Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Textbook Question
Chapter 24, Problem 8E
Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared:
The support department allocation rates for the support department costs were based on revenues. Because the revenues of the two divisions were the same, the support department allocations to each division were also the same.
The following additional information is available:
a. Does the operating income (loss) for the two divisions accurately measure performance? Explain.
b. Correct the divisional income statements, using appropriate support department cost drivers.
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Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is less than 12%.
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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):
Sales
$744,000
Cost of goods sold
(334,800)
Gross profit
$409,200
Administrative expenses
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Operating income
$260,400
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 $1,240,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.
Profit margin
%
Investment turnover
Return on investment
%
b. If expenses could be reduced by $37,200 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment…
Chapter 24 Solutions
Financial And Managerial Accounting
Ch. 24 - Differentiate between centralized and...Ch. 24 - Differentiate between a profit center and an...Ch. 24 - Weyerhaeuser Co. (WY) developed a system that...Ch. 24 - What is the major shortcoming of using operating...Ch. 24 - In a decentralized company in which the divisions...Ch. 24 - Prob. 6DQCh. 24 - (a) Explain how return on investment might lead a...Ch. 24 - Prob. 8DQCh. 24 - When is the negotiated price approach preferred...Ch. 24 - Prob. 10DQ
Ch. 24 - Budgetary performance for cost center Vinton...Ch. 24 - Support department allocations The centralized...Ch. 24 - Prob. 3BECh. 24 - Profit margin, investment turnover, and ROI Briggs...Ch. 24 - Residual income Obj. The Commercial Division of...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - The following data were summarized from the...Ch. 24 - Prob. 3ECh. 24 - Prob. 4ECh. 24 - Service department charges In divisional income...Ch. 24 - Varney Corporation, a manufacturer of electronics...Ch. 24 - Horton Technology has two divisions, Consumer and...Ch. 24 - Rocky Mountain Airlines Inc. has two divisions...Ch. 24 - Championship Sports Inc. operates two divisionsthe...Ch. 24 - The operating income and the amount of invested...Ch. 24 - The operating income and the amount of invested...Ch. 24 - Prob. 12ECh. 24 - The condensed income statement for the Consumer...Ch. 24 - Prob. 14ECh. 24 - Data are presented in the following table of...Ch. 24 - Prob. 16ECh. 24 - Materials used by the Instrument Division of...Ch. 24 - Prob. 18ECh. 24 - GHT Tech Inc. sells electronics over the Internet....Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Prob. 6PACh. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Prob. 5PBCh. 24 - Prob. 6PBCh. 24 - Kelly Kitchens operates both franchised and...Ch. 24 - Panera Bread Company (PNRA) operates over 2,000...Ch. 24 - Papa Johns International, Inc. (PZZA), operates...Ch. 24 - Panera Bread Company (PNRA) operates over 2,000...Ch. 24 - McDonalds Corporation (MCD) operates company-owned...Ch. 24 - Prob. 1TIFCh. 24 - Prob. 2TIFCh. 24 - Communication The Norse Division of Gridiron...Ch. 24 - The three divisions of Yummy Foods are Snack...Ch. 24 - Last Resort Industries Inc. is a privately held...Ch. 24 - Sara Bellows, manager of the telecommunication...Ch. 24 - Most firms allocate corporate and other support...Ch. 24 - Prob. 3CMACh. 24 - Prob. 4CMA
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