Mastery Problem: Evaluating Decentralized Operations BOR CPAS, Inc DOR CP, Inc. is a dosely held corporation owned by the stockholms where the tils of their last names to form the corporation's name: Cyrus Bailey, John Ogden, and Sumologers. The firm's Certified Public Accountants (CPA) perform audits of both public companies and privately owned companies. BORSOAS also provide tax services to both individuals and busines The corporation as divided to two profit center the Audit Division and the tax Division. Each division is composed of two cout center the Aude Division is composed of two cost center departments Public Company Audits and Private Company Audits. The te Division is composed of two cort-center departments also: Individual Tax and Business BOR, a decentralized organization is interested in evaluating the performance of the two owon. The stockholders are responsible for deciding on investment in the two divisione. Cu Delay is in charge of the performance evaluation, and tumne to you for since. Mr Beley is only interested in evaluating operations at the profit center (divi) level and not at the cost center apartment level Mt. Barley is considering temporary using some of the start from the Tax Division to it the Jet Division during the upcoming busy audit season, and would like to evaluate the act of this one. The Division estimated to save 100 hours of excess capacity The unit for determining we both on the engagement, which means the total greed upon work for a givenchantineither auditor tax for a give you The company ha average of $75,000 pengagement and 115.750 per tax ngagement The company has its own Payrolice, which provides a services to own and we locatie telespees to the two divisione supportant allocation The towing that shows mascote for the company Hourly market rate for start the price the company would have to pay from an outside contractor for at services 6100 Average hour contre for start the average once the company to sam 360 Number of paychecked by Audit 110 umber of peychecked by the 30 Tucal expense for Paytre Amount of invested in At Division by SOROS, Inc $10.000.000 BOR CARE $5.000.000 Payroll Mr. Barley would like you to start by analyzing the Pays office expenses, and allocating the total expenses to each vision. He has decided to use the rumber of payroll checks as the activity base for the location et in the following banks, allocating the total expense for the Payroll Office to each of the mo divisions rol Charge Rates De payroll check Support Department Division Allocations Audit Division TOWN Performance Evaluation Agroft center manager has the responsibility and they for making decisions that affect revenues and costs and thus profits. The manager of a profit center does not make ons concerning the treated in the centresting for prontcenters such as the Audition and Tax Divion take the form of income taments, which should include only controles and contex hot bachnically decent SOR C the whole may be considered as an investment Center Thus, Bally is also interested in evaluating the performance of the company who performance measures that are mantener el run invested resource By wout the formule composed of in and met over to break down the turn on investment in order to ente cach division At the company , Mc Dale would like to return on investment to the overall performance of the company and its investment decisions with regard to each crison. Answer the following questions (1) and (2) 1. Wat is the most recently chose the Dupont formula to evaluate the divisions? ... lysts focus on whether the proft centers are so in accordance with their budgets Mr. Balayers that the must turnover will provide a good man reach von's profitability, Corences in the return to 2. What is the most likely reason Mr. Bailey chose rotum on investment to evaluate the company as a whole? Mr. Bolley would like to determine which division has the highest net income D. Return on investment will allow Me Bailey to measure the income (return) on each dollar invested in the division, and decide whare to invest additional assets or expand operations No Transfer Me Balley has prepared the following divisional income statement for you to review, assuming no transfer of excess capacity hours occurs. He has also included the total amounts for BOR CPAS, Inc. in the rightmost column. Complete the following divisional Income statements with your data from the Payroll, BOR CPAS, Inc. Divisional Income Statements For the Year Ended December 31, 2018 I Audit Division Tax Division Total Company Frescerned Audit foas (12 engagements) $900,000 5900,000 Tax foes (45 engagements) $700.750 700,750 0 Transfer pricing fees Expenses Variable Audit hours provided by Audit Division (216.000) (216,000) Tax hours provided by The Division (283,500) (203,500) Exces capacity hours paid to land staff (45.900) (40,000) Audit hours provided by Tax Division 0 D Pued expenses (50,000) (65.500) (115.500) Operating income before support department Allocations $634.000 5945.750 5634,000 $311,750 5945,750 Operating income before support department allocations Support department allocations for payroll Operating income Market Transfer Price Mr. Blyss that you prepare Divisional Income Statements showing what 2010 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a market transfer price. The divisional managers tell you that with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audita cuning the year, and the Tax Division would charge the Audit Division the market rate of 100 per hour for the additional hours required, sailing all its excess capacity to the Audit Division. The Tax Division would be responsible for paying the series of their