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Question;116.Assume that the Plastics Division has excess;capacity and it has negotiated a transfer price of $5.60 per plastic component;with the Entertainment Division. This price will likely;A.;Cause the Plastics Division to reduce;the number of commercial plastic components it manufactures.;B.;Motivate both divisions because;estimated profits will be shared.;C.;Encourage the Entertainment Division to;seek an outside source for plastic components.;D.;Demotivate the Plastics Division;causing mediocre performance.;E.;Motivate the Plastics Division to;increase the portion of its manufacturing devoted to the Entertainment;Division.;117.Alice and Jon Harrison operate two full-service;dry cleaning outlets in the St. Louis metropolitan area. One of the outlets;generates over $800,000 revenue per year and has more than a million dollar;investment in state-of-the-art equipment. The other outlet is older, generates;$20,000 revenue per month, and has 20-25 year-old equipment currently worth;approximately $85,000. Both outlets are profitable with growing market bases.;(The ratio between operating income and sales for each unit, based on;historical-cost accounting numbers, is roughly the same.) Managers at each;location are currently paid a base salary, and receive a year-end bonus which;is five percent of total operating profit produced by both outlets combined.;Alice has just finished a workshop on investment center performance evaluation;and wants to change the evaluation and reward structure, hoping to motivate the;two managers to produce greater revenue and profit.;Required;What type of evaluation mechanisms;should she propose for the two managers?;118.Ellie Jackson is;upset by the new transfer pricing system recently implemented at Monson;Company. As manager of the first of three sequential production departments;she can't see the value of a transfer pricing system for her department.;We can't sell what we produce to any outside buyer. And we're never;pushed for capacity, so I don't think transfer pricing will do anything but;make my life more complicated." You are Ellie's boss.;Required;Explain how transfer pricing can help Ellie evaluate;her department's operations and allow you to more effectively evaluate her;management abilities.;119.Consider the;following data for three divisions of a company, X, Y, and Z;Required;Calculate return on investment (ROI), return on;sales (ROS), and asset turnover (AT) for each division. Round your answers to;two decimal places where appropriate.;120.1. Calculate return on investment (ROI) for this;investment center (show separately the two major components of the ROI;calculation);2. Calculate residual;income (RI) for this investment center.;Round all computations to two;decimal places.;Selected data from an;investment center's accounting records reveal the following;Required;121.1.;Compute the return on sales (ROS) for Division A.;2.;Compute the asset turnover (AT) for;Division A.;3.;Compute return on investment (ROI) for;this division, using answers to parts (1) and (2).;4.;Compute residual income (RI) for;Division A.;5.;Describe how Alpha Manufacturing would;determine whether or not to invest in any particular project in the future.;Accounting records from Division A;Alpha Manufacturing Company indicate the following;Required


Paper#51014 | Written in 18-Jul-2015

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