Batman Abstract Company has three divisions that operate autonomously.Their results for 2017 are as follows: \[\begin{array} { | l | r | r | r | } \hline &{ \text { Riddler } } & { \text { Joker } } & { \text { Penguin } } \\ \hline \text { Sales } & \$ 5000000 & \$ 7000000 & \$ 10000000 \\ \hline \text { Contribution margin } & 1440000 & 1700000 & 3500000 \\ \hline \text { Operating profit } & 1000000 & 1750000 & 2520000 \\ \hline \text { Investment base } & 9000000 & 10000000 & 14000000 \\ \hline \end{array}\] The company's desired rate of return is 20%. Required: a.Calculate each division's ROI. b.Calculate each division's residual income. c.Rank each division by both ROI and residual income. d.Which division had the best performance in 2017? Why? _____________________________________________________________________________________________ _____________________________________________________________________________________________

a.\[ \begin{array} { l l l } \text { Ri

LaserLife Printer Cartridge Company is a decentralised organisation with several autonomous divisions.The division managers are evaluated,in part,on the basis of the change in their return on invested assets.Operating results for the Packer Division for 2019 are budgeted as follows: \[\begin{array} { | l | r | } \hline \text { Sales } & \$ 5000000 \\ \hline \text { Less variable costs } & \underline { 2500000 } \\ \hline \text { Contribution margin } & 250000 \\ \hline \text { Less fixed expenses } & \underline { 1800000 } \\ \hline \text { Net operating profit } & \$ 100000 \\ \hline \end{array}\] Operating assets for the division are currently $3 600 000.For 2019,the division can add a new product line for an investment of $600 000.The new product line will generate sales of $1 600 000 and will incur fixed expenses of $600 000 annually.Variable costs of the new product will average 60% of the selling price. Required: a.What is the effect on ROI of accepting the new product line? b.If the company's required rate of return is 6% and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations. _____________________________________________________________________________________________ _____________________________________________________________________________________________

a. \[\begin{array} { | l | r | r | } \

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: \[\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\ \text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\ \text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\ \text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\ \text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\ \text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\ \text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2 \end{array}\] -What were the sales for the Tiller Division?

A) $4 800 000 B) $6 000 000 C) $7 750 000 D) $7 500 000 A) $4 800 000 B) $6 000 000 C) $7 750 000 D) $7 500 000

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: \[\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\ \text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\ \text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\ \text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\ \text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\ \text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\ \text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2 \end{array}\] -What is the Tractor Division's investment turnover?

A) 1.0 B) 2.5 C) 2.0 D) .50 A) 1.0 B) 2.5 C) 2.0 D) .50

Provide the missing data for the following situations: \[\begin{array} { | l | r | r | r | } \hline & \text { Red Division } & \text { White Division } & \text { Blue Division } \\ \hline \text { Sales } & \$ ? & \$ 10000000 & \$ ? \\ \hline \text { Net operating profit } & \$ 200000 & \$ 400000 & \$ 288000 \\ \hline \text { Operating assets } & \$ ? & \$ ? & \$ 1600000 \\ \hline \text { Return on investment } & 0.16 & 0.10 & ? \\ \hline \text { Return on sales } & 0.04 & ? & 0.12 \\ \hline \text { Investment turnover } & ? & ? & 1.5 \\ \hline \end{array}\] _________________________________________________________________________________________________________________________________________________________________________

The answer of Provide the missing data for the following...

Answer the following questions using the information below: The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: \[\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\ \text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\ \text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\ \text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\ \text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\ \text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\ \text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5 \end{array}\] -What is the value of the operating assets belonging to the Alpha Division?

A) $4 333 333 B) $6 000 000 C) $6 500 000 D) $7 151 800 A) $4 333 333 B) $6 000 000 C) $6 500 000 D) $7 151 800

Exam 20: Performance Measurement, Compensation and Multinational Considerations

Comparing the performance of divisions of a multinational company operating in different countries is difficult due to the differences in economic,legal,political,social,and cultural environments.

