Case StudyFinancial performance measures are essential tools used by managers to evaluate the financialhealth of their organization. They provide an overview of the company's financialperformance, help identify areas of improvement, and support decision making.CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it.The following data relate to the company for the year 2019:In its clothing division, the company has $4,000,000 invested in assets. After-taxoperating income from sales of clothing in 2019 is $700,000. Income for the clothingdivision has grown steadily over the last few years.• The cosmetics division has $12,000,000 invested in assets and an after-tax operatingincome in 2019 of $1,700,000.• The weighted-average cost of capital for CarniTrin is 10% and the 2018's after-taxreturn on investment for each division was 15%.• The general manager of CarniTrin has asserted that in future, managers should havetheir compensation structure aligned with their performance measures with no fixedsalaries. However, the general manager has told the manager of each division that thebetter division in 2019 will get a bonus. Part1. Calculate the return on investment (ROI) and residual income (RI) for each divisionof Carni Trin, and briefly explain which manager will get the bonus.2. Similar to RI another measure called economic value added (EVA) was brought to theattention of the general manager. The general manager requests that the accountantcalculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjustedafter-tax operating incomes are $760,000 and $1,460,000, respectively. Also, theclothing division has $500,000 of current liabilities, while the cosmetics division hasonly $300,000 of current liabilities.Using the preceding information, calculate EVA, and discuss which division managerwill get the bonus. -3. What nonfinancial measures could CarniTrin use to evaluate divisional performances?Part B

Divisional performance measures are the measures that evaluate the performance of the divisions or…

1. Calculate the return on investment (ROI) and residual income (RI) for each division of Carni Trin, and briefly explain which manager will get the bonus. 2. Similar to RI another measure called economic value added (EVA) was brought to the attention of the general manager. The general manager requests that the accountant calculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjusted after-tax operating incomes are $760,000 and $1,460,000, respectively. Also, the clothing division has $500,000 of current liabilities, while the cosmetics division has only $300,000 of current liabilities. Using the preceding information, calculate EVA, and discuss which division manager will get the bonus. - 3. What nonfinancial measures could CarniTrin use to evaluate divisional performances?

1. Calculate the return on investment (ROI) and residual income (RI) for each division of Carni Trin, and briefly explain which manager will get the bonus. 2. Similar to RI another measure called economic value added (EVA) was brought to the attention of the general manager. The general manager requests that the accountant calculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjusted after-tax operating incomes are $760,000 and $1,460,000, respectively. Also, the clothing division has $500,000 of current liabilities, while the cosmetics division has only $300,000 of current liabilities. Using the preceding information, calculate EVA, and discuss which division manager will get the bonus. - 3. What nonfinancial measures could CarniTrin use to evaluate divisional performances?

Century 21 Accounting Multicolumn Journal

11th Edition

ISBN:9781337679503

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section: Chapter Questions

Problem 1MP

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