Performance Measurement and Ethics. Minsk Brothers is a securities brokerage firm with four autonomous divisions. ROI is used to evaluate each division. Cash bonuses are given to division managers who have the highest ROI figures at year end. The firm's minimum desired rate of return is 15 percent. The Southeast Division's projected operating results for 1996 are as follows:

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Assuming all refined gallons are sold to Marketing, show the impacts on profits for Refining, Marketing, and Walker Oil Company as a whole when using each of the following transfer prices:

(a) variable cost,

(b) market price, and

(c) full cost. What conclusion can you draw?

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Revenues Variable expenses Variable contribution margin. Direct fixed expenses...... Direct contribution margin $5,000,000 3,000,000 $2,000,000 1,600,000 $ 400,000 The Southeast Division has $1,200,000 of total direct assets. Early in 1996, Donald Birnbrey, the manager of the Southeast Division, has been presented with the following investment proposal: Additional direct assets required Additional revenues anticipated. Additional variable expenses. Additional fixed expenses $ 500,000 $1,000,000 60% of revenues $ 300,000