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Exercise 24-8 (15 minutes)
1.
Location Net income Average assets
Return on
investment
2. The recommendation is to pursue Location B because its return on investment (assets) is 18%,
compared to 16% at Location A. Moreover, given the normal return of 18% for this chain, only
Location B meets this hurdle.
This exercise should caution students to think beyond financial numbers alone. Some students
may discuss the need to look at the market growth potential of the two locations, or perhaps
investigate opportunities to expand sales at existing locations, or even to pursue more
lucrative specialized customers. Some may also suggest a risk analysis of the two locations.
Exercise 24-9 (20 minutes)
(1)
Investment center Income Average assets
Return on
investment
Comment: The electronics division is the superior investment center on the
basis of the investment center return on investment (assets).
Exercise 24-9 (continued)
(2)
Investment Center Electronics
Sporting
Goods
Net income................... $2,880,000 $2,040,000
Target net income
Comment: The electronics department is the superior investment center on
the basis of investment center residual income.
Exercise 24-10 (15 minutes)
Investment Center Income Sales Profit margin
Investment Center Sales Average assets
Investment
turnover
Comments: The sporting goods department generates the most net income
per dollar of sales, as shown by its higher profit margin. The Electronics
department however is more efficient at generating sales from invested
assets, based on its higher investment turnover.
Exercise 24-11 (20 minutes)
(1)
Investment center
Operating
income Average assets*
Return on
investment
(2)
Investment center
Operating
income Sales Profit margin
(3)
Investment center Sales Average assets*
Investment
turnover
*Beginning plus ending invested assets, divided by 2. Rounded to the nearest dollar.
Exercise 24-12 (10 minutes)
($ millions) Beverage Cheese
Operating income......... $349 $634
Target net income
*Average invested assets. Computed as beginning plus ending invested assets, divided by two,
and rounded to nearest dollar.
Exercise 24-13 (15 minutes)
Investment center
Operating
income Sales Profit margin
Americas....................... $22,817 $62,739 36.4%
Exercise 24-14 (20 minutes)
3. Predicted 2016 sales = $5,000,000 x 120% = $6,000,000
4. Predicted 2016 investment turnover = $6,000,000/$12,500,000 = 0.48
Exercise 24-15 (20 minutes)
1. F 8. P
2. C 9. C
Exercise 24-16 (15 minutes)
Part 1
Process time............................................................................ 6.0 days
Part 2
Part 3
If move time is reduced by 1.2 days and wait time is reduced by 2.8 days,
Exercise 24-17 (15 minutes)
Part 1
Process time............................................................................16.0 hours
Inspection time........................................................................ 3.5 hours
Exercise 24-17 (continued)
Part 2
Manufacturing cycle efficiency (16.0 hours/ 50.0 hours)...... 0.32
Part 3
To increase the manufacturing cycle efficiency to 0.80 Best Ink needs to
reduce the total manufacturing cycle time to 20 hours without changing the
process time (16 hours/ 0.80 = 20 hours). To do this, they must reduce the
Exercise 24-18A (15 minutes)
1. If the trailer division is currently operating at full capacity, its manager
2. If the trailer division is currently producing 20,000 trailers and the
assembly division will order 15,000 more trailers, the Trailer division will
Exercise 24-18A (continued)
3. The trailer division would prefer a transfer price of $140 per trailer, since
it provides a $60 ($140 - $80) contribution margin per trailer. At a transfer
Exercise 24-19B (20 minutes)
Preliminary calculations
Land cost ......................................................................$4,000,000
Lots Quantity Price Total
Canyon......................................... 450 $ 55,000 $24,750,000
Market % of Allocated Average
Value Total Cost Lot Cost
Canyon section............ $24,750,000 60% $4,500,000 $10,000
Exercise 24-20B (25 minutes)
Preliminary calculations
Lobster cost (2,400 lbs. x $4.50)......................$10,800
Parts Quantity* Price Total
Allocated cost—value basis allocation: $12,600
Market % of Allocated Cost
Parts Value Total Cost per lb.
Lobster tails.....................$26,208 78.0% $9,828 $7.875
(1) Cost of goods sold
Parts Quantity (given) Cost Total
Lobster tails........................... 1,096 lbs. $7.875 $ 8,631
(2) Cost of ending inventory
Parts Quantity Cost Total
Lobster tails........................... 152 lbs.* $7.875 $ 1,197
Note: Cost of goods sold ($10,332) plus cost of ending inventory ($2,268)
equals the total cost of $12,600.
Exercise 24-21 (20 minutes)
(1) Profit margin = Income/Sales
Investment center Income* Sales* Profit margin
Professional products.......... € 552 €2,717 20.32%
*In € millions
The professional products department has the highest profit
margin.
(2) Investment turnover = Sales/Average invested assets
Investment center
Sales*
Avg. assets* Investment
turnover
Professional products.......... €2,717 €2,570 1.06
*In € millions. Avg. assets = Beginning assets plus ending assets,
divided by two.
Note: Profit margin and investment turnover amounts are rounded to two
decimal places.
The Active cosmetics department has the highest investment
turnover.
PROBLEM SET A
Problem 24-1A (50 minutes)
Part 1
a.
Responsibility Accounting Performance Report
Dept. Manager, Camper Department
For the Year
Budgeted Actual Over (Under)
Amount Amount Budget
Controllable Costs
Raw materials..................................$195,000 $194,200 $ (800)
b.
Responsibility Accounting Performance Report
Dept. Manager, Trailer Department
For the Year
Budgeted Actual Over (Under)
Amount Amount Budget
Controllable Costs
Raw materials................................. $275,000 $273,200 $(1,800)
