1) A corporation has three investment centers with the following data: Division A B...

1) A corporation has three investment centers with the following data:

Division	A	B	C
Sales	$3,000,000	2,500,000	5,750,000
Assets	1,500,000	500,000	2,300,000
Profit	300,000	25,000	168,000
Required return	14%	7%	10%

Compute the ROI in two parts for each division. Compute the residual income for each division. Assume each division is presented with an investment opportunity that yields a return on investment of 8%.

A) If performance is measured by ROI, which division(s) would probably accept the offer? Reject? B) If performance is measured by residual income, which division(s) would probably accept the offer? Reject?

2) A corporation has a segment, Division A that sells a part on the outside market for $120. Its costs, based on a unit capacity of 200,000 units, are $25 variable and $45 fixed. The company has a related segment, Division B that could use the part in its own assembly operations. Division B buys the part from another supplier for $112, and it will need 40,000 units.

Required: 1) Assume division A is selling 140,000 units to outside customers.

From the standpoint of Division A, what is the lowest acceptable transfer price for units sold to Division B?
From the standpoint of Division B, what is the highest acceptable transfer price for units purchased from Division A.
If left to bargain freely, would you expect the division managers to voluntarily agree on a transfer of units from Division A to Division B? Give reasons.
From the standpoint of the entire company, should the transfer take place? Give reasons.

2) Now assume Division A is selling all its capacity to outside customers. Answer a through d under this new condition.

Expert Solution

ekkarill92 answered 2 months ago

1. Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for...

1. Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period: sales total company 341700 souther division 212300 northern division 129400 variable expense 118766 72182 46584 traceble fixed expenses 168400 70300 98100 common fixed expense 68340 42460 25880 The common fixed expenses have been allocated to the divisions on the basis of sales. The Northern Division’s break-even sales is closest to: 2. Data for January for Bondi Corporation and its...

Adams Corporation operates three investment centers. The following financial statements apply to the investment center named...

Adams Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, 2018 Sales revenue $ 106,280 Cost of goods sold 58,575 Gross margin 47,705 Operating expenses Selling expenses (2,650 ) Depreciation expense (4,145 ) Operating income 40,910 Nonoperating item Loss of sale of land (4,500 ) Net income $ 36,410 BOWMAN DIVISION Balance Sheet As of December 31, 2018 Assets Cash $ 12,512...

Munoz Corporation operates three investment centers. The following financial statements apply to the investment center named...

Munoz Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, 2018 Sales revenue $ 105,780 Cost of goods sold 59,575 Gross margin 46,205 Operating expenses Selling expenses (2,820 ) Depreciation expense (4,035 ) Operating income 39,350 Nonoperating item Loss of sale of land (3,400 ) Net income $ 35,950 BOWMAN DIVISION Balance Sheet As of December 31, 2018 Assets Cash $ 12,502...

Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the...

Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period: Total Company Southern Division Northern Division Sales $ 408,800 $ 227,700 $ 181,100 Variable expenses $ 144,478 $ 86,526 $ 57,952 Traceable fixed expenses $ 206,400 $ 84,300 $ 122,100 Common fixed expense $ 81,760 $ 45,540 $ 36,220 The common fixed expenses have been allocated to the divisions on the basis of sales. The Northern Division’s break-even sales is...

The corporation is divided into two profit centers: the Audit Division and the Tax Division. Each...

The corporation is divided into two profit centers: the Audit Division and the Tax Division. Each division is composed of two cost centers. The Audit Division is composed of two cost-center departments: Public Company Audits and Private Company Audits. The Tax Division is composed of two cost-center departments also: Individual Tax and Business Tax. BOR, a decentralized organization, is interested in evaluating the performance of the two divisions. The stockholders are responsible for deciding on investment in the two divisions....

Lombard, Inc. has two investment centers and has developed the following information: Department A Department B...

Lombard, Inc. has two investment centers and has developed the following information: Department A Department B Departmental controllable margin $120,000 ? Average operating assets ? $400,000 Sales 800,000 250,000 ROI 10% 12% Answer the following questions about Department A and Department B. 1. What was the amount of Department A's average operating assets? Average Operating Assets $ ? 2. What was the amount of Department B's controllable margin? Controllable Margin $ ? 3. If Department B is able to reduce...

For its three investment centers, Bramble Company accumulates the following data: I II III Sales $2,000,000...

For its three investment centers, Bramble Company accumulates the following data: I II III Sales $2,000,000 $3,650,000 $4,030,000 Controllable margin 1,400,000 2,071,930 3,633,240 Average operating assets 5,000,000 7,590,000 9,330,000 The centers expect the following changes in the next year: (I) increase sales 20%; (II) decrease costs $410,000; (III) decrease average operating assets $490,000. Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 70%. (Round ROI to 1 decimal place, e.g....

For its three investment centers, Martinez Company accumulates the following data: I II III Sales $2,000,000...

For its three investment centers, Martinez Company accumulates the following data: I II III Sales $2,000,000 $3,750,000 $3,730,000 Controllable margin 1,400,000 1,708,250 3,208,810 Average operating assets 5,000,000 7,630,000 9,860,000 The centers expect the following changes in the next year: (I) increase sales 10%; (II) decrease costs $390,000; (III) decrease average operating assets $450,000. Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 70%.

For its three investment centers, Gerrard Company accumulates the following data: I II III Sales $1,920,000...

For its three investment centers, Gerrard Company accumulates the following data: I II III Sales $1,920,000 $4,013,000 $4,033,000 Controllable margin 833,510 2,486,510 4,083,400 Average operating assets 4,903,000 8,021,000 12,010,000 The centers expect the following changes in the next year: (I) increase sales 14%; (II) decrease controllable fixed costs $404,000; (III) decrease average operating assets $534,000. Compute the expected return on investment (ROI) for each center. Assume center has a contribution margin percentage of 74%. (Round ROI to 1 decimal place,...

Problem 9-21B Comparing return on investment and residual income Gwinnett Corporation operates three investment centers. The...

Problem 9-21B Comparing return on investment and residual income Gwinnett Corporation operates three investment centers. The following financial statements apply to the investment center named Rite Division: RITE DIVISION Income Statement For the Year Ended December 31, 2018 Sales revenue $ 300,000 Cost of goods sold (180,000) Gross margin 120,000 Operating expenses Selling expenses (15,000) Administrative expense (5,000) Operating income 100,000 Nonoperating expense Interest expense (10,000) Net income $ 90,000 RITE DIVISION Balance Sheet As of December 31, 2018 Assets...

Question