Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
10–30
Problem 10-29, continued
EVA
Archer
Barrett
Corvell
$2,940,000a
$2,240,000b
$1,064,000c
2,220,000d
1,540,000e
614,000f
$ 720,000
$ 700,000
$ 450,000
a$4,200,000 × (1 – 30%)
b$3,200,000 × (1 – 30%)
c$1,520,000 × (1 – 30%)
d($30,000,000 – $2,250,000) × 8%
e($20,000,000 – $750,000) × 8%
f($8,000,000 – $325,000) × 8%
b. Each performance evaluation method reveals a different division as
the top performer. This will not sit well with the Corvell Division
Chapter 10 – Decentralization and Performance Evaluation
10–31
Problem 10–30
a. In general, cost-based transfer prices are not appropriate for two
b.
Mining
Metals
Revenue
$90
$150
Transfer from Mining
(90)
Direct materials
(12)
(6)
Direct labor
(16)
(20)
Variable overhead
(24)a
(10)b
Contribution margin
$38
$24
Units produced
× 400,000
× 400,000
Total contribution margin
$15,200,000
$9,600,000
c. $85 – $90. The minimum transfer price = VC + CM foregone. In this
d. A negotiated transfer price will give the managers the most autonomy
10–32
Problem 10–31
line.
If the Video Card division could sell everything it makes at the
If the Video Card division ultimately is required to sell all of its output
to the Entertainment division at full cost, then it has no incentive to
control costs.
b. Given excess capacity, the minimum transfer price equals the
division.
Chapter 10 – Decentralization and Performance Evaluation
SOLUTIONS TO CASES
Case 10–33
$250,000
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
10–36
Case 10-34
Isaac is facing issues of competence, integrity, and credibility. He
must decide whether to comply with Hannah’s directive to ignore
relevant information and produce what could be considered an
Brenda likely will not know anything about the ignored information
until after the decision has been made. However, if she does hear of
The IMA Statement of Ethical Professional Practice Competence
Standard requires that decision support information and
is the salesperson for the equipment.
The IMA Statement of Ethical Professional Practice Credibility
Chapter 10 – Decentralization and Performance Evaluation
10–37
Case 10-34, continued
c. At this point, Isaac should confront Hannah with his concerns about
not reporting the complete sales analysis for the new product line and
and then with Hannah’s supervisor.