Chapter 10 – Decentralization and Performance Evaluation
10–11
Exercise 10-6
a.
Hunting
Camping
Fishing
Total
Sales revenue
$1,250,000
$3,600,000
$2,380,000
$7,230,000
Less variable expenses
Cost of goods sold
850,000
2,340,000
1,904,000
5,094,000
Operating expenses
170,000
576,000
238,000
984,000
Contribution margin
230,000
684,000
238,000
1,152,000
Traceable fixed expenses
Cost of goods sold
115,000
188,000
166,000
469,000
Operating expenses
80,000
84,000
73,000
237,000
Segment margin
$ 35,000
$ 412,000
$ (1,000)
446,000
Common fixed expenses
287,000
Operating income
$ 159,000
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
10–12
Exercise 10-7
divisions.
b.
Residential
Commercial
Total
Sales revenue
$1,750,000
$3,125,000
$4,875,000
Variable expenses
1,035,000
2,520,000
3,555,000
Contribution margin
715,000
605,000
1,320,000
Traceable fixed expensesa
520,000
495,000
1,015,000
Segment margin
$ 195,000
$ 110,000
305,000
Common fixed expenses
250,000
Operating income
$ 55,000
aResidential = $645,000 – ($250,000 ÷ 2); Commercial = $620,000 – ($250,000 ÷ 2)
Exercise 10-8
a.
$300,000
$2,000,000
= 15%
b.
$2,000,000
($2,200,000 $2,800,000) 2
=
$2,000,000
$2,500,000
= .8 times
c.
$300,000
$2,000,000
×
$2,000,000
($2,200,000 $2,800,000) 2
= 15% × .8 = 12%
Chapter 10 – Decentralization and Performance Evaluation
10–13
Exercise 10-9
a.
$216,000
$1,800,000
= 12%
Exercise 10-10
$540,000
$540,000 $30,000
10–14
Exercise 10-11
Liles
Marston
Outland
$120,000
$600,000
= 20%
$150,000
$45,000
= 30%
$300,000
$1,200,000
= 25%
Liles
Marston
Outland
$120,000
$1,000,000
= 12%
$45,000
$300,000
= 15%
$300,000
$1,500,000
= 20%
Chapter 10 – Decentralization and Performance Evaluation
10–15
Exercise 10-12
a.
Retail Stores
Internet
Catalog Sales
Sales
$12,000,000
$2,750,000
$3,600,000
Variable expenses
4,800,000
1,375,000
2,160,000
Contribution margin
7,200,000
1,375,000
1,440,000
Direct fixed expenses
6,720,000
1,155,000
990,000
Segment margin
$ 480,000
$ 220,000
$ 450,000
Retail Stores
Internet
Catalog Sales
Margin
$480,000 = 4%
$12,000,000
$220,000 = 8%
$2,750,000
$450,000 = 12.5%
$3,600,000
Asset
turnover
$12,000,000 = 2
$6,000,000
$2,750,000 = 1.375
$2,000,000
$3,600,000 = 1.2
$3,000,000
ROI
4% × 2 = 8%
8% × 1.375 = 11%
12.5% × 1.2 = 15%
b. The expected ROI of the customer relationship management system
00065
,$
10–16
Exercise 10-13
a. Using the DuPont Model of return on investment:
Margin × Asset Turnover =
Return on Investment
12% × Asset Turnover =
15%
Asset Turnover =
1.25 times
Sales
Average Assets
=
Asset Turnover
Sales
$3,000,000
=
1.25
Sales =
$3,750,000
b.
Operating Income
Sales
=
Margin
Operating Income
$3,750,000
=
12%
Operating Income =
$450,000
Exercise 10-14
a.
Minimum required return
= $1,800,000 × 10%
= $180,000
Residual income = $216,000 – $180,000 = $36,000
yields a positive residual income.
Chapter 10 – Decentralization and Performance Evaluation
10–17
Exercise 10-15
Exercise 10-16
corporate management. Generating $2,000,000 in residual income
Exercise 10-17
Debt
$30,000,000
($30,000,000 $45,000,000)
× 7.5% =
3.0%
Equity
$45,000,000
($30,000,000 $45,000,000)
× 14% =
8.4%
11.4%
10–18
Exercise 10-18
Chapter 10 – Decentralization and Performance Evaluation
10–19
Exercise 10-19
Segment A
Segment B
Segment C
Segment D
Segment E
Sales
$1,000,000
$1,500,000
$2,100,000i
$400,000
$310,000
Operating income
$100,000
$75,000f
$420,000
$60,000
$6,200o
Tax rate
30%
25%
20%
30%l
20%
Total assets
$500,000
$500,000g
$1,400,000
$500,000
$124,000
Current liabilities
$40,000
$40,000
$112,000j
$40,000
$10,000
Corporate required return
15%
18%
16%
12%m
20%
Weighted-average cost of capital
12%
14%
15%
10%
18%
Margin
10%a
5%
20%k
15%
2%
Asset Turnover
2b
3
1.5
.8n
2.5
Return on investment
20%c
15%h
30.00%
12.00%
5%p
Residual income
$25,000d
($15,000)
$196,000
$0
($18,600)
Economic value added
$14,800e
($8,150)
$142,800
($4,000)
($15,560)q
a.
$100,000
$1,000,000
b.
$1,000,000
$500,000
$100,000