COST ACCOUNTING
null Edition
ISBN: 9781323927397
Author: Pearson
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 23.31E
1.
To determine
Residual Income:
The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.
To explain: The three proposals specifying the advantages and disadvantages of each.
2.
To determine
To explain: Whether the complaint of H is valid or not and the reasons for it.
3.
To determine
To explain: Whether residual income is a good performance measure to use for evaluation and to measure the economic viability of the snack division.
4.
To determine
To explain: Whether you agree with the plan or not and the reasons for it.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.■ Proposal 1 calls for paying Hamm a fixed salary.■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. The salespeople for the snack division of Wonkies, Inc. are responsible for selling and providing customer service and support. Sales are easy to measure. Although customer service is important to the snack division in the long run, it has not yet implemented customer-service measures. Hamm wants to compensate his sales force only on the…
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.
■ Proposal 1 calls for paying Hamm a fixed salary.
■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.
■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. Evaluate the three proposals, specifying the advantages and disadvantages of each.
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.
■ Proposal 1 calls for paying Hamm a fixed salary.
■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.
■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. Wonkies, Inc. competes against Galaxy Industries in the snack business. Galaxy is approximately the same size as the Wonkies snack division and operates in a business environment that is similar to Wonkies. The top management of Wonkies, Inc. is considering evaluating Hamm on the basis of his snack division’s RI minus Galaxy’s RI. Hamm…
Chapter 23 Solutions
COST ACCOUNTING
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
Similar questions
- Carlton's Pizzas is a chain of pizza stores. Pizzas are made fresh in-store, and then delivered to customers by a fleet of drivers. The senior management team has identified the strategic priorities for the business as on-time delivery and product quality. i) If the company is successful in achieving challenging targets for these performance measures, will it also necessarily achieve high profitability? And For each of the strategic priorities, suggest three performance measures.arrow_forwardDuncan’s Pizzas is a chain of pizza stores. Pizzas are made fresh in-store, and then delivered tocustomers by a fleet of drivers. The senior management team has identified the strategic priorities forthe business as on-time delivery and product quality. Question: If the company is successful in achieving challenging targets for these performance measures, willit also necessarily achieve high profitability? Explain your answer.arrow_forwardXerox Corporation has been an innovator in its responsibility-accounting system. In one initiative, management changed the responsibility-centre orientation of its Logistics and Distribution Department from a cost centre to a profit The department manages the inventories and provides other logistical services to the company’s Business Systems Group. Formerly, the manager of the Logistics and Distribution Department was held accountable for adherence to an operating expense budget. Now the department “sells” its services to the company’s other segments, and the department’s manager is evaluated partially on the basis of the department’s profit. Xerox Corporation’s management feels that the change has been beneficial. The change has resulted in more innovative thinking in the development and has moved decision making down to lower levels in the company. Required: Comment on the new responsibility-centre designation for the Logistics and Distribution Department.arrow_forward
Recommended textbooks for you
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeEssentials Of Business AnalyticsStatisticsISBN:9781285187273Author:Camm, Jeff.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Essentials Of Business Analytics
Statistics
ISBN:9781285187273
Author:Camm, Jeff.
Publisher:Cengage Learning,
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,