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 28E
Comparing Business Units Using ROI
Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial information (in thousands of dollars) for the first year of business follows:
Required
Evaluate the performance of the two divisions assuming BMI uses
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Using ROI and RI to evaluate investment centers
Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:
Management has 21 26% target rate of return for each division.
Requirements
Calculate each division’s ROI. Round all of your answers to four decimal places.
Calculate each division’s profit margin ratio. Interpret your results.
Calculate each division’s asset turnover ratio. Interpret your results.
Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude.
Chick-Fil-A are the Lord’s Calories (CLC) has the following divisions within their company that achieved the reported ROIs for the previous year:
Division ROI
A 15%
B 20%
C 18%
CLC has been approached with a $350,000 investment opportunity. Which division will AFA choose to invest in, and how much operating income will be generated from the investment?
A. AFA will invest in Division A; the investment will earn operating income of $52,000
B. AFA will invest in Division C; the investment will earn operating income of $63,000
C. AFA will invest in Division B; the investment will earn operating income of $70,000
D. AFA will invest in Division A; the investment will earn operating income of $63,000
Saved
Compute return on investment for each of the divisions below (each is an investment center). Which division performed the best,
based on return on investment?
Complete this question by entering your answers in the tabs below.
Performance
Based on ROI
Return on
Investment
Compute return on investment for each of the divisions below (each is an investment center). (Round your final answers to 1
decimal place.)
Average Assets
Return on
Investment
Investment Center
Net Income
Cameras and camcorders
2$
6,118,000 $ 26,600,000
Phones and communications
3,628,500
17,700,000
%
Computers and accessories
2,106,000
10,800,000
K Returm on Investment
Performance Based on ROI >
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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