Student Name:
Class:
AC Division SO Division
8,000$ 20,000$
3,200 7,000
Operating Margin
ROI
Residual income
Instructor
McGraw-Hill/Irwin
Problem 14-40
COLONIAL PHARMACEUTICALS
Part a. Compute divisional income for the two divisions.
Part c. Calculate ROI for the two divisions
Part d. Compute residual income for the two divisions
Part b. Calculate the operating margin for the two divisions
Sales
Cost of goods sold
Investment
R&D
Allocated corp. overhead
Operating income
Gross Margin
SG&A
AC Division SO Division
600$ 1,800$
3,200 7,000
Given Data P14-40:
COLONIAL PHARMACEUTICALS
Allocated corp. overhead
Cost of goods sold
Cost of capital
Divisional investment
R & D
Student Name:
Class:
3,750,000$
Net book value of investments
ROI
Correct!
250,000$
Sales revenue
Fixed
Depreciation:
Net book value of investments
ROI
Equipment
Other
Division operating profit
Operating profit
2,200,000
PITT, INC.
Instructor
McGraw-Hill/Irwin
Problem 14-43
Part a. Compute ROI if the new machine is not acquired.
Part b. Compute ROI if the new machine is acquired.
Round ROI to nearest tenth of a percent (3 decimal places)
Part c. Compute ROI for the second year if the new machine is acquired.
Round ROI to nearest tenth of a percent (3 decimal places)
Operating profit
Operating profit
Operating profit for second year:
Costs:
Variable
Net book value of investments
ROI
16,000,000$
4,000,000$
Salvage value of new machine
Salvage value of existing machine
Cost of new machine
Percentage increase in division output
Percentage decrease in cash fixed costs
Service life of new machine in years
5,000,000$
PITT, INC.
Expected Income Statement
Forbes Division
Given Data P14-43:
Operating costs
Sales revenue
Forbes Division total assets
Additional Information:
Amount invested in automated equipment
Other
New equipment
Depreciation
Fixed (all cash)
Variable
Student Name:
Class:
Increase Over
Current Year Base Year Base Year
ROI if R&D is capitalized this year
Amount of bonus likely to be claimed
by the new management team
20,500,000$ 20,000,000
12.0% 10.0%
PHARM-IT
Instructor
McGraw-Hill/Irwin
Problem 14-48
Sales revenues
ROI if R&D is expensed
Part a. Round ROI to nearest tenth of a percent (three decimal places).
Costs incurred
R&D expense
Depreciation and other amortization
Other costs
Division profit
End-of-year investment
Increase Over
This Year Base Year Base Year
20,500,000$ 20,000,000
5,000,000$
Amount of unsuccessful ventures included in End-of-year investment
Amount of unsuccessful ventures
PHARM-IT
Given Data P14-48:
Sales revenues
Costs incurred
Amount spent on R&D this year
Additional Information:
R&D expense
Depreciation and other amortization
Other costs
Division profit
End-of-year investment
Student Name:
Class:
Regular
Merchandise [a] Appliances Total [b]
4,680,000$ 1,350,000$ 6,030,000$
2,934,000 1,026,000 3,960,000
Floor Plan
Option [c]
Gross margin
Operating expense
Operating profit
Floor plan charge
6,030,000$
3,960,000
Merchandise [a] Appliances Total
Gross Margin
Operating Expense
Operating Profit
Capital cost (@ 8%)
4,680,000$ 1,350,000$ 6,030,000$
2,934,000 1,026,000 3,960,000
HY’S STORE – BOISE
Summary of Alternatives
Income Statements
Instructor
McGraw-Hill/Irwin
Problem 14-50
Parts a. and b.
Sales revenue
Cost of Sales
Part c.
Sales revenue
Cost of Sales
Part e.
Sales revenue
Cost of Sales
Gross Margin
Operating Expense
Operating Profit
8%
4,680,000$
2,934,000$
468,000$
3,375,000$
HY’S STORE – BOISE
Given Data P14-50:
Required ROI as a percent of total assets
Estimates for the coming year:
Existing conditions:
Revenues
Cost of goods sold
Operating expenses
Investment in store assets
8%
Estimated impact:
House Station’s marginal cost of capital
Additional Information:
Ace’s Appliance proposal:
Revenues from Ace appliances
Cost of goods sold
Annual operating expenses for this line
Required inventory investment (on flooring plan)
Annual cost of flooring plan