Isla Manufacturing makes fashion products and competes on the basis of quality and leading-edge designs. The company has two divisions, clothing and cosmetics. Isla has $2,500,000 invested in assets in its clothing division. After-tax operating income from sales of clothing this year is $550,000. The cosmetics division has $11,000,000 invested in assets and an after-tax operating income this year of $1,650,000. The weighted-average cost of capital for Isla is 8%. The CEO of Isla has told the manager of each division that the division that “performs best” this year will get a bonus. Required 1. Calculate the ROI and residual income for each division of Isla Manufacturing, and briefly explain which manager will get the bonus. What are the advantages and disadvantages of each measure? 2. The CEO of Isla Manufacturing has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate adjusted incomes for clothing and cosmetics, and finds that the adjusted after-tax operating incomes are $401,400 and $2,067,200, respectively. Also, the cloth- ing division has $270,000 of current liabilities, while the cosmetics division has only $120,000 of current liabilities. Using the preceding information, calculate the EVA for each division and discuss which man- ager will get the bonus. 3. What nonfinancial measures could Isla use to evaluate divisional performances?
> Kidman & Associates is a law firm specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2020
> Daewoong Medicals, a healthcare company based in South Korea, uses a job-costing system at Hyangnam plant. The plant has a technology department and a finishing department. Daewoong uses normal costing with two direct-cost categories (direct materials an
> AgroPharm Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission of 18% of revenues. AgroPharm is considering replacing the sales agents with its own salespeople, who wo
> Carlisle Engine Company manufactures and sells diesel engines for use in small farming equipment. For its 2020 budget, Carlisle Engine Company estimates the following: The first-quarter income statement, as of March 31, reported that sales were not meeti
> TopHats operates a kiosk at a local mall, selling hats for $30 each. TopHats currently pays $900 a month to rent the space and pays three full-time employees to each work 160 hours a month at $12 per hour. The store shares a manager with a neighboring ma
> Sunshine Printing Company currently leases its only copy machine for $1,500 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Sunshine would pay a commissi
> The Big Event (TBE) recently started a business organizing food and music at weddings and other large events. In order to better understand the profitability of the business, the owner has asked you for an analysis of costs—what costs are fixed, what cos
> Refer to requirement 3 of Problem 3-43. In this problem, assume the role of the owner of LadyStyle. Required 1. As owner, which sales compensation plan would you choose if forecasted annual sales of the new store were at least 25,000 units? What do you
> The LadyStyle sells women’s shoes across the country through its chain of shoe stores. It sells 20 different styles of shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store mana
> Mundial Nails produces a famous nail polish with a unique glossy feature and sells it for $25 per unit. The operating income for 2017 is as follows: Mundial Nails would like to increase its profitability over the next year by at least 20%. To do so, the
> J.T. Brooks and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 5 years. However, increased competition has led Mr. Brooks, the president, to believe that an aggressive marketing campaign will be ne
> Crestwood Ltd makes 200 wooden kitchen chairs every month and sells them for €50 each. Fixed monthly overheads are €3,000 and the standard cost of one chair is as follows: Required 1. Calculate the variable cost per mon
> Yahama Medical Centre operates a medical surgery in Japan that specializes in the diagnosis and treatment of hay fever allergies. The firm’s budget for next year is as follows: Required 1. Calculate the contribution margin ratio. 2. Co
> Wellington Vents Ltd operates and services snack vending machines located in restaurants, metro stations, canteens, etc. The machines are rented from the manufacturer. In addition, the company must rent the space occupied by its machines. The following e
> Central térmica, Inc., produces the same power gen- erator in two Spanish plants, a new plant in Los Barrios and an older plant in Ascó. The following data are available for the two plants. All fixed costs per unit are calculate
> Megaphone Corporation produces a molded plastic casing, M&M101, for many cell phones currently on the market. Summary data from its 2020 income statement are as follows: Joshua Kirby, Megaphone’s president, is very concerned about M
> The Garden Club is preparing for its annual meeting in which a magic show will be shown to its contributing members only. Last year, out of 1,500 members, only 600 contributed for the magic show. Tickets for the show were $30 per attendee. The profit rep
> The following data has been collected from Decent Waters Company for the year ended December 31, 2019. Required 1. Prepare a schedule for the cost of goods manufactured for the year 2019. 2. If the company produced 20,000 bottles of water in 2019, calcu
> Blackthorns Ltd produces a single product, which has a selling price of £10 per unit and a variable cost of production of £4 per unit. The fixed costs of production are £55,000. In addition, the company incurs distribution and selling costs of £1.90 per
> Romi Filters produces two types of water filters. One at- taches to the faucet and cleans all water that passes through the faucet; the other is a pitcher-cum-filter that only purifies water meant for drinking. The unit that attaches to the faucet is sol
> The Matrix Company has three product lines of belts—A, B, and C—with contribution margins of $7, $5, and $4, respectively. The president foresees sales of 400,000 units in the coming period, consisting of 40,000 units of A, 200,000 units of B, and 160,00
> An auditor for the Internal Revenue Service is trying to reconstruct some partially destroyed records of two taxpayers. Required For each case in the accompanying list, find the unknown elements designated by the letters A and B for Case 1 and C and D f
> The following data are for Mama Retail Outlet Stores. The account balances (in thousands) are for 2020. Required 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2020.
