,...Ch. 23 - If ROI Is used to evaluate a managers performance...Ch. 23 - The Long Haul Trucking Company is developing...Ch. 23 - ABC Inc. desires to maintain a capital structure...Ch. 23 - ROI, comparisons of three companies. (CMA,...Ch. 23 - Prob. 23.22ECh. 23 - ROI and RI. (D. Kleespie, adapted) The Sports...Ch. 23 - ROI and RI with manufacturing costs. Excellent...Ch. 23 - ROI, RI, EVA. Hamilton Corp. is a reinsurance and...Ch. 23 - Goal incongruence and ROI. Comfy Corporation...Ch. 23 - ROI, RI, EVA. Performance Auto Company operates a...Ch. 23 - Capital budgeting, RI. Ryan Alcoa, a new associate...Ch. 23 - Prob. 23.29ECh. 23 - ROI, RI, EVA, and performance evaluation. Cora...Ch. 23 - Prob. 23.31ECh. 23 - Prob. 23.32ECh. 23 - ROI performance measures based on historical cost...Ch. 23 - ROI, measurement alternatives for performance...Ch. 23 - Multinational firms, differing risk, comparison of...Ch. 23 - ROI, Rl, DuPont method, investment decisions,...Ch. 23 - Division managers compensation, levers of control...Ch. 23 - Executive compensation, balanced scorecard. Acme...Ch. 23 - Financial and nonfinancial performance measures,...Ch. 23 - Prob. 23.40PCh. 23 - Prob. 23.41PCh. 23 - RI, EVA, measurement alternatives, goal...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Jarriot, Inc., presented two years of data for its Furniture Division and its Houseware Division. Required: 1. Compute the ROI and the margin and turnover ratios for each year for the Furniture Division. (Round your answers to four significant digits.) 2. Compute the ROI and the margin and turnover ratios for each year for the Houseware Division. (Round your answers to four significant digits.) 3. Explain the change in ROI from Year 1 to Year 2 for each division.arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax return on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries.…arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax return on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries. However,…arrow_forward
- CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax return on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries. However,…arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax return on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries.…arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it.The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-taxoperating income from sales of clothing in 2022 is $900,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operatingincome in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-taxreturn on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers shouldhave their compensation structure aligned with their performance measures with nofixed salaries. However, the…arrow_forward
- CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-taxoperating income from sales of clothing in 2022 is $900,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operatingincome in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-taxreturn on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers shouldhave their compensation structure aligned with their performance measures with nofixed salaries.…arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-taxoperating income from sales of clothing in 2022 is $900,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operatingincome in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-taxreturn on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers shouldhave their compensation structure aligned with their performance measures with nofixed salaries. However, the…arrow_forwardDevelop a profit-and-loss statement for the Westgate division of North Industries. This division manufactures light fixtures sold to consumers through home improvement and hardware stores. Cost of goods sold represents 40% of net sales. Marketing expenses include selling expenses, promotion expenses, and freight. Selling expenses include sales salaries totaling $3 million per year and sales commissions (5% of sales). The company spent $3 million on advertising last year,and freight costs were 10% of sales. Other costs include $2 million for managerial salaries and expenses for the marketing function and another $3 million for indirect overhead allocated to the division. a. Develop the profit-and-loss statement if net sales were $20 million last year.b. Develop the profit-and-loss statement if net sales were $40 million last year.c. Calculate Westgate’s break-even sales.arrow_forward
- Connelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year: Variable costs per ice cream maker Direct labor $ 13.50 Direct materials 14.50 Variable overhead 6.00 Total variable costs $ 34.00 Fixed costs Manufacturing $ 82,500 Selling 42,000 Administrative 356,000 Total fixed costs $ 480,500 Selling price per unit $ 67.00 Expected sales (units) 30,000 If the costs and sales price remain the same, what is the projected operating profit for the coming year? What is the breakeven point in units for the coming year?arrow_forwardConnelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year: Variable costs per ice cream maker Direct labor $ 13.50 Direct materials 14.50 Variable overhead 6.00 Total variable costs $ 34.00 Fixed costs Manufacturing $ 82,500 Selling 42,000 Administrative 356,000 Total fixed costs $ 480,500 Selling price per unit $ 67.00 Expected sales (units) 30,000 a. What will be the new breakeven point if the additional $200,000 is spent on advertising? b. Prepare a contribution income statement at the new breakeven point. c. What is the percentage change in both fixed costs and in the breakeven point?arrow_forwardConnelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year: Variable costs per ice cream maker Direct labor $ 13.50 Direct materials 14.50 Variable overhead 6.00 Total variable costs $ 34.00 Fixed costs Manufacturing $ 82,500 Selling 42,000 Administrative 356,000 Total fixed costs $ 480,500 Selling price per unit $ 67.00 Expected sales (units) 30,000 Jan has set the sales target for 35,000 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $200,000 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $200,000 is…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Inspection and Quality control in Manufacturing. What is quality inspection?; Author: Educationleaves;https://www.youtube.com/watch?v=Ey4MqC7Kp7g;License: Standard youtube license