(True/False)

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Question 21

Answer the following questions using the information below: Waldorf Company has two sources of funds: long-term debt with a market and book value of $10 million issued at an interest rate of 12%,and equity capital that has a market value of $8 million (book value of $4 million).Waldorf Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 12%,while the tax rate is 25%. Operating Profit Assets Current Liabilities Mildura \ 960000 \ 4000000 \ 200000 Townsville \ 1200000 \ 8000000 \ 600000 Broome \ 2040000 \ 12000000 \ 1200000 -What is the EVA for Townsville?

(Multiple Choice)

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Question 22

Many manufacturing,marketing,and design problems require employees with multiple skills;therefore,teams are used and the members have the added encouragement of:

(Multiple Choice)

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Question 23

Answer the following questions using the information below: Waldorf Company has two sources of funds: long-term debt with a market and book value of $10 million issued at an interest rate of 12%,and equity capital that has a market value of $8 million (book value of $4 million).Waldorf Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 12%,while the tax rate is 25%. Operating Profit Assets Current Liabilities Mildura \ 960000 \ 4000000 \ 200000 Townsville \ 1200000 \ 8000000 \ 600000 Broome \ 2040000 \ 12000000 \ 1200000 -What is the EVA for Mildura?

(Multiple Choice)

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Question 24

Answer the following questions using the information below: Echidna Company has two sources of funds: long-term debt with a market and book value of $30 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $5 million).Echidna Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%. Operating Profit Assets Current Liabilities Mt Iron \ 1630000 \ 5625000 \ 1600000 Mt Pilbara \ 2200000 \ 7500000 \ 2400000 Broken Hill \ 4900000 \ 13875000 \ 6360000 -What is the EVA for Broken Hill?

(Multiple Choice)

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Question 25

Answer the following questions using the information below: Echidna Company has two sources of funds: long-term debt with a market and book value of $30 million issued at an interest rate of 10%,and equity capital that has a market value of $18 million (book value of $5 million).Echidna Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%. Operating Profit Assets Current Liabilities Mt Iron \ 1630000 \ 5625000 \ 1600000 Mt Pilbara \ 2200000 \ 7500000 \ 2400000 Broken Hill \ 4900000 \ 13875000 \ 6360000 -Companies that adopt the Economic Value Added (EVA)concept define investment as 'total assets employed minus current liabilities'.

(True/False)

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Question 26

Ghan Rail Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8 000 000 and an interest rate of 8%,and equity capital with a market value of $12 000 000 and a cost of equity of 12%.Ghan Rail has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year: Total Assets Current Liabilities Operating Profit Blue Div. \ 9500000 \ 2800000 \ 1055000 Gold Div. \ 11000000 \ 2200000 \ 1200000 Calculate EVA for the Gold Division.

(Multiple Choice)

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Question 27

Which statement about designing an accounting-based performance measure is FALSE?

(Multiple Choice)

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Question 28

Batman Abstract Company has three divisions that operate autonomously.Their results for 2017 are as follows: Riddler Joker Penguin Sales \ 5000000 \ 7000000 \ 10000000 Contribution margin 1440000 1700000 3500000 Operating profit 1000000 1750000 2520000 Investment base 9000000 10000000 14000000 The company's desired rate of return is 20%. Required: a.Calculate each division's ROI. b.Calculate each division's residual income. c.Rank each division by both ROI and residual income. d.Which division had the best performance in 2017? Why? _ _

(Essay)

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Question 29

LaserLife Printer Cartridge Company is a decentralised organisation with several autonomous divisions.The division managers are evaluated,in part,on the basis of the change in their return on invested assets.Operating results for the Packer Division for 2019 are budgeted as follows: Sales \ 5000000 Less variable costs Contribution margin 250000 Less fixed expenses Net operating profit \ 100000 Operating assets for the division are currently $3 600 000.For 2019,the division can add a new product line for an investment of $600 000.The new product line will generate sales of $1 600 000 and will incur fixed expenses of $600 000 annually.Variable costs of the new product will average 60% of the selling price. Required: a.What is the effect on ROI of accepting the new product line? b.If the company's required rate of return is 6% and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations. _ _

(Essay)

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Question 30

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: Tractor Division Tiller Division Digger Division Sales \ 5000000 () \ 1200000 Net operating profit \ 500000 \ 720000 \ 300000 Operating assets () () \ 1000000 Return on investment 0.20 0.10 () Return on sales () 0.12 0.25 Investment turnover () () 1.2 -What were the sales for the Tiller Division?