> A UK-based company Office Essentials manufactures and sells metal shelving. It began operations on January 1, 2020. Costs incurred for 2020 are as follows (V stands for variable; F stands for fixed): Variable manufacturing costs are variable with respect
> Sam Wright recently took over as the controller of Osborn Brothers Manufacturing. Last month, the previous controller left the company with little notice and left the accounting records in disarray. Sam needs the ending inventory balances to report first
> The following data are for Huang Wong Ping Retail Outlet Stores. The account balances (in thousands) are for 2021. Required 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2021.
> Granolla Mike works as an auditor in the audit firm of Alison Wonderland & Partners and charges £60 per hour for normal working hours. The firm pays him £90 per hour for unsociable hours, which includes weekends and overtime. During the month of December
> Chan’s manufacturing costing system uses a three-part classification of direct materials, direct manufacturing labor, and manufacturing overhead costs. The following items (in millions) pertain to Chan Corporation: Required Prepare an i
> Timi Company manufactures pens for schools. Summary data (in thousands) for the year ended December 31, 2019, are as follows: Required 1. For each cost item (A–I) from the records, identify the direct and indirect costs 2. Compute Timi
> Which of the following statement about contribution margin and gross margin is correct. a. Contribution margin indicates why the operating income changes as the number of units sold changes. b. Contribution margin indicates how much of a companyâ&#
> How would the answer to Problem 2-40 be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific. 2. Would the sales manager’s salary (included in marketing, distrib
> The Howell Corporation has the following account balances (in millions): Required Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended December 31, 2020. (For additional questions regarding these facts
> The following information is available for the McCain Manufacturing Company for 2020. Required Assume that all raw materials are purchased on credit and all sales are credit sales. Compute the missing amounts above.
> Consider the following account balances (in thousands) for the Peterson Company: Required 1. Prepare a schedule for the cost of goods manufactured for 2020. 2. Revenues for 2020 were $310 million. Prepare the income statement for 2020.
> Stewart Tables’ selected data for March 2020 are presented here (in millions): Required Calculate the following costs: 1. Direct materials inventory, March 31, 2020 2. Fixed manufacturing overhead costs for March 2020 3. Direct manufac
> Phoenix Press produces consumer magazines. The house and home division, which sells home-improvement and home-decorating magazines, has seen a 15% reduction in operating income over the past 15 months, primarily due to an economic recession and a depress
> Discuss the core professional standards governing management accountants.
> Henry Maddox was recently promoted to Controller of Research and Development for Pharmex, a Fortune 500 pharmaceutical company that manufactures prescription drugs and nutritional supplements. The company’s total R&D cost for 2020 was expected (budgeted)
> Discuss the roles of the chief financial officer and the controller.
> For each of the following items, identify which of the management accounting guidelines applies: cost–benefit approach, behavioral and technical considerations, or different costs for different purposes. 1. Analyzing whether to avail an export order for
> Minnesota Office Products produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its
> Explain the three main management accounting guidelines.
> Consider the following series of independent situations in which a firm is about to make a strategic decision. Decisions a. Lactalis Foods is planning to come out with a special tetrazzini made. with seafood, mushrooms, cream, and cocktail sauce. b. Van
> Consider the following series of independent situations in which a firm is about to make a strategic decision. Decisions a. Stila Cosmetics is considering introducing an anti-aging facial cream with natural ingredients. b. Kontron Computers is deliberati
> Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1994. The Phoenix spa opened in 2007, and the Carmel spa opened in 2016.
