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Question;142.1. Discuss;the similarities between ROI, residual income (RI), and EVA?.;2.;In what sense is EVA? similar to and in;what sense is it distinct from residual income (RI)?;3.;Present the equation for calculating;EVA? and provide a brief discussion of the elements that go into the;calculation of EVA?.;4.;What are the two approaches that can be;used to estimate the two major components of EVA?? Which of these two;approaches is superior?;This question deals with summary;financial performance indicators.;Required;143.A fellow student of;yours who has just completed a course in management accounting recently made;the following comment to you regarding the establishment of transfer prices for;transnational transfers of goods and services within the same company: "In;the process of preparing consolidated financial statements, all profit and loss;attributable to internal transfers of goods and services are removed. The;amount of profit a company reports is therefore affected only by transactions;with external parties. Therefore, the subject of transfer pricing may be;important for motivational purposes or some other managerial objective, but the;choice of a transfer pricing system has no effect on the bottom line, even when;transfers are made between units of a company operating in different;countries.;Required;Critically analyze and respond to;the above assertion.;144.1. What is;the current return on investment (ROI) for Division C?;2.;What will be the ROI of the division if;the new investment is undertaken?;3.;Suppose the manager's compensation;consists of a salary plus a bonus proportional to divisional ROI. Would the;manager's compensation be higher with, or without, the new investment?;4. Suggest;changes to corporate management that will better align performance evaluation;and compensation with corporate goals.;Michael;Cianci, manager of Division C of the FX Corporation, is considering a new;investment for his division. The division currently has an investment base of;$4,000,000, and operating income of approximately $600,000 per year. The new;investment of $500,000 supports corporate strategy and is expected to increase;operating income by $50,000 next year, an acceptable level of return from the;standpoint of the corporation as a whole.;Required;145.This;question pertains to the use of market-based transfer prices.;Required;What is the primary advantage and;what is the primary difficulty in using market-based transfer prices?;146.1. What would the;operating income for each of the two divisions be if the transfer price from;Cutting to Assembly was set at the cord cost of $22 per cord? (Show;calculations.);2.;What would the operating income for each;of the two divisions be if the transfer price is set at $18 per cord? (Show;calculations.);3. Since;Cutting transfers all of its output internally (to Assembly), does the manager;of Cutting care what price is selected? Why? Should Cutting be treated as a;cost center under the circumstances (rather than a profit center or investment;center)? Explain.;Pacific;Mill consists of two operating divisions, a Cutting division and the Assembly;division. The Cutting division prepares cords of timber at its sawmills, while;the Assembly division prepares the cut cords of lumber into board-feet of;finished wood (which is sold to various furniture manufacturers). During the;most recent year the Cutting division prepared 60,000 cords of wood at a cost;of $1,320,000. All of this lumber was transferred to the Assembly division;where incremental costs of $12 per cord were added. Pacific Mill sold the;600,000 board-feet of finished wood for $5,000,000.;Required;147.This;question pertains to factors affecting the setting of transfer prices in an;international setting.;Required;What;are the primary factors affecting the setting of transfer prices between;divisions of a company that operates in different countries?;148.1. Use the general transfer pricing rule to;compute a transfer price for the computer module. 2. Explain the underlying;logic of the general transfer pricing rule discussed in the chapter.;The;microprocessor division of Zenith Systems Company sells a computer module to;the company's Assembly Division, which puts together the finished product;(viz., guidance systems). The Microprocessor Division is currently working at;capacity. The computer module costs $10,000 to manufacture, and it can be sold;externally to companies for approximately $13,500 per unit.;Required

 

Paper#51018 | Written in 18-Jul-2015

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