Managerial Accounting

Question 3 3+3+4=10 a) Provide the missing data in the following tabulation: Division X Y Z Sales Tk. 800,000 Ik.? TK.? Net operating income 72,000 40,000 Average operating assets ? 130,000 Margin 4% 8% Turnover 5 ROI 18% 20% b) Rains Nickless Ltd. has two divisions that operate in Rajshahi and Dhaka. Selected data on the two divisions follows: Division Rajshahi Dhaka Sales Tk. 9,000,000 Tk. 20,000,000 Net operating income 630,000 1,800,000 Average operating assets 3,000,000 10,000,000 Required i.) Compute the ROI for each division ii.) Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16%. Compute the residual income for each division iii.) Is the Dhaka Division's greater residual income an indication that it is better managed? Explain. c) In each of the case below, assume that division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the division are evaluated based on their divisional profits. Case Division X: A B Capacity in units 200,000 200,000 Number of units being sold to outside customers 200,000 160,000 Selling price per unit to outside customers $90 $75 Variable costs per unit $70 $60 Fixed costs per unit( based on capacity) $13 $8 Division Y: Number of units needed for production 40,000 40,000 Purchase price per unit now being paid to an outside supplier $86 $74 Required: i) Refer to the data in case A above, assume in this case that $3 per unit in variable selling costs can be avoided on intra-company sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range the transfer price will fall? Explain. ii) Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intra-company sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range will the transfer price fall? Explain