Accounting Chapter 24 Homework Business Division However Income From Operations Does

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–1A

1.

Over Under

Budget Actual Budget Budget

Customer service salaries $ 390,600 $ 500,040 $109,440

2. The customer service and marketing salaries are significantly over budget. The

director should investigate the cause of these results. One possibility is that the

PROBLEMS

E-NET COMPANY

Budget Performance Report—Director, Consumer Products Division

For the Month Ended January 31, 2014

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2A

1.

West Central

Revenues $1,032,000 $1,872,000

Supporting Schedule:

Service department charge rates for the two service departments, Customer

Support and Legal, are determined as follows:

West Central Total

Number of customer contacts…

…

6,000 9,000 20,000

Number of hours billed…………

…

2,160 1,890 5,400

5,000

1,350

TRAXONIA RAILROAD INC.

Divisional Income Statements

For the Quarter Ended December 31, 2014

East

$870,000

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2A (Concluded)

2. The CEO evaluates the three divisions using income from operations as a

percent of revenues (profit margin). This measure is calculated for the three

divisions as follows:

3. To: CEO

The method used to evaluate the performance of the divisions should be

reevaluated. The present method identifies the amount of income from

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–3A

1.

Mutual Fund Division:

$1,159,200 $4,140,000

$4,140,000 $5,175,000

Electronic Brokerage Division:

$268,800 $3,360,000

$3,360,000 $1,120,000

Investment Banking Division:

$820,800 $4,560,000

$4,560,000 $3,800,000

ROI = ×

ROI

= ×

Investment

Banking

Division

Fund

Electronic

Brokerage

E.F. LYNCH COMPANY

Divisional Income Statements

For the Year Ended June 30, 2014

Mutual

Division Division

2. Rate of Return

on Investment = Profit Margin × Investment Turnover

ROI = ×

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–3A (Concluded)

3. Per dollar of invested assets, the Electronic Brokerage Division is the most

profitable of the three divisions. Assuming that the rates of return on

investments do not change in the future, an expansion of the Electronic

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–4A

2.

Sales

1. =

$3,500,000

Proposal 1

For the Year Ended December 31, 2014

Proposal 2

Sales

Income from Operations

×

Profit Margin × Investment Turnover

MAXELL MANUFACTURING INC.—COMMERCIAL DIVISION

Estimated Income Statements

Rate of Return

on Investment

Invested Assets

Rate of Return

on Investment

Sales

=

$2,905,000

Proposal 3

$3,500,000

5

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–4A (Concluded)

$315,000 $3,500,000

$3,500,000 $2,187,500

$980,000 $3,500,000

$3,500,000 $4,375,000

$406,700 $2,905,000

$2,905,000 $1,162,000

5.

Proposal 1:

Proposal 2:

Proposal 3:

ROI =

Rate of Return

on Investment

Rate of Return

on Investment

Rate of Return

on Investment

= Profit Margin × Investment Turnover

Invested Assets

×

= ×

Sales

Income from Operations

3. = Profit Margin × Investment Turnover

ROI =

Sales

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–5A

1.

Sales

$250,000 $2,500,000

$2,500,000 $1,250,000

PAVONE COMPANY

Divisional Income Statements

For the Year Ended December 31, 2014

$2,550,000

=

2. = Profit Margin × Investment Turnover

Rate of Return

on Investment

Business Division:

×

$2,500,000

Rate of Return

on Investment

ROI ×

Sales

Invested Assets

=

Sales

Income from Operations

Business Consumer

Division Division

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–5A (Concluded)

4. On the basis of income from operations, the Consumer Division generated

$107,000 ($357,000 – $250,000) more income from operations than did the

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–6A

1. No. When unused capacity exists in the supplying division (the Consumer

2. The Consumer Division’s income from operations would increase by $31,680:

Increase in Consumer Variable

(Supplying) Division’s Transfer Cost Units

The Commercial Division’s income from operations would increase by $100,800:

Increase in Commercial

(Purchasing) Division’s Market Transfer Units

By purchasing from the Consumer Division, the Commercial Division saves $35

per unit on its purchases.

Garcon Inc.’s total income from operations would increase by $132,480:

Variable

Increase in Garcon Market Cost Units

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3.

Consumer Commercial

Division Division Total

Sales:

14,400 units × $144 per unit $2,073,600 $2,073,600

GARCON INC.

Divisional Income Statements

For the Year Ended December 31, 2014

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–6A (Concluded)

4. The Consumer Division’s income from operations would increase by $63,360:

Increase in Consumer Variable

(Supplying) Division’s Transfer Cost Units

Income from Operations = Price – per Unit × Transferred

The Commercial Division’s income from operations would increase by $69,120:

Increase in Commercial

(Purchasing) Division’s Market Transfer Units

Income from Operations = Price – Price × Transferred

Garcon Inc.’s total income from operations would increase by the same amount

as in part (2), $132,480:

Variable

Increase in Garcon Market Cost Units

Income from Operations = Price – per Unit × Transferred

5. a. Any transfer price greater than the Consumer Division’s variable expenses

per unit of $104 but less than the market price of $150 would be acceptable.

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1.

Over Under

Budget Actual Budget Budget

Sales salaries $ 819,840 $ 818,880 $ 960

2. The customer service salaries exceed the budget by 20% of budget ($30,520 ÷

$152,600). The manager should request additional detailed information about the

ADELSON INC.

Budget Performance Report—Supervisor, Eastern District

For the Month Ended December 31, 2014

24-33

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2B

1.

South West

Revenues $5,673,000 $5,130,000

Supporting Schedule:

Service department charge rates for the two service departments, Dispatching and

Equipment Management, are determined as follows:

South West Total

Number of scheduled trains……

…

1,105 845 2,600

Number of railroad cars in

North

650

THOMAS RAILROAD COMPANY

Divisional Income Statements

For the Quarter Ended December 31, 2014

North

$3,780,000

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2B (Concluded)

2. The CEO evaluates the three regions using income from operations as a percent

of revenues. This measure is calculated for the three regions as follows:

3. To: CEO

The method used to evaluate the performance of the regions should be

reevaluated. The present method identifies the amount of income from operations

per dollar of earned revenue. However, a railroad company requires a significant

24-35