Chapter 24: Q18RQ (page 1355)
Describe the two ways ROI can be calculated.
Short Answer
Two ways to calculate ROI are as follows:
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Chapter 24: Q18RQ (page 1355)
Describe the two ways ROI can be calculated.
Two ways to calculate ROI are as follows:
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Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is \(5. The transfer price to purchase from the Battery Division is \)6. The Battery Division also sells to outside customers. The sales price is \(6, and the variable cost is \)3. The Battery Division has excess capacity.
Requirements
1. Should the Calculator Division purchase from the Battery Division or the outside vendor?
2. If Henderson Company allows division managers to negotiate transfer prices, what is the maximum transfer price the manager of the Calculator Division should consider?
3. What is the minimum transfer price the manager of the Battery Division should consider?
4. Does your answer to Requirement 3 change if the Battery Division is operating at capacity?
The Harris Company is decentralized, and divisions are considered investment centers. Harris has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for \(22 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 800 chairs per quarter, and the Cushion Division is operating at capacity, which is 800 cushions per quarter. The two divisions report the following information:
Chair Division Cushion Division
Sales Price per Chair \) 85 Sales Price per Cushion \( 32
Variable Cost (other than cushion) 42 Variable Cost per Cushion 13
Variable Cost (cushion) 22
Contribution Margin per Chair \) 21 Contribution Margin per Cushion $ 19
Requirements
1. Determine the total contribution margin for Harris Company for the quarter.
2. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?
3. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company?
4. Review your answers for Requirements 1, 2, and 3. What is the best option for Harris Company?
5. Assume the Cushion Division has capacity of 1,600 cushions per quarter and can continue to supply its outside customers with 800 cushions per quarter and also supply the Chair Division with 800 cushions per quarter. What transfer price should Harris Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.
Well-designed performance evaluation systems accomplish many goals. Consider the following actions, and state which goal is being achieved by the action:
a. Comparing targets to actual results
b. Providing subunit managers with performance targets
c. Comparing actual results with industry standards
d. Providing bonuses to subunit managers who achieve performance targets
e. Aligning subunit performance targets with company strategy
f. Comparing actual results of competitors
g. Taking corrective actions
h. Using the adage 鈥測ou get what you measure鈥 when designing the performance evaluation system
Financial performance is measured in many ways.
Requirements
1. Explain the difference between lag and lead indicators.
2. The following is a list of financial measures. Indicate whether each is a lag or a lead indicator:
a. Income statement shows net income of \(100,000
b. Listing of next week鈥檚 orders of \)50,000
c. Trend showing that average hits on the redesigned Web site are increasing at 5% per week
d. Price sheet from vendor reflecting that cost per pound of sugar for the next month is $2
e. Contract signed last month with large retail store that guarantees a minimum shelf space for Grandpa鈥檚 Overloaded Chocolate Cookies for the next year
Fill in the blanks with the phrase that best completes the sentence.Some phrases may be used more than once and some not at all.
Phrases:
1. The maintenance department at the local zoo is a(n)___________
2. The gift shop at the local zoo is a(n)____________
3. The menswear department of a department store, which is responsible forbuying and selling merchandise, is a(n)_______________
4. The production line at a manufacturing plant is a(n)
5. A( n)________________is any segment of the business whose manager isaccountable for specific activities.
6. A division of a beverage manufacturing company responsible for aparticular brand of soft drink is a(n)_______________
7. The sales manager in charge of a shoe company鈥檚 northwest sales territoryoversees a(n)
8. Managers of cost and revenue centers are at_____________ levels of theorganization than are managers of profit and investment centers.______
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