Valotic Tech Inc. sells electronics over the Internet. The Consumer Products Division is organized as a cost center. The budget for the Consumer Products Division for the month ended January 31, 2016, is as follows:

1	Customer service salaries	$546,840.00
2	Insurance and property taxes	114,660.00
3	Distribution salaries	872,340.00
4	Marketing salaries	1,028,370.00
5	Engineer salaries	836,850.00
6	Warehouse wages	586,110.00
7	Equipment depreciation	183,792.00
8	Total	$4,168,962.00

During January, the costs incurred in the Consumer Products Division were as follows:

1	Customer service salaries	$602,350.00
2	Insurance and property taxes	110,240.00
3	Distribution salaries	861,200.00
4	Marketing salaries	1,085,230.00
5	Engineer salaries	820,008.00
6	Warehouse wages	562,632.00
7	Equipment depreciation	183,610.00
8	Total	$4,225,270.00

Required:

1.

Prepare a budget performance report for the director of the Consumer Products Division for the month of January. Enter all amounts as positive numbers.

2.

For which costs might the director be expected to request supplemental reports?

Traxonia Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2016:

RevenuesEast	$ 888,000
RevenuesWest	1,032,000
RevenuesCentral	1,870,000
Operating ExpensesEast	567,500
Operating ExpensesWest	625,200
Operating ExpensesCentral	1,173,140
Corporate ExpensesShareholder Relations	152,000
Corporate ExpensesCustomer Support	340,000
Corporate ExpensesLegal	272,600
General Corporate Officers Salaries	282,500

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the companys point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

	East	West	Central
Number of customer contacts	5,000	6,000	9,000
Number of hours billed	1,350	2,000	2,450

Required:

1.

Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.

2.

Identify the most successful division according to the profit margin.

3.

What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The company has three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 2016, are as follows:

	Cereal Division	Snack Cake Division	Retail Bakeries Division
Sales	$27,600,000	$8,300,000	$9,750,000
Cost of goods sold	16,590,000	5,550,000	6,740,000
Operating expenses	9,354,000	2,335,000	2,522,500
Invested assets	6,900,000	2,766,667	9,750,000

The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.

	Required:
1.	Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2.	Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division. If required, round your final answer to one decimal place.
3.	If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion?

A condensed income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December 31, 2016, is as follows:

1	Sales	$3,850,000.00
2	Cost of goods sold	2,670,000.00
3	Gross profit	$1,180,000.00
4	Operating expenses	795,000.00
5	Income from operations	$385,000.00
6	Invested assets	$2,750,000.00

Assume that the Commercial Division received no charges from service departments. The president of Maxell Manufacturing has indicated that the divisions rate of return on a $2,750,000 investment must be increased to at least 18.00% by the end of the next year if operations are to continue. The division manager is considering the following three proposals:

Proposal 1: Transfer equipment with a book value of $315,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $108,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged.

Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $525,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,818,000 for the year.

Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $594,000, reduce cost of goods sold by $407,700, and reduce operating expenses by $178,500. Assets of $1,388,000 would be transferred to other divisions at no gain or loss.

Required:

1.

Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for the Commercial Division for the past year.*

2.

Prepare condensed estimated income statements and compute the invested assets for each proposal.

3.

Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each proposal.*

4.

Which of the three proposals would meet the required 18.00% rate of return on investment?

5.

If the Commercial Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the presidents required 18.00% rate of return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Do not round interim calculations.

* If required, round your answers to one decimal place.

The vice president of operations of Pavone 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:

	Business Division	Consumer Division
Sales	$2,250,000	$2,550,000
Cost of goods sold	1,320,000	1,330,000
Operating expenses	682,500	939,500
Invested assets	978,261	2,833,333

Required:

1.

Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were no service department charges.

2.

Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. If required, round your final answer to one decimal place.

3.

If management desires a minimum acceptable rate of return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income.

4.

Discuss the evaluation of the two divisions, using the performance measures previously determined.

Garcon Inc. manufactures electronic products, with two operating divisions, the Consumer and Commercial divisions. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:

*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.

The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Divisions product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

	Required:
1.	Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain.
2.	If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase?
3.	Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2.
4.	If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?

1. Prepare a budget performance report for the director of the Consumer Products Division for the month of January. Enter all amounts as positive numbers. VALOTIC TECH INC. Budget Performance Report-Director, Consumer Products Division For the Month Ended January 31, 2016 Actual Over Budget Under Budget Customer service salaries Insurance and property taxes Distribution salaries Marketing salaries Engineer salaries Warehouse wages Equipment depreciation Total 2 3 4 s 6 7 8 9