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473
P14–4
1. Return on Investment = Profit Margin × Investment Turnover
Return on Investment = Operating Income
Sales × AssetsInvested
Sales
2.
AMAZING RIDES INC.—JET SKI DIVISION
Estimated Income Statements
For the Year Ended December 31, 20Y2
Proposal 1 Proposal 2 Proposal 3
Sales ...................................................... $12,000,000 $12,000,000 $ 9,720,000
474
P14–4, Concluded
3. Return on Investment = Profit Margin × Investment Turnover
Return on Investment = Operating Income
Sales × AssetsInvested
Sales
4. Proposal 2 would yield a return on investment of 13.5%.
5. Return on Investment = Profit Margin × Required Investment Turnover
12% = 14% × Required Investment Turnover
Required Investment Turnover = 0.86 (12% ÷ 14%) Rounded
475
P14–5
1.
MOAB BIKE COMPANY
Divisional Income Statements
For the Year Ended October 31, 20Y9
Touring Bike Trail Bike
Division
Division
2. Return on Investment = Profit Margin × Investment Turnover
Return on Investment = Operating Income
Sales × AssetsInvested
Sales
Touring Bike Division: ROI = $105,000
$1,500,000 × $1,500,000
$750,000
476
P14–5, Concluded
477
P14–6
2. The GPS Division’s operating income would increase by $800,000:
By purchasing from the Consumer Division, the Commercial Division saves
$12 per unit on its purchases.
478
P14–6, Continued
3.
BIRRELL SCIENTIFIC INC.
Divisional Income Statements
For the Year Ended October 31, 20Y5
GPS Communication
Division
Division Total
Sales:
400,000 units × $72 per unit ......... $ 28,800,000 $ 28,800,000
Expenses:
Variable:
500,000 units × $50 per unit ..... $(25,000,000) $(25,000,000)
479
P14–6, Concluded
4. The GPS Division’s operating income would increase by $1,400,000:
Increase in Consumer
Division's Operating Income = Transfer
Price –
V
ariable
Cost per Unit × Units
Transferred
480
METRIC-BASED ANALYSIS
MBA 14–1
Although there is some judgment in classifying each of these measures, the fol-
lowing represents our assessment with explanations:
Average cardmember spending Customer—demonstrates the usefulness
of the card to the customer.
Cards in force Customer—if customers did not value the
481
MBA 14–2
a. UPS wanted a performance measurement system that would focus more on
the underlying drivers, or levers, of financial success. It believed that focusing
straight financial numbers.
b. The employee sentiment number is common in service businesses. The em-
ployees are the face of the company to the customer. If employees feel poorly
482
MBA 14–3
1. Customer
2. Internal process
