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finance data bank




Question;128.Pearl Inc.;has the following financial results for 2013 for its three regional divisions;Required;Calculate return on investment (ROI), asset turnover;(AT), and return on sales (ROS) for each division for 2013. The sales in the;Northeast, Midwest, and Southeast regions are $700,000, $800,000, and $990,000;respectively. Calculate ROI and AT for each of the four measures of investment;(i.e., NBV, GBV, Replacement Cost, and Liquidation Value). Round all answers;except ROI to 2 decimal places (e.g., 0.12522 becomes 12.52%), round ROI to;whole percentage amounts, e.g., 0.1998 becomes;20%.;129.1. Calculate return on investment (ROI);including each of the two component measures of ROI. 2. Calculate residual;income (RI).;Selected data from one;of the investment centers from Jones Company are as follows;Required;130.1.;Determine the operating income for each division if the transfer price from the;Cutting Division to the Assembly Division is set at cost, $11 per cord.;2.;Determine the operating income for each;division if the transfer price is set at $9 per cord.;3.;Since the Cutting Division sells all of;its output internally, does the manager care about what price is charged? Why?;Should the Cutting Division in this case be considered a cost center or a(n);profit/ investment center?;Brown's;Mill has two operating units, each of which is considered an investment center;for evaluation purposes. The Cutting Division of the mill prepares timber at;its sawmills. Afterwards, the Assembly Division prepares the cut lumber into;finished wood, to be sold to furniture manufacturers. During the most recent;year, the Cutting Division produced 120,000 cords of wood, at a total cost of;$1,320,000. The entire output was transferred to the Assembly Division, where;additional costs of $6 per cord were incurred. The 1,200,000 board-feet of;finished wood were then sold in the open market for $5,000,000.;Required;131.1. What is the operating income for each of the;two divisions and for the company as a whole? (Use market value as the transfer;price.);2.;Do you think each of the two divisional managers is happy with this;transfer-pricing method? Explain.;Simmons;Bedding Company manufactures an array of bedding-related products, including;pillows. The Cover Division of Simmons makes covers, while the Assembly;Division of the company produces finished pillows. The covers can be sold;separately for $10.00 a piece, while the pillows sell for $12.00 per unit. For;performance-evaluation purposes, these two divisions are treated as investment;centers. Financial results from the most recent accounting period are as;follows;Required;132.1.;What is the current ROI for the processing division of XYZ Corporation? (Show;calculations.);2.;What will be the divisional ROI if the;new investment is undertaken?;3. Suppose;that the compensation contract for the manager of the processing division;consists of a base salary plus a bonus that is proportional to the ROI earned;by the division. Is this manager's total compensation higher with or without;the new investment? (Show calculations.);4. What;changes to the divisional manager's compensation contract might corporate;management make that would better align divisional manager's compensation (and;performance evaluation) with overall corporate goals?;The;manager of the processing division of XYZ Corporation is considering the;purchase of new equipment, which would modernize an aging plant. Currently, the;division has an asset base of $8,000,000 and net operating income of;$1,200,000. The new equipment is expected to cost $1,000,000, it supports the;corporate strategy of competing on the basis of quality and customer response;time.;The new investment is;also expected to increase operating income by $100,000 next year, which is an;acceptable return on investment from the standpoint of corporate management.;Required;133.The;following questions pertain to the process of transfer pricing.;1. Define the term;transfer price.;2.;What the three general alternatives for;setting domestic transfer prices?;3.;What is meant by the term "dual;pricing," as used within the context of the transfer pricing decision?;Give one example of "dual pricing.;4. What;criteria can be used to judge a particular transfer pricing alternative? (Hint;think about the different objectives of transfer pricing, including objectives;in an international setting.);5. What;is meant by the term "advance pricing agreement" (APA)? What is the;essential purpose of an APA?;134.1.;Present, in equation form, the general transfer-pricing rule presented in the;chapter. Briefly describe the elements of the model.;2.;In what sense is the model presented in;the chapter a general transfer-pricing rule?;3.;Evaluate the general transfer-pricing;rule in light of the objectives for transfer pricing that are presented in the;chapter.;4.;What are some of the major;implementation issues associated with applying the general transfer-pricing;rule in practice?;The text presents what it calls a;general transfer-pricing" rule that can be used to help set an;appropriate transfer price. The following questions pertain to this general;rule.;Required;135.What special problems and opportunities;arise in setting transfer prices in an international setting (i.e., for;transfers between subunits that operate in different countries)? Hint: In terms;of special problems, make sure you reference OECD requirements and practical;implementation alternatives for general OECD requirements.)


Paper#51016 | Written in 18-Jul-2015

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