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Questions and Answers of Public Accounting

=+b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is 10%.
=+c. Which division is the most profitable in terms of (1) return on investment and(2) residual income?
=+EX 24-16 Determining missing items from computations obj. 4✔a. (e) $520,000 1118 Chapter 24 Performance Evaluation for Decentralized Operations Hilton Hotels Corporation provides lodging services
=+• Managing and Franchising: Hotels franchised to others or managed for others.
=+• Timeshare: Resort properties managed for timeshare vacation owners.Financial information for each division, from a recent annual report, is as follows (in millions):Hotel Managing and Ownership
=+a. Use the DuPont formula to determine the return on investment for each of the Hilton business divisions. Round whole percents to one decimal place and investment turnover to one decimal place.b.
=+EX 24-17 Rate of return on investment, residual income obj. 4 American Express Company is a major financial services company, noted for its American Express® card. Below are some of the
=+EX 24-18 Balanced scorecard obj. 4 Several years ago, United Parcel Service (UPS) believed that the Internet was going to change the parcel delivery market and would require UPS to become a more
=+4. Time in transit—the time from order entry to delivery.
=+a. Why did UPS introduce a balanced scorecard and nonfinancial measures in its new performance measurement system?
=+b. Why do you think UPS included a factor measuring employee sentiment?
=+EX 24-19 Balanced scorecard obj. 4 Electronic components used by the Engine Division of Armstrong Manufacturing are currently purchased from outside suppliers at a cost of $200 per unit. However,
=+a. If a transfer price of $180 per unit is established and 35,000 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would Armstrong
=+b. How much would the Engine Division’s income from operations increase?
=+c. How much would the Components Division’s income from operations increase?
=+EX 24-20 Decision on transfer pricing obj. 5✔a. $1,225,000 Chapter 24 Performance Evaluation for Decentralized Operations 1119 Based on Armstrong Manufacturing’s data in Exercise 24–20,
=+a. How much would Armstrong Manufacturing’s total income from operations increase?
=+b. How much would the Engine Division’s income from operations increase?
=+c. How much would the Components Division’s income from operations increase?
=+d. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?
=+EX 24-21 Decision on transfer pricing obj. 5✔b. $350,000 Problems Series A Amoruso Parts Company sells vehicle parts to automotive companies. The Truck Division is organized as a cost center. The
=+Total $1,985,250 During October, the costs incurred in the Truck Division were as follows:Customer service salaries $ 333,370 Insurance and property taxes 52,960 Distribution salaries 411,250
=+2. For which costs might the director be expected to request supplemental reports?
=+PR 24-1A Budget performance report for a cost center obj. 2 Browning Transportation Co. has three regional divisions organized as profit centers.The chief executive officer (CEO) evaluates
=+The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the
=+PR 24-2A Profit center responsibility reporting obj. 3✔ 1. Income from operations, Metro Division, $274,400 1120 Chapter 24 Performance Evaluation for Decentralized Operations department believes
=+East West Metro Number of customer contacts 3,750 4,500 6,750 Number of hours billed 850 1,360 1,190 Instructions 1. Prepare quarterly income statements showing income from operations for the three
=+2. Identify the most successful division according to the profit margin. Round to two decimal places.
=+3. Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method.Sunshine
=+Snack Cake Bakeries Bread Division Division Division Sales $ 8,100,000 $ 8,700,000 $7,800,000 Cost of goods sold 4,980,000 5,400,000 4,600,000 Operating expenses 1,662,000 1,995,000 1,484,000
=+2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division.
=+3. If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion, based on parts (1) and (2)?Explain.
=+PR 24-3A Divisional income statements and rate of return on investment analysis obj. 4✔ 2. Bread Division, ROI, 13.5%A condensed income statement for the Snowboard Division of New Wave Rides Inc.
=+Assume that the Snowboard Division received no charges from service departments. The president of New Wave Rides has indicated that the division’s rate of return on a $1,000,000 investment must
=+Proposal 1: Transfer equipment with a book value of $40,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation
=+Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $120,000. Sales would remain unchanged, and the old
=+PR 24-4A Effect of proposals on divisional performance obj. 4✔ 1. ROI, 14.4%Chapter 24 Performance Evaluation for Decentralized Operations 1121 equipment, which has no remaining book value, would
=+1. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for the Snowboard Division for the past year.
=+2. Prepare condensed estimated income statements and compute the invested assets for each proposal.
=+3. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each proposal.
=+4. Which of the three proposals would meet the required 18% rate of return on investment?
=+5. If the Snowboard Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president’s required 18% rate
=+The vice president of operations of Rucker-Putnam Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data
=+2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.
=+3. If management desires a minimum acceptable rate of return of 18%, determine the residual income for each division.
=+4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).
=+PR 24-5A Divisional performance analysis and evaluation obj. 4✔ 2. Touring Bike Division ROI, 24.5%Bay Area Scientific, Inc. manufactures electronic products, with two operating divisions, the
=+Divisional Income Statements For the Year Ended December 31, 2010 Performance Communication Materials Technologies Division Division Total Sales:8,000 units @ $ 78 per unit $624,000 $ 624,000
=+$624,000 $1,824,000 $2,448,000 ___________ Expenses:Variable:8,000 units @ $ 58 per unit $464,000 $ 464,000 12,000 units @ $108* per unit $1,296,000 1,296,000 Fixed 124,000 288,000 412,000
=+PR 24-6A Transfer pricing obj. 5✔ 3. Total income from operations,$253,000 1122 Chapter 24 Performance Evaluation for Decentralized Operations The Performance Materials Division is presently
=+a price of $78 per unit. The Performance Materials Division is able to produce the materials used by the Communication Technologies Division. Except for the possible transfer of materials between
=+2. If the Communication Technologies Division purchases 1,600 units from the Performance Materials Division, rather than externally, at a negotiated transfer price of $64 per unit, how much would
=+3. Prepare condensed divisional income statements for Bay Area Scientific, Inc., based on the data in part (2).