employees Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter to BOR CPAS, Inc Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Feesome Audit fees (16 engagements) 1.200,000 $1,200,000 Taxos (45 engagements) 700.750 700.750 Tanfer pricing to (216.000 (203,500) (216,000) (20.3.500) Variable Authors provided by Audit Division Toxhours provided w Tax Division It hours paid to stay Audit hours provided to Tex Dion ad per Operating income for support department allocation Support department sections for payroll (50,000 (65,500) (115.100) Support department locations for payroll Operating income Negotiated Transfer Price Balans that you prepare Divisional Income Statements showing what 2018 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional managers tell you that the excess capacity of the Tax Division or 800 hour, the Aude Division can perform 4 more audies during the year, and the Audit Division would agree to negotiated rate of sto per hour to be paid to the Tax Division for the additional hour required, with the Tox Division sering with .cen capacity to the Audition. The tex Division would be respons for paying the sales of their employees Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter "O" BOR CPAS, Inc Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Poemd Audit (16 engagements 1 55.300.000 51.200.000 Tafes engagements) 3700750 700.750 Timpang Expenses Variable Authors provided by Auction (216.000 (216,000) Tax hours provided by the Division 203,500 (253.500) csaphors paid toned a Authors provided by the (50.000 (115.500 Operating come before support departments Soort department pro Support department allocations for payroll Operating Income Cost Transfer Price Me Baileys that you prepare Divisional Income Statements showing what 20 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a cost transfer price. The divisional managers tell you that with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would pay the Tax Division's interal hourly rate of $60 per hour for the additional hours required, with the Tax Division selling all it excest capacity to the Audit Divition. The Tax Division would still be responsible for paying the stories of their employees Complete the following bivsional Income Statements. If there is no amount or an amount is zero, enter to BOR CPAS, Inc. Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Fees samed Audit fees (16 engagements) I $1.200.000 51,200,000 Taxfres (45 engagements) $700.750 700.750 Transfer pricing for Expenses Variable dit hours provided by Audit Division (210,000) (216.000) Tex hours provided by Tax Division (283,500) (283,500) Excess capacity hours paid to strieda Authors movided by the Division (50,000) (65,500) (115.500 Operating income for support department locations Support department locations for Dyroll Operating income Mastery Problem: Evaluating Decentralized Operations BOR CPAS, Inc DOR CP, Inc. is a dosely held corporation owned by the stockholms where the tils of their last names to form the corporation's name: Cyrus Bailey, John Ogden, and Sumologers. The firm's Certified Public Accountants (CPA) perform audits of both public companies and privately owned companies. BORSOAS also provide tax services to both individuals and busines The corporation as divided to two profit center the Audit Division and the tax Division. Each division is composed of two cout center the Aude Division is composed of two cost center departments Public Company Audits and Private Company Audits. The te Division is composed of two cort-center departments also: Individual Tax and Business BOR, a decentralized organization is interested in evaluating the performance of the two owon. The stockholders are responsible for deciding on investment in the two divisione. Cu Delay is in charge of the performance evaluation, and tumne to you for since. Mr Beley is only interested in evaluating operations at the profit center (divi) level and not at the cost center apartment level Mt. Barley is considering temporary using some of the start from the Tax Division to it the Jet Division during the upcoming busy audit season, and would like to evaluate the act of this one. The Division estimated to save 100 hours of excess capacity The unit for determining we both on the engagement, which means the total greed upon work for a givenchantineither auditor tax for a give you The company ha average of $75,000 pengagement and 115.750 per tax ngagement The company has its own Payrolice, which provides a services to own and we locatie telespees to the two divisione supportant allocation The towing that shows mascote for the company Hourly market rate for start the price the company would have to pay from an outside contractor for at services 6100 Average hour contre for start the average once the company to sam 360 Number of paychecked by Audit 110 umber of peychecked by the 30 Tucal expense for Paytre Amount of invested in At Division by SOROS, Inc $10.000.000 BOR CARE $5.000.000 Payroll Mr. Barley would like you to start by analyzing the Pays office expenses, and allocating the total expenses to each vision. He has decided to use the rumber of payroll checks as the activity base for the location et in the following banks, allocating the total expense for the Payroll Office to each of the mo divisions rol Charge Rates De payroll check Support Department Division Allocations Audit Division TOWN Performance Evaluation Agroft center manager has the responsibility and they for making decisions that affect revenues and costs and thus profits. The manager of a profit center does not make ons concerning the treated in the centresting for prontcenters such as the Audition and Tax Divion take the form of income