GEN COMBO FUNDAMENTALS OF COST ACCOUNTING; CONNECT 1S ACCESS CARD
5th Edition
ISBN: 9781259911651
Author: William N. Lanen Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 14, Problem 27E
Compare Alternative Measures of Division Performance
The following data are available for two divisions of Solomons Company:
The cost of capital for the company is 8 percent. Ignore taxes.
Required
- a. If Solomons measures performance using
ROI , which division had the better performance? - b. If Solomons measures performance using economic value added, which division had the better performance? (The divisions have no current liabilities.)
- c. Would your evaluation change if the company’s cost of capital were 16 percent? Why?
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The following data are available for two divisions of Solomons Company.
North Division
$10,535,000
49,000,000
South Division
$ 47,460,000
339,000,000
Division operating profit
Division investment
The cost of capital for the company is 8 percent. Ignore taxes.
Required:
a-1. Calculate the ROI for both North and South divisions.
a-2. If Solomons measures performance using ROI, which division had the better performance?
b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilities.)
b-2. If Solomons measures performance using economic value added, which division had the better p
c. Would your evaluation change if the company's cost of capital was 17 percent?
1. When evaluated by ROI?
2. When evaluated by EVA?
Complete this question by entering your answers in the tabs below.
Req A1
Divisions
North
South
Reg A2
estion 12- Hom...
Calculate the ROI for both North and South divisions. (Enter your answers as a percentage rounded to 1 de
32.1).)
ROI
Req…
The vice president of operations of Moab Bike Company is evaluating the
performance of two divisions organized as investment centers. Invested assets and
condensed income statement data for the past year ending October 31, 20Y9, for
each division are as follows: (P14-5)
Touring Bike Division
Trail Bike Division
Sales
$1,500,000
$5,00
Cost of goods sold
Operating expenses
Invested assets
900,000
4,000,000
495,000
968,000
750,000
3,600,000
Instructions
1. Prepare condensed divisional income statements for the year ended October 31,
20Y9, assuming that there were no service department charges.
Touting Bike Division
Trial Bike Division
The following data are available for two divisions of Ryan Enterprises:
Alpha Division
Beta Division
Division operating profit
$ 7,360,000
$ 1,240,000
Division investment
32,160,000
3,160,000
The cost of capital for the company is 7 percent. Ignore taxes.
Required:
a-1. Calculate the ROI for both Alpha and Beta divisions.
a-2. If Ryan measures performance using ROI, which division had the better performance?
b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.)
b-2. If Ryan measures performance using economic value added, which division had the better performance?
c. Would your evaluation change if the company’s cost of capital was 10 percent,
when evaluated by ROI?
when evaluated by EVA?
Chapter 14 Solutions
GEN COMBO FUNDAMENTALS OF COST ACCOUNTING; CONNECT 1S ACCESS CARD
Ch. 14 - What are the advantages of divisional income as a...Ch. 14 - How is divisional income like income computed for...Ch. 14 - How is return on investment (ROI) computed?Ch. 14 - What are the advantages of using an ROI-type...Ch. 14 - How can ratios, such as ROI, be used for control...Ch. 14 - How does residual income differ from ROI?Ch. 14 - How does EVA differ from residual income?Ch. 14 - What impact does the use of gross book value or...Ch. 14 - What are the dangers of using only business unit...Ch. 14 - A company prepares the master budget by taking...
Ch. 14 - Prob. 11CADQCh. 14 - What problems might there be if the same methods...Ch. 14 - Prob. 13CADQCh. 14 - The chapter identified some problems with ROI-type...Ch. 14 - Failure to invest in projects is not a problem...Ch. 14 - How would you respond to the following comment?...Ch. 14 - Prob. 17CADQCh. 14 - Prob. 18CADQCh. 14 - Prob. 19CADQCh. 14 - Prob. 20CADQCh. 14 - Prob. 21CADQCh. 14 - Compute Divisional Income Arlington Clothing,...Ch. 14 - Compute Divisional Income Refer to Exercise 14-22....Ch. 14 - Computing Divisional Income: Incomplete...Ch. 14 - Compute RI and ROI The Campus Division of...Ch. 14 - Prob. 26ECh. 14 - Compare Alternative Measures of Division...Ch. 14 - Comparing Business Units Using ROI Back Mountain...Ch. 14 - Comparing Business Units Using Residual Income...Ch. 14 - Prob. 30ECh. 14 - Impact of New Asset on Performance Measures The...Ch. 14 - Prob. 32ECh. 14 - Prob. 33ECh. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Prob. 35ECh. 14 - Compare Historical Cost, Net Book Value to Gross...Ch. 14 - Prob. 37ECh. 14 - Compare Current Cost to Historical Cost Refer to...Ch. 14 - Effects of Current Cost on Performance...Ch. 14 - Comparing Business Units Using Divisional Income,...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Comparing Business Units Using EVA: Solving for...Ch. 14 - Equipment Replacement and Performance Measures...Ch. 14 - Prob. 44PCh. 14 - Prob. 45PCh. 14 - Prob. 46PCh. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Evaluate Performance Evaluation System: Behavioral...Ch. 14 - ROI, EVA, and Different Asset Bases Hys is a...Ch. 14 - Economic Value Added Bisbee Health Products...Ch. 14 - Prob. 52P
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