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1. Advantages of centralized organizations  include include increased expertise at each division, quicker decisions, better use of time at top management levels, and increased motivation of division managers.
centralized organizations
True
False

2. A segment responsible for costs, revenues, and investment in assets is called an investment center.
investment center.
True
False

3. Economic Value Added is the dollar amount of division operating profit in excess of the division’s cost of acquiring capital to purchase its operating assets.
True
False

4. The Return on Equity measure provides an assessment of how effectively each division is using operating assets to produce operating income.
True
False

5. ROI can be calculated using two separate measures: operating profit margin and asset turnover (ROI = Operating profit margin x Asset turnover).
True
False

6. Excluding allocated overhead has the effect of increasing ROI for each division manager and holds each division manager responsible only for expense amounts that are controllable.
True
False

7. Manford Inc. has two divisions – Refrigerators and Dish Washer.

                               Manford Company
                     Segmented Income Statements
   For the Current Fiscal Year Ended December 31
 For the Current Fiscal Year Ended December 31

                                                                                          Refrigerator                     Dish Washer
                                                                                             Division                                 Division
 Division                                 Division
Sales                                                                                         $10,576                                   $5,600
Cost of goods sold                                                                     4,873                                       2,024
  4,873                                       2,024
Gross margin
Allocated overhead (from corporate)                                        938                                         712
Selling and administrative expenses                                         868                                          376
868                                          376
Operating income
Income tax expense (45%)                                                          1,740                                         736
 1,740                                         736
Net income                                                                                        $                                                $ 
 $  

 Using the segmented income statements, what is the profit margin ration for the Refrigerator Division? Answer to nearest two decimal places without any commas or words (e.g. 1.25 increase or 125%). Enter a negative number as -10 not (10).
Answer to nearest two decimal places without any commas or words (e.g. 1.25 increase or 125%). Enter a negative number as -10 not (10).
nearest two decimal places
________?__________
________?__________
Response Feedback: profit margin ration = net income / sales
Response Feedback: profit margin ration = net income / sales

8. Manford Inc. has two divisions – Refrigerators and Dish Washer.
                                                  Manford Company
                                  Segmented Income Statements
                  For the current Fiscal Year Ended December 31
For the current Fiscal Year Ended December 31
                                                                                       Refrigerator               Dish Washer
                                                                                         Division                        Division
  Division                        Division
Sales                                                                              $10,467                                $5,882
Cost of goods sold                                                          4,810                                   2,249
 4,810                                   2,249
Gross margin
Allocated overhead (from corporate)                           911                                     653
Selling and administrative expenses                            819                                      412
 819                                      412
Operating income
Income tax expense (45%)                                            1,823                                   665
1,823                                   665
Net income                                                                         $                                          $
  $    
       $

Assume the Refrigerator Division has average operating assets totaling $24,766 for the year. What is the division’s return on investment? Answer to nearest two decimal places without any commas or words (e.g. 1.25 not 1.25 increase or 125%). Enter a negative number as -10 not (10).
Answer to nearest two decimal places without any commas or words (e.g. 1.25 not 1.25 increase or 125%). Enter a negative number as -10 not (10).
nearest two decimal places

__________?_______
__________?_______
Response Feedback: division return on investment = operating income / average total assets 
Response Feedback: division return on investment = operating income / average total assets 

9. Manford Inc. has two divisions – Refrigerators and Dish washer.
                                                                                   Manford Company
                                                                     Segmented Income Statements
                                                    For the Current Fiscal Year Ended December 31
For the Current Fiscal Year Ended December 31
                                                                                                         Refrigerator                         Dish Washer
                                                                                                            Division                                  Division
Division                                  Division
Sales                                                                                                  $10,054                                    $5,980
Cost of goods sold                                                                              4,243                                       1,702
 4,243                                       1,702
Gross margin
Allocated overhead (from corporate)                                               871                                            646
Selling and administrative expenses                                                860                                             409
 860                                             409
Operating income
Income tax expense (45%)                                                              1,801                                              705
 1,801                                              705
Net income                                                                                              $                                                  $
 $    
$

Assume the Refrigerator Division has average operating assets totaling $6,543 for the year and the company’s cost of capital rate is 13 percent. what is the residual income for the Refrigerator division? Answer to nearest whole dollar without any commas, decimal points, or words (e.g. 1000 not 1,000.00 or increase 1000).  Enter a negative number as -10 not (10).
Answer to nearest whole dollar without any commas, decimal points, or words (e.g. 1000 not 1,000.00 or increase 1000).  Enter a negative number as -10 not (10).
_______?_________
_______?_________
Response Feedback: division residual income = division operating income – (average division assets x company’s cost of capital)

10. Katsen Company can sell its products to an external market for $182 per unit. The division’s variable manufacturing costs are $56 per unit and fixed manufacturing costs are $15 per unit. If the division is operating at full capacity, what would be the opportunity cost of selling internally?
_______?_______
Response Feedback: The opportunity costs would be sales price – variable costs.

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