taments, which should include only controles and contex hot bachnically decent SOR C the whole may be considered as an investment Center Thus, Bally is also interested in evaluating the performance of the company who performance measures that are mantener el run invested resource By wout the formule composed of in and met over to break down the turn on investment in order to ente cach division At the company , Mc Dale would like to return on investment to the overall performance of the company and its investment decisions with regard to each crison. Answer the following questions (1) and (2) 1. Wat is the most recently chose the Dupont formula to evaluate the divisions? ... lysts focus on whether the proft centers are so in accordance with their budgets Mr. Balayers that the must turnover will provide a good man reach von's profitability, Corences in the return to 2. What is the most likely reason Mr. Bailey chose rotum on investment to evaluate the company as a whole? Mr. Bolley would like to determine which division has the highest net income D. Return on investment will allow Me Bailey to measure the income (return) on each dollar invested in the division, and decide whare to invest additional assets or expand operations No Transfer Me Balley has prepared the following divisional income statement for you to review, assuming no transfer of excess capacity hours occurs. He has also included the total amounts for BOR CPAS, Inc. in the rightmost column. Complete the following divisional Income statements with your data from the Payroll, BOR CPAS, Inc. Divisional Income Statements For the Year Ended December 31, 2018 I Audit Division Tax Division Total Company Frescerned Audit foas (12 engagements) $900,000 5900,000 Tax foes (45 engagements) $700.750 700,750 0 Transfer pricing fees Expenses Variable Audit hours provided by Audit Division (216.000) (216,000) Tax hours provided by The Division (283,500) (203,500) Exces capacity hours paid to land staff (45.900) (40,000) Audit hours provided by Tax Division 0 D Pued expenses (50,000) (65.500) (115.500) Operating income before support department Allocations $634.000 5945.750 5634,000 $311,750 5945,750 Operating income before support department allocations Support department allocations for payroll Operating income Market Transfer Price Mr. Blyss that you prepare Divisional Income Statements showing what 2010 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a market transfer price. The divisional managers tell you that with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audita cuning the year, and the Tax Division would charge the Audit Division the market rate of 100 per hour for the additional hours required, sailing all its excess capacity to the Audit Division. The Tax Division would be responsible for paying the series of their employees Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter to BOR CPAS, Inc Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Feesome Audit fees (16 engagements) 1.200,000 $1,200,000 Taxos (45 engagements) 700.750 700.750 Tanfer pricing to (216.000 (203,500) (216,000) (20.3.500) Variable Authors provided by Audit Division Toxhours provided w Tax Division It hours paid to stay Audit hours provided to Tex Dion ad per Operating income for support department allocation Support department sections for payroll (50,000 (65,500) (115.100) Support department locations for payroll Operating income Negotiated Transfer Price Balans that you prepare Divisional Income Statements showing what 2018 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional managers tell you that the excess capacity of the Tax Division or 800 hour, the Aude Division can perform 4 more audies during the year, and the Audit Division would agree to negotiated rate of sto per hour to be paid to the Tax Division for the additional hour required, with the Tox Division sering with .cen capacity to the Audition. The tex Division would be respons for paying the sales of their employees Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter "O" BOR CPAS, Inc Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Poemd Audit (16 engagements 1 55.300.000 51.200.000 Tafes engagements) 3700750 700.750 Timpang Expenses Variable Authors provided by Auction (216.000 (216,000) Tax hours provided by the Division 203,500 (253.500) csaphors paid toned a Authors provided by the (50.000 (115.500 Operating come before support departments Soort department pro Support department allocations for payroll Operating Income Cost Transfer Price Me Baileys that you prepare Divisional Income Statements showing what 20 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a cost transfer price. The divisional managers tell you that with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would pay the Tax Division's interal hourly rate of $60 per hour for the additional hours required, with the Tax Division selling all it excest capacity to the Audit Divition. The Tax Division would still be responsible for paying the stories of their employees Complete the following bivsional Income Statements. If there is no amount or an amount is zero, enter to BOR CPAS, Inc. Divisional Income Statements For the Year Ended December 31, 2018 Audit Division Tax Division Total Company Fees samed Audit fees (16 engagements) I $1.200.000 51,200,000 Taxfres (45 engagements) $700.750 700.750 Transfer pricing for Expenses Variable dit hours provided by Audit Division (210,000) (216.000) Tex hours provided by Tax Division (283,500) (283,500) Excess capacity hours paid to strieda Authors movided by the Division (50,000) (65,500) (115.500 Operating income for support department locations Support department locations for Dyroll Operating income