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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Chapter 14, Problem 34E
Impact of an Asset Disposal on Performance Measures
Harbor Division has total assets (net of
Required
- a. Harbor computes
ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Harbor retains the asset? - b. What would divisional ROI be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)?
- c. Harbor computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Harbor retains the asset?
- d. What would divisional residual income be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)?
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The following schedule reflects the incremental costs and revenues for a capital project. The company uses the straight-line depreciation. The interest expense reflects an allocation of interest on the amount of this investment, based on the company's weighted average cost of capital.
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$192,000
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Select one:
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d. $262,000.
The following schedule reflects the incremental costs and revenues for acapital project. The company uses straight-line depreciation. The interestexpense reflects an allocation of interest on the amount of this investment,based on the company’s weighted average cost capital:Revenues $650,000Direct costs $270,000Variable overhead 50,000Fixed overhead 20,000Depreciation 70,000General & administrative 40,000Interest expense 8,000458,000Net profit before taxes $192,000══════The annual cash flow from this investment, before tax considerations, would be:
Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1. One of the assets is a
machine that has a net book value of $42,000. Now, assume that Veach has been leasing this machine for $7,200 annually. Expected
divisional income in year 1 is $55,440 including $2,940 in income generated by the leased machine (after the lease payment). Veach's
cost of capital is 10 percent. Veach can cancel the lease on the machine without penalty at any time.
Required:
a. Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the
lease on the machine?
Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).
b. What would divisional ROI be for year 1 assuming Veach cancels the lease on the machine?
Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).
c. Veach computes residual income using beginning-of-the-year net assets. What will the…
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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