> Channels is a manufacturer of flatware that is grade-rolled rather than stamped. The flatware is sold in upscale stores as a high-quality item. The company sells the goods that are within specifications at regular prices to the stores. If a piece doesn’t
> Precision Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately 2 years ago, Pedro Mendez, president of Precision, decided to revise the bonus plan (based, at the time, entirely on
> Kroger Company recently introduced a new bonus plan for its corporate executives. The company believes that current profitability and customer satisfaction levels are equally important to the company’s long-term success. As a result, th
> Estancia, Inc. is a large company that owns restaurants and has a wine division and a frozen food division. Management of the company gives its division managers autonomy in running their divisions for both operating and investment decisions. Estancia is
> The Mountainside Corporation manufactures similar products in the United States and Norway. The U.S. and Norwegian operations are organized as de- centralized divisions. The following information is available for 2020; ROI is calculated as operating inco
> Compute the missing amounts. Required
> Accelerate Auto Company operates a new car division (that sells high-performance sports cars) and a performance parts division (that sells performance-improvement parts for family cars). Some division financial measures for 2020 are as follows: Required
> McCall Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in 2 years. The manager receives a bonus based on the division’s ROI, which is currently 1
> Mary Jane is an upscale retailer for women’s clothing with stores in many high-end shopping centers across the United States. In recent years, sales in most of the stores, especially the company’s flagship store in the
> Hamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2020, Hamilton&
> Fabulous Motor Company makes electric model cars and has two products, the Simplegreen and the Fabulousgreen. To produce the Simplegreen, Fabulous Motor employed assets of $11,250,000 at the beginning of 2020 and $4,790,000 of assets at the end of 2020.
> The Quality Athletics Company produces a wide variety of sports equipment. Its newest division, Golf Technology, manufactures and sells a single product— AccuDriver, a golf club that uses global positioning satellite technology to impro
> Online Learning, Inc. has two divisions: Test Preparation and Language Arts. Results (in millions) for the past 3 years are partially displayed here: Required 1. Complete the table by filling in the blanks. 2. Use the DuPont method of profitability analy
> Refer to Exercise 23-24. Assume that division A can sell the 1,800 units to other customers at $153 per unit, with variable marketing costs of $8 per unit. Required Determine whether Jill-Farley will benefit if division C purchases the 1,800 units from
> The Jill-Farley Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full au
> The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. The company has marketing divisions throughout the world. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. The following inf
> Dotball Candies manufactures jawbreaker candies or gobstoppers in a fully automated process. The machine that produces candies was purchased recently and can make 4,400 jawbreakers per month. The machine costs $9,500 and is depreciated using straight-lin
> Watson Motors, Inc., operates as a decentralized multidivision company. The Vadner division of Watson Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $160 per unit. Th
> People Able Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. People Able has three divisions, each of which is located in a different country: a. China division—manufactures memory devices a
> Jose Martinez is the CEO of ShakeIt, a producer of premium ice cream. ShakeIt has two divisions, the supplying division and the processing division. The supplying division supplies milk, the main ingredient, to the processing division. Jose is an ambitio
> Chocfix produces hot cocoa mix. The company has two divisions, each operating as a profit center. The transportation division purchases raw cocoa in the Ivory Coast and transports it to the mixing division in Atlanta, Georgia. The mixing division process
> The Platinum Company is a national mattress manufacturer. Its Marion plant will become idle on December 31, 2020. Nina Simon, the corporate control- ler, has been asked to look at three options regarding the plant: ■ Option 1: The plant can be leased to
> Ortel Telecom sells telecommunication products and services to a variety of small businesses. Two of Ortel’s key clients are Square and Cloudburst, both fast-growing technology start- ups located in New York City. Ortel has compiled inf
> Captain Inc. is considering the purchase of new equipment that will automate production and thus reduce labor costs. Captain made the following estimates related to the new machinery: Assume depreciation is calculated on a straight-line basis for tax pur
> Jenna’s Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capi
> Lulus Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $12,000,000 for the year. Lyssa Bickerson, staff analyst at Lulus, is preparing an analysis of the three
> New Med Corporation is a rapidly growing biotech company that has a required rate of return of 12%. It plans to build a new facility in Santa Clara County. The building will take 2 years to complete. The building contractor offered New Med a choice of th
> Joshua Wilson is the controller of Apex Frame Mouldings, a division of Garman Enterprises. As the division is preparing to count year-end inventory, Wilson is approached by Doug Leonard, the division’s president. A selection of inventory previously value
> Eastern Cola is considering the purchase of a special-purpose bottling machine for $70,000. It is expected to have a useful life of 4 years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Easter