(Multiple Choice)

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Question 31

Answer the following questions using the information below: The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: Jetski Division Boat Division Surfboard Division Sales \ 7500000 () \ 1800000 Net operating profit \ 750000 \ 1080000 \ 450000 Operating assets () () \ 1500000 Retum on investment 0.20 0.10 () Retum on sales () 0.12 0.25 Investment turnover (f) () 1.2 -The three alternatives for increasing return on investment include increasing assets such as receivables,increasing revenues and decreasing costs.(In all cases,assume that all other items stay the same. )

(True/False)

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Question 32

Answer the following questions using the information below: The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: Tractor Division Tiller Division Digger Division Sales \ 5000000 () \ 1200000 Net operating profit \ 500000 \ 720000 \ 300000 Operating assets () () \ 1000000 Return on investment 0.20 0.10 () Return on sales () 0.12 0.25 Investment turnover () () 1.2 -What is the Tractor Division's investment turnover?

(Multiple Choice)

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Question 33

The Coffee Division of New Zealand Products is planning the 2019 operating budget.Average operating assets of $1 500 000 will be used during the year and unit selling prices are expected to average $100 each.Variable costs of the division are budgeted at $400 000,while fixed costs are set at $250 000.The company's required rate of return is 18%. Required: a.Compute the sales volume necessary to achieve a 20% ROI. b.The division manager receives a bonus of 50% of residual income.What is his anticipated bonus for 2019,assuming he achieves the 20% ROI from part (a)? _ _

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Question 34

The CEO of Geelong Pen Company wants to establish an accounting-based performance measurement system for the company's new plant.The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system.The new plant is going to be considered an investment centre since its products will be markedly different from others the company currently sells.The new plant will have no internal dealings with other plants within the company. Required: What are some of the key steps that should be undertaken in the establishment of an accounting-based performance measurement system? _ _

(Essay)

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Question 35

Using net book value as an investment base is consistent with the amount of total assets shown in the balance sheet,and with income calculations.

(True/False)

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Question 36

Provide the missing data for the following situations: Red Division White Division Blue Division Sales \ ? \ 10000000 \ ? Net operating profit \ 200000 \ 400000 \ 288000 Operating assets \ ? \ ? \ 1600000 Return on investment 0.16 0.10 ? Return on sales 0.04 ? 0.12 Investment turnover ? ? 1.5 _________________________________________________________________________________________________________________________________________________________________________

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Question 37

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income:

(Multiple Choice)

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Question 38

Customer-satisfaction measures are an example of the:

(Multiple Choice)

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Question 39

Answer the following questions using the information below: The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged: Alpha Division Beta Division Gamma Division Sales \ 2500000 () \ 1150000 Net operating profit \ 1500000 \ 650000 \ 575000 Operating assets () () \ 766667 Return on investment 0.25 0.15 (d) Return on sales () 0.10 0.5 Investment turnover () () 1.5 -What is the value of the operating assets belonging to the Alpha Division?

(Multiple Choice)

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Question 40

Comparing the performance of divisions of a multinational company operating in different countries is difficult due to the differences in economic,legal,political,social,and cultural environments.

Many manufacturing,marketing,and design problems require employees with multiple skills;therefore,teams are used and the members have the added encouragement of:

Which statement about designing an accounting-based performance measure is FALSE?

Using net book value as an investment base is consistent with the amount of total assets shown in the balance sheet,and with income calculations.

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income:

Customer-satisfaction measures are an example of the:

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Measuring and Reporting Sustainability

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