=+4. If a transfer price of $70 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?
=+5.a. What is the range of possible negotiated transfer prices that would be acceptable for Bay Area Scientific, Inc.?
=+b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?Problems Series B
=+The Northeast District of Vidovich Beverages, Inc., is organized as a cost center. The budget for the Northeast District of Vidovich Beverages, Inc., for the month ended May 31, 2010, is as
=+During May, the costs incurred in the Northeast District were as follows:Sales salaries $ 568,680 System administration salaries 310,900 Customer service salaries 125,080 Billing salaries 68,145
=+2. For which costs might the supervisor be expected to request supplemental reports?
=+PR 24-1B Budget performance report for a cost center obj. 2 Chapter 24 Performance Evaluation for Decentralized Operations 1123 Tri-State Railroad Company organizes its three divisions, the
=+The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling
=+2. Identify the most successful region according to the profit margin. Round to two decimal places.
=+3. Provide a recommendation to the CEO for a better method for evaluating the performance of the regions. In your recommendation, identify the major weakness of the present method.
=+PR 24-2B Profit center responsibility reporting obj. 3✔ 1. Income from operations, South Region, $399,000 Performance Financial Services Inc. is a diversified investment company with three
=+2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division.
=+3. If available funds permit the expansion of operations of only one division,
=+which of the divisions would you recommend for expansion, based on parts (1) and (2)?Explain.
=+PR 24-3B Divisional income statements and rate of return on investment analysis obj. 4✔ 2. Retail Division ROI, 18%1124 Chapter 24 Performance Evaluation for Decentralized Operations A condensed
=+Assume that the Water Sports Division received no charges from service departments.The president of South Mountain Sports Inc. has indicated that the division’s rate of return on a $500,000
=+Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $75,000, cost of goods sold of $26,600, and operating expenses of $21,400. Assets of
=+2. Prepare condensed estimated income statements and compute the invested assets for each proposal.
=+3. Using the DuPont formula for rate of return on investment, determine the profit
=+margin, investment turnover, and rate of return on investment for each proposal.
=+4. Which of the three proposals would meet the required 22% rate of return on investment?
=+5. If the Water Sports Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president’s required 22%
=+PR 24-4B Effect of proposals on divisional performance obj. 4✔ 3. Proposal 3 ROI, 16%The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions
=+2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.
=+3. If management’s minimum acceptable rate of return is 14%, determine the residual income for each division.
=+4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).
=+PR 24-5B Divisional performance analysis and evaluation obj. 4✔ 2. Network Equipment Division ROI, 21%Chapter 24 Performance Evaluation for Decentralized Operations 1125 Knopfler Industries, Inc.
=+Divisional Income Statements For the Year Ended December 31, 2010 Specialized Navigational Semi-conductors Systems Division Division Total Sales:1,600 units @ $ 825 per unit $1,320,000 $1,320,000
=+1,600 units @ $485 per unit $ 776,000 $ 776,000 2,500 units @ $975* per unit $2,437,500 2,437,500 Fixed 488,000 636,000 1,124,000 __________ __________ __________ Total expenses $1,264,000
=+The Specialized Semiconductors Division is presently producing 1,600 units out of a total capacity of 2,000 units. Materials used in producing the Navigational Systems Division’s product are
=+1. Would the market price of $825 per unit be an appropriate transfer price for Knopfler Industries, Inc.? Explain.
=+2. If the Navigational Systems Division purchases 400 units from the Specialized Semiconductors Division, rather than externally, at a negotiated transfer price of $625 per unit, how much would the
=+3. Prepare condensed divisional income statements for Knopfler Industries, Inc., based on the data in part (2).
=+4. If a transfer price of $700 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase?
=+5.a. What is the range of possible negotiated transfer prices that would be acceptable for Knopfler Industries, Inc.?
=+b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?
=+PR 24-6B Transfer pricing obj. 5✔ 3. Navigational Systems Division,$106,500 Special Activities Evigi Company has two divisions, the Semiconductor Division and the PC Division. The PC Division may
=+SA 24-1 Ethics and professional conduct in business 1126 Chapter 24 Performance Evaluation for Decentralized Operations Dan: I hear you are having problems selling semiconductors out of your
=+Jamie: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $150 for 100 semiconductors.Dan: I’m not so sure we can
=+The Customer Service Department of Schweitzer Industries asked the Publications Department to prepare a brochure for its training program. The Publications Department delivered the brochures and
=+Should the cost of the brochure be transferred to the Customer Service Department in order to hold the department head accountable for the cost of the brochure? What changes in policy would you
=+SA 24-2 Service department charges The three divisions of Monstore Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are structured as investment centers. The following responsibility
=+1. Which division is making the best use of invested assets and thus should be given priority for future capital investments?
=+2. Assuming that the minimum acceptable rate of return on new projects is 12%, would all investments that produce a return in excess of 12% be accepted by the divisions?
=+3. Can you identify opportunities for improving the company’s financial performance?
=+SA 24-3 Evaluating divisional performance Chapter 24 Performance Evaluation for Decentralized Operations 1127 Assume that there are no charges from service departments. The vice president of the
=+1. Determine the profit margins for the Truck Division for 2008–2010.

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