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Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $235 per unit. However, the same
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $235 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $195 per unit. a. If a transfer price of $214 per unit is established and 40,900 units of materials are transferred, with no reduction in the Components Division's current sales, how much would Ziegler Inc.'s total operating income increase? $ b. How much would the Instrument Division's operating income increase? $ c. How much would the Components Division's operating income increase? $ The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: 1. Prepare condensed divisional income statements for the year ended December 31,20Y, assuming that there were no support department allocations. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. If required, round your answers to one decimal place. I 1 I 3. If management desires a minimum acceptable rate of return of 18%, determine the residual income for each division. 4. On the basis of operating income, the However, operating income residual income, the Division is the more profitable of the two divisions. consider the amount of invested assets in each division. On the basis of Division is the more profitable of the two divisions
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