In Class Exercise_Ch12 Name Problem 1-Rol and Residual Income Selected sales and operating data for three divisions of three different companies are given below: Sales Average Operating Assets Net Operating Income Minimum Required Rate of Return Red Division $6,000,000 $1,500,000 $300,000 15% Blue Division $10,000,000 $5,000,000 $900,000 18% | Green Division $8,000,000 $2,000,000 $180,000 12% 1) What is the ROI of each division? 2) What is the residual income for each division? 3) Assume that each division is presented with a new investment opportunity that would yield a rate of return of 17%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why? Problem 2Manufacturing Cycle Efficiency Ames Co. has reported the following average operating data for quarter one. Wait time 15 days Process time 5 days Inspection time 2 days Move time 1 days Queue time 2 days 1. What is the delivery cycle time for Ames Co.? 2. What is the throughput time for Ames Co.? 3. What is the manufacturing cycle efficiency for Ames Co.? Problem 3transfer pricing Case 1 Case 2 Division A: Seller Capacity in units | # of units now being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Division B: Buyer # of units needed annually Purchase price now being paid to an outside supplier 56,000 56,000 $102 $66 $25 281,000 277,000 $41 $21 $9 70,000 11,000 $92 $41 CASE 1 - A study had indicated that Division A can avoid $5 per unit in variable costs on any sales to Division B. What is the minimum transfer price for Division A? What is the maximum transfer price for Division B? Will the managers agree to a transfer? CASE 2 Assume that Division A can avoid $3 per unit in variable costs on any sales to Division B. What is the minimum transfer price for Division A? What is the maximum transfer price for Division B? Will the managers agree to a transfer