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Question;149.1. Compute;the sales volume (in units) necessary for Division A to achieve a 20% ROI in;2013.;2.;The division manager receives a bonus of 50% of residual income (RI). What is;his anticipated bonus for 2013 for the division manager, assuming she achieves;the 20% ROI target specified in part (1)?;The;Division A of Standard Products is planning its 2013 operating budget. Average;operating assets of $1,500,000 will be used during in the division during the;year and per-unit selling prices are expected to average $100. Variable costs;of the division are budgeted at $400,000, while fixed costs are set at;$250,000. The company's;required rate of return for purposes of calculating residual income (RI) is;18%.;Required;150.1. What is;the effect on ROI of accepting the new product line?;2.;If the company's required rate of return is 6% and residual income is used to;evaluate managers, would this encourage the division to accept the new product;line? Explain and show computations.;The;major operating divisions of Grey Company are organized as investment centers;for performance-evaluation purposes. The division managers are evaluated, in;part, on the basis of the change in the return on investment (ROI) of their;units. Operating results for the Division A for the coming year, 2013, based on;its existing assets are budgeted as follows;Operating;assets for the Division A are currently $3,600,000. For 2013, the division can;add a new product line for an investment of $600,000. The new product line is;expected to generate sales of $1,600,000 and will incur fixed expenses of;$600,000 annually. Variable costs of the new product are expected to average;60% of the selling price.;Required;151.1.;Compute the current ROI for each division.;2.;Compute the current residual income (RI);for each division.;3.;Rank the divisions according to their;current ROIs and residual incomes.;4.;Determine the effects after adding the;new project to each division's ROI and residual income (RI).;5. Assuming;the managers are evaluated on either ROI or residual income (RI), which;divisions are pleased with the expansion and which ones are unhappy? Explain;briefly.;Meridian Investments has three divisions;(A, B, C) organized for performance-evaluation purposes as investment centers.;Each division's required rate of return for purposes of calculating residual;income (RI) is 15%. Budgeted operating results for 2013 for each of the three;divisions are as follows;The;company is planning an expansion, which will require each division to increase;its investments by $25,000,000 and its income by $4,500,000.


Paper#51019 | Written in 18-Jul-2015

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