Required Information Bentler Industries provides high-technology navigation and communication equipment for the aerospace and shipbuilding industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision- making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division presidents on, among other things, ROI in their respective divisions. ROI is based on after-tax divisional income and beginning-of-year assets. Divisional income includes allocated corporate overhead. For the most recent year (year 3), data from the two divisions shows the following: Marine Division Aeronautics Division Cost of sales Sales Allocated corporate overhead ($000) Other general and administrative costs R&D costs Total assets (January 1,Year 3) $ 16,700 $ 17,500 22,900 15,300 1,170 2,950 20,100 7,500 63,800 60,000 28,300 56,550 The tax rate applied at Bentler is 20 percent. Looking at the ROI results for year 3, the president of Aeronautics Division complains that the division is evaluated unfairly because of the accounting rules that R&D expenditures be expensed in the year incurred. The president believes that the type of R&D performed in both Aeronautics and Marine Division generate benefits over a three-year period. In order to consider the president's complaint, the company considers some additional information. First, divisional balance sheets as of January 1, year 3 follow. Bentler Industries Divisional Balance Sheets January 1, Year 3 ($900) Assets Cash Accounts receivable Inventory Total current assets Fixed assets (net) Total assets Liabilities and Equities Accounts payable Other current liabilities Total current liabilities Long-term debt Total liabilities Total shareholders equity Total liabilities and equities Aeronautics Division Marine Division $ 1,750 1,650 900 $ 4,300 24,000 $ 28,300 $ 1,300 1,900 $ 3,200 e $ 1,350 1,750 1,450 $ 4,550 52,000 $ 56,550 $ 1,250 3,000 $ 4,250 B $ 4,250 52,300 Total $ 3,100 3,400 2,350 $ 8,850 76,000 $ 84,850 $ 2,550 4,900 $ 7,450 8 $ 7,450 77,400 $ 3,200 25,100 $ 28,300 $ 56,550 $ 84,850 Historical information on R&D expenditures follow here: Year 1 Year 2 R&D Expenditures ($900) Year 3 (Current Year) Required: Years 1 to 3 Aeronautics Division $ 14,100 17,700 20,100 Marine Division $ 6,900 8,100 7,500 a. Compute the economic value added (EVA) for each division for year 3. Assume that the R&D expenditures are incurred uniformly

Required Information Bentler Industries provides high-technology navigation and communication equipment for the aerospace and shipbuilding industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision- making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division presidents on, among other things, ROI in their respective divisions. ROI is based on after-tax divisional income and beginning-of-year assets. Divisional income includes allocated corporate overhead. For the most recent year (year 3), data from the two divisions shows the following: Marine Division Aeronautics Division Cost of sales Sales Allocated corporate overhead ($000) Other general and administrative costs R&D costs Total assets (January 1,Year 3) $ 16,700 $ 17,500 22,900 15,300 1,170 2,950 20,100 7,500 63,800 60,000 28,300 56,550 The tax rate applied at Bentler is 20 percent. Looking at the ROI results for year 3, the president of Aeronautics Division complains that the division is evaluated unfairly because of the accounting rules that R&D expenditures be expensed in the year incurred. The president believes that the type of R&D performed in both Aeronautics and Marine Division generate benefits over a three-year period. In order to consider the president's complaint, the company considers some additional information. First, divisional balance sheets as of January 1, year 3 follow. Bentler Industries Divisional Balance Sheets January 1, Year 3 ($900) Assets Cash Accounts receivable Inventory Total current assets Fixed assets (net) Total assets Liabilities and Equities Accounts payable Other current liabilities Total current liabilities Long-term debt Total liabilities Total shareholders equity Total liabilities and equities Aeronautics Division Marine Division $ 1,750 1,650 900 $ 4,300 24,000 $ 28,300 $ 1,300 1,900 $ 3,200 e $ 1,350 1,750 1,450 $ 4,550 52,000 $ 56,550 $ 1,250 3,000 $ 4,250 B $ 4,250 52,300 Total $ 3,100 3,400 2,350 $ 8,850 76,000 $ 84,850 $ 2,550 4,900 $ 7,450 8 $ 7,450 77,400 $ 3,200 25,100 $ 28,300 $ 56,550 $ 84,850 Historical information on R&D expenditures follow here: Year 1 Year 2 R&D Expenditures ($900) Year 3 (Current Year) Required: Years 1 to 3 Aeronautics Division $ 14,100 17,700 20,100 Marine Division $ 6,900 8,100 7,500 a. Compute the economic value added (EVA) for each division for year 3. Assume that the R&D expenditures are incurred uniformly

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter24: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 8E: Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division...

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