This is the assignment thanks! if there is anything confusing let me know.
Reid Miller, president of Miller Manufacturing, looked at the numbers again and shook his head. "I just don't understand why we have started to lose money. Business has been good. The divisions were showing strong ROI. Why are our sales going down?" As controller, you have been asked to evaluate the financial results and report back to the president next week. You have the income statements in front of you and wonder where to start. When you look at the total revenue for the first nine months of this year, you realize it is substantially less than revenue the company earned last year and from what the president told you, the forecast for the last three months ofthe year does not show any improvement. You look at your notes and go over the discussions you had with the division managers. Cody Masters, manager ofthe west division, was angry when you talked to him. "People forget that I'm evaluated on ROI. Head office has been pushing us to invest in new equipment for the past two years but if we do that, my ROI goes down and I end up looking bad. There was no way I was going to approve something that would drive down that ratio." He hung up on you when you asked him to explain the drop in net income. \"You figure it out," he yelled as the phone line went dead. James McKeown, manager of the east division, echoed those comments. \"Head office doesn't really understand what goes on in the plant. They set their targets and make decisions but they never take the time to understand the process. We Were lucky we got a new contract with Eagle Resources. If that hadn't c0me through, our sales would have gone done quite a bit too." In 2012, the west division had $2,950,000 invested in its asset base and the east division had an investment of $3,250,987, In 2013, that investment had decreased to $2,600,000 in the west and there had been a slight increase in the investment by the east division to $3,300,987. Sales staff is paid solely on commiSsion, currently negotiated at 5% of revenue. Required: The president has asked you to evaluate the financial information he has given you and to come up with recommendations to improve ways to measure the company's performance in the future. He reminded you that the company expects each division to maintain 20% ROI and that each manager is evaluated on the performance of his division. The company's incremental borrOWing cost is 8% and the tax rate is 30%. 24 Exhibit 1 Miller Manufacturing Income Statement For the nine months ending June 30, 2013 West division East division Total Revenue 6,107,782 7,218,123 13,325,905 Returns and allowances (621,880) (298,177) (920,057) Net revenue 5,485,902 6,919,946 12,405,848 Cost of goods sold 3,577,336 4,290,367 7,867,703 Gross margin 1,908,566 2,629,579 4,538,145 Operating costs Sales commission 305,389 345,997 651,386 Overhead 1,573,456 1,700,891 3,274, 347 1,878,845 2,046,888 3,925,733 Net income 29,721 582,691 612,412 Miller Manufacturing Income Statement For the year ending September 30, 2012 West division East division Total Revenue 9,800,981 10,379,902 20,180,883 Returns and allowances (450,911) (325,003) (775,914) Net revenue 9,350,070 10,054,899 19,404,969 Cost of goods sold 5,890,544 6,183,763 12,074,307 Gross margin 3,459,526 3,871,136 7,330,662 Operating costs Sales commission 490,049 502,745 992,794 Overhead 2,285,370 2,537,992 4,823,362 2,775,419 3,040,737 5,816,156 Net income 684,107 830,399 1,514,506 1
