Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The manager of the snack division of Fairfax Industries is evaluated on her division's return on investment and residual income. The company requires that all

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed
image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed
The manager of the snack division of Fairfax Industries is evaluated on her division's return on investment and residual income. The company requires that all divisions generate a minimum return on invested assets of 8 percent. Consistent failure to achieve this minimum target is grounds for the dismissal ofa division manager. The annual cash bonus paid to division managers is 1 percent of residual income in excess of $100,000. The snack division's operating margin for the year was $9.817 million, during which time its average invested capital was $64.69? million. Required: a. Compute the Snack Division's return on investment and residual income. b. Will the manager of the Snack Division receive a bonus for her performance? If so, how much will it be? c. In reporting her investment center's performance for the past 10 years, the manager of the snack division accounted for the depreciation of her division's assets by using an accelerated depreciation method allowed for tax purposes. As result, virtually all of the assets under her control are fully depreciated. Given that the company's other division managers use straightline depreciation, is her use oi an accelerated method ethical? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the Snack Division's return on investment and residual income. (Round "Return on investment" Enter your answer in dollars not in millions.) Return on investment Residual income Required B > Required A Required B Required C Will the manager of the Snack Division receive a bonus for her performance? If so, how much will it be? (Leave n if there is no bonus enter "0". Enter your answer in dollars not in millions. Round your answer to the nearest who amount.) Manager's bonusCBS Required A Required B Required C In reporting her investment center's performance for the past 10 years, the manager of the snack division accounted for the depreciation of her division's assets by using an accelerated depreciation method allowed for tax purposes. As a result, virtually all of the assets under her control are fully depreciated. Given that the company's other division managers use straight-line depreciation, is her use of an accelerated method ethical? Sh ow less A The use of accelerated depreciation will the division manager's current ROI and RI for two reasons: 1) her operating earnings margin will average asset base of her investment center will depreciation overtime will inflate her division's ROI and RI. Given that her bonus is based on RI, she will receive a larger bonus using accelerated depreciation than she would using the straight-line depreciation method

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles Volume 2

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

8th Canadian Edition

1119502551, 1-119-50255-5, 978-1119502555

More Books

Students also viewed these Accounting questions

Question

What is the V-Model of system design and development?

Answered: 1 week ago

Question

A greater tendency to create winwin situations.

Answered: 1 week ago