Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 13, Problem 42P
Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 percent return on its investment.
During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor:
Management has determined that in order to upgrade the competitor to Megatronics’ standards, an additional $375,000 of invested capital would be needed.
Required: As a group, complete the following requirements.
- 1. Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired.
- 2. What is the likely reaction of divisional management toward the acquisition? Why?
- 3. What is the likely reaction of Megatronics’ corporate management toward the acquisition? Why?
- 4. Would the division be better off if it didn’t upgrade the competitor to Megatronics’ standards? Show computations to support your answer.
- 5. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum
return on invested capital. Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired. Will divisional management be likely to change its attitude toward the acquisition? Why?
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Sunshine Industrial Ltd, a massive retailer of electronic products, is organised in four separatebusiness divisions. The four divisional managers are evaluated at year-end, and bonuses areawarded based on return on investment (ROI). Last year, the corporation as a whole achieved aROI of 13%.During the past week, the divisional manager of the Asia-Pacific Division was approachedabout the possibility of acquiring a competitor that had decided to redirect its retail activities.The following data relates to the recent performance of the Asia-Pacific Division and thecompetitor:Asia-Pacific Division CompetitorInvested capital $1,850,000 $ 625,000Sales $8,400,000 $5,200,000Variable costs 70% of sales 65% of salesFixed costs $2,150,000 $1,670,000Management has determined that in order to upgrade the competitor to Sunshine’s standards,an additional $375,000 of invested capital would be needed.Required:(a) Compute the ROI of the Asia-Pacific Division for the following scenarios:(i) before the…
Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional
managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 14
percent return on Its Investment.
During the past week, management of the company's Northeast Division was approached about the possibility of buying a competitor
that had decided to redirect its retall activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow
relate to recent performance of the Northeast Division and the competitor:
Sales
Variable costs
Fixed costs
Invested capital
Northeast Division
$4,330,000
70% of sales
$1,101,000
$ 990,000
Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $240,000 of Invested
capital would be needed.
Req 1
Required:
1. Compute the current ROI of the Northeast Division and the division's ROI if the…
Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to
see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown.
Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-
end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year
are given below:
Sales
Variable expenses
Contribution margin
Fixed expenses
Operating income
Divisional operating assets
The company had an overall ROI of 16% last year (considering all divisions). The new product line that headquarters wants Grenier's
East Division to add would require an investment of $3,800,000. The cost and revenue characteristics of the new product line per year
would be as follows:
Sales
Variable expenses
Fixed expenses
$ 11,400,000
$…
Chapter 13 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 13 - What is the managerial accountants primary...Ch. 13 - Define goal congruence, and explain why it is...Ch. 13 - Describe the managerial approach known as...Ch. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Create an example showing how residual income is...Ch. 13 - What is the chief disadvantage of ROI as an...Ch. 13 - Why is there typically a rise in ROI or residual...Ch. 13 - Define the term economic value added. How does it...
Ch. 13 - Distinguish between the following measures of...Ch. 13 - Why do some companies use gross book value instead...Ch. 13 - Explain why it is important in performance...Ch. 13 - How do organizations use pay for performance to...Ch. 13 - Describe an alternative to using ROI or residual...Ch. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Discuss the importance of nonfinancial information...Ch. 13 - Identify and explain the managerial accountants...Ch. 13 - Describe four methods by which transfer prices may...Ch. 13 - Explain the significance of excess capacity in the...Ch. 13 - Why might income-tax laws affect the...Ch. 13 - Prob. 23RQCh. 13 - The following data pertain to Dakota Divisions...Ch. 13 - Refer to the preceding exercise. Requited:...Ch. 13 - Refer to the data for Exercise 1324. Assume that...Ch. 13 - Golden Gate Construction Associates, a real estate...Ch. 13 - Prob. 28ECh. 13 - Prob. 29ECh. 13 - Refer to Exhibit 133. Assume that you are a...Ch. 13 - Prob. 32ECh. 13 - Prob. 33ECh. 13 - Prob. 34ECh. 13 - Prob. 35ECh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Megatronics Corporation, a massive retailer of...Ch. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Clearview Window Company manufactures windows for...Ch. 13 - Prob. 47PCh. 13 - Alpha Communications, Inc., which produces...Ch. 13 - Prob. 49PCh. 13 - Holiday Entertainment Corporation (HHC), a...Ch. 13 - InterGlobal Industries is a diversified...Ch. 13 - Prob. 52C
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