> Assume the same facts as in Exercise 22-23 except that City Hospital is a taxpaying entity. The income tax rate is 30% for all transactions that affect income taxes. Required 1. Complete requirement 1 of Exercise 22-23 taking the income tax rate of 30%
> Heavenly Candy Company is considering purchasing a second chocolate dipping machine in order to expand its business. The information Heavenly has accumulated regarding the new machine is Heavenly estimates it will be able to produce more candy using the
> To be sure that you understand how to use the tables in Appendix A at the end of this text, solve the following exercises. Ignore income tax considerations. The correct answers, rounded to the nearest dollar, appear on page 904. Required 1. You have jus
> Silicon Valley Computer (SVC), the producer of keyboards for personal computers, which is discussed in the chapter, is a subsidiary of El Camino Corporation. Each year, headquarters of El Camino provides a capital budget to each of their subsidiaries, th
> Refer to Exercise 21-27. Jose, the unit manager of Raymore, is concerned that switching to the backflush costing system will lower the operating income of his unit. The senior management at Outdoor UnPlugged tells Jose that this will only be the case if
> Raymore, a unit of Outdoor UnPlugged, manu- factures a line of electric, cordless, lawn mowers. Senior management of Outdoor UnPlugged has noticed that Raymore has been producing more lawn mowers than it has been selling, and that the unitâ€&#
> The TyeNeck Company manufactures men’s neckwear at its A1 plant. TyeNeck is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production: a. Annual additional tooling costs would be $280,000. b. A
> Endrino Bot Company’s annual demand for its only product, R2-T2, is 10,000 units. Endrino is currently analyzing possible combinations of relevant carrying cost per unit per year and relevant ordering cost per purchase order, depending
> TurfPro Company produces lawn mowers and purchases 4,500 units of a rotor blade part each year at a cost of $30 per unit. TurfPro requires a 15% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handli
> Brook Exteriors is a firm that provides house painting services. Richard Brook, the owner, is trying to find new ways to increase revenues. Mr. Brook performs the following actions, not in the order listed. a. Mr. Brook decides to buy the paint sprayers
> The HomeServe Corporation provides a wide range of household essentials to householders. One of the products it offers is dotted paper rolls, used in kitchens and toilets. The supplier for the dotted paper rolls pays all incoming freight. No incoming ins
> MakeWatch (MW) manufactures the TagMe wristwatches that RightTime (RT) sells to its customers. MW has recently installed a computer software that enables its customers to conduct “one-stop” purchasing using state-of- the-art Web site technology. RT’s ord
> RightTime (RT) Corporation operates a retail store featuring wristwatches. It maintains an EOQ decision model to make inventory decisions. Currently, it is considering inventory decisions for its TagMe wristwatches product line, which is very popular. Da
> Prescott Manufacturing evaluates the performance of its production managers based on a variety of factors, including cost, quality, and cycle time. The following are nonfinancial measures for quality and time for 2019 and 2020 for its only product: The f
> Global Cell Phones (GCP) has developed a cell phone that can be used anywhere in the world (even countries like Japan that have a relatively unique cell phone system). GCP has been receiving complaints about the phone. For the past two years, GCP has bee
> Refer to the information presented in Exercise 20-24. The head of the registration advisors at BU has decided that the advisors must finish their advising in 2 weeks (10 working days) and therefore must advise 420 students a day. However, the average wai
> The registration advisors at the Brunendorf University (BU) in Berlin help 4,200 students develop their class schedules and register for classes each semester. Each advi- sor works for 10 hours a day during the registration period. BU currently has 10 ad
> It’s a Dog’s World (IDW) makes toys for big-breed puppies. IDW’s managers have recently learned that they can calculate the average waiting time for an order from the time an order is received till th
> AquaPro produces water purifiers for the household. Business is good but Derek, the manager, has noticed that customers complain because they find leakages in the plastic nozzles used. AquaPro provides a warranty for each machine and charges $115 for eac
> Pressing Matters manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Pressing Matters’ current presses have a quality problem that causes variations
> State the five-step decision-making process in an organization. Josephine and Amira are planning to expand their bakery business, this will require an additional $15,000 which they hope to obtain from the bank. Explain how the five-step decision making p
> iProtect produces covers for all makes and models of iPads. iProtect sells 1,500,000 units each year at a price of $30 per unit and a contribution margin of 35%. A survey of iProtect’s customers over the past 12 months indicates that cu
> KidsTravel produces car seats for children from newborn to two years old. KidsTravel’s only problem with its car seats was stitching in the straps. The problem can usually be detected and repaired during an internal inspection. Inspection costs $4.00 per
> Calculus Company makes calculators for students. The company has been working on improving its quality over the last year and it wants to confirm a reduction in their costs-of- quality (COQ). Here are the results: Required 1. Identify the category for e
> Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, implemented a quality-improvement program that has now been in operation for two years. The cost report shown here has recently been issued. Required 1.
> Rufenstein War Systems Pvt. Ltd. has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently. Required 1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is mat
