Graduate Managerial Accounting Help Needed! Chapter 12 Exercises 12-6 and 12-8 Serious Answers - No copy and Paste

546 546 BA510 Chapter 12 EXERCISE 12-6 Contrasting Return on Investment (ROI) and Residual Income [LO 12-1, LO 12-2] Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Net operating income ................ . Average operating assets ............. . Required: I. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. 3. Where necessary, carry computations to two decimal places. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. Is Yokohama's greater amount of residual income an indication that it is better managed? Explain. EXERCISE 12-7 Creating a Balanced Scorecard [LO 12-4) Ariel Tax Services prepares ta,"{ returns for individual and corporate clients. As the company has gradually expanded to 10 offices, the founder Max Jacobs has begun to feel as though he is losing control of operations. In response to this concern, he has decided to implement a performance measurement system that will help control current operations and facilitate his plans of expanding to 20 offices. Jacobs describes the keys to the success of his business as follows: "Our only real asset is our people. We must keep our employees highly motivated and we must hire the 'cream of the crop.' Interestingly, employee morale and recruiting success are both driven by the same two factors-compensation and career advancement. In other words, providing superior compensation relative to the industry average coupled with fasMrack career .. advancement opportunities keeps morale high and makes us a very attractive place to work. It ,} drives a high rate of job offer acceptances relative to job offers tendered." "Hiring highly qualified people and keeping them energized ensures operational success, which in our business is a function of productivity, efficiency, and effectiveness. Productivity boils' down to employees being billable rather than idle. Efficiency relates to the time required t~ complete a tax return. Finally, effectiveness is critical to our business in the sense that we cai;i~ not tolerate errors. Completing a ta,"{ return quickly is meaningless if the return contains errors "Our growth depends on acquiring new customers through word-of-mouth from satisfied re customers. We believe that our customers come back year after year because they value err free, timely, and courteous tax return preparation. Common courtesy is an important asp,e~t our business! We call it service quality, and it all ties back to employee morale in the sense happy employees treat their clients with care and concern." "While sales growth is obviously important to our future plans, growth without a correspb increase in profitability is useless. Therefore, we understand that increasing our profit n:i a function of cost-efficiency as well as sales growth. Given that payroll is our biggest ex we must maintain an optimal balance between staffing levels and the revenue being ge As I alluded to earlier, the key to maintaining this balance is employee productivity. If achieve cost-efficient sales growth, we should eventually have 20 profitable offices!" Required: 1. 2. Create a balanced scorecard for Ariel. Tax Services. Link your scorecard measur~ the framework from Exhibit 12-5. Indicate whether each measure is expected i:(J jn, decrease. Feel free to create measures that~ay not be specifically mentioned in the but make sense given the strategic goals of the company. What hypotheses are built into the balanced scorecard for Ariel Tax Services? Whi . hypotheses do you believe are most questionable and why? Performance Measurement in Decentralized Organizations 3. 4. Discuss the potential advantages and disadvantages ofirnplementing an internal business process measure called total dollar amount of tax refunds generated. Would you recommend using this measure in Ariel's balanced scorecard? Would it be beneficial to attempt to measure each office's individual performance with respect to the scorecard measures that you created? Why or why not? EXERCISE 12-8 Computing and Interpreting Return on Investment (ROI) [LO 12-1] Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Average operating assets ......................... . Net operating income ............................ . Property, plant, and equipment (net) ................ . Required: l. Compute the rate of return for each division using the return on investment (ROI) formula 2. stated in terms of margin and turnover. Which divisional manager seems to be doing the better job? Why? EXERCISE 12-9 Return on Investment (ROI) and Residual Income Relations [LO 12-1. LO 12-2] A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: Net operating income .......... ; ... . Average operating assets ........... . Return on investment (ROI) .......... . Minimum required rate of return: Percentage ..................... . Dollar amount ................... . Residual income ................... . EXERCISE 12-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) [LO 12-1] Posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $3,000,000 per year. The company's contribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents. Required: 1. Complete the following table showing the relation between sales and return on investment (ROI). 547