1st Term, A.Y 2020 - 2021
BASTRCSX
Self-Test (not graded)
Topic: Responsibility Accounting and Balanced Scorecard
Problem I.
Data for September concerning Greenberger Corporation's two major business segments—
Fibers and Feedstocks—appear below:
Sales revenues, Fibers.............................
Sales revenues, Feedstocks ....................
Variable expenses, Fibers ........................
Variable expenses, Feedstocks ................
Traceable fixed expenses, Fibers .............
Traceable fixed expenses, Feedstocks ....
$750,000
$620,000
$368,000
$254,000
$98,000
$112,000
Common fixed expenses totaled $344,000 and were allocated as follows: $175,000
to the Fibers business segment and $169,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Ans:
Total
Fibers
Feedstocks
Sales .................................
$1,370,000
$750,000
$620,000
Variable expenses ............
622,000
368,000
254,000
Contribution margin ...........
Traceable fixed expenses .
748,000
210,000
382,000
98,000
366,000
112,000
Segment margin................
Common fixed expenses ...
Net operating income ........
538,000
344,000
$194,000
$284,000
$254,000
1
Problem II.
The following data pertains to Timmins Company's operations last year:
Return on investment (ROI).............
Sales ...............................................
Margin .............................................
Minimum required rate of return ......
20%
$800,000
5%
16%
Required:
a. Compute the company's average operating assets.
b. Compute the company's residual income for the year.
Ans:
a. ROI = Margin × Turnover
20% = 5% × Turnover
Turnover = 20% ÷ 5% = 4
Turnover = Sales ÷ Average operating assets
4 = $800,000 ÷ Average operating assets
Average operating assets = $800,000 ÷ 4 = $200,000
b. Before the residual income can be computed, we must first compute the
company’s net operating income for the year:
Margin = Net operating income ÷ Sales
5% = Net operating income ÷ $800,000
Net operating income = 5% × $800,000 = $40,000
Average operating assets ..............................
Minimum required rate of return.....................
Minimum required net operating income ........
$200,000
16%
$32,000
Actual net operating income ..........................
Minimum required net operating income ........
Residual income ............................................
$40,000
32,000
$8,000
Problem III.
Ebel Wares is a division of a major corporation. The following data are for the latest year of
operations:
Sales ............................................................................
Net operating income ...................................................
Average operating assets .............................................
The company’s minimum required rate of return ..........
$29,120,000
$1,514,240
$8,000,000
18%
Required:
STRATEGIC COST MANAGMENT 2
a.
b.
c.
d.
What is the division's margin?
What is the division's turnover?
What is the division's return on investment (ROI)?
What is the division's residual income?
Ans:
a. Margin = Net operating income ÷ Sales = $1,514,240 ÷ $29,120,000 = 5.2%
b. Turnover = Sales ÷ Average operating assets = $29,120,000 ÷ $8,000,000 = 3.6
c. ROI = Net operating income ÷ Average operating assets = $1,514,240 ÷
$8,000,000 = 18.9%
d. Residual income = Net operating income − Minimum required rate of return ×
Average operating assets = $1,514,240 − 18% × $8,000,000 = $74,240
Problem IV.
The Clipper Corporation had net operating income of $380,000 and average operating
assets of $2,000,000. The corporation requires a return on investment of 18%.
Required:
a. Calculate the company's return on investment (ROI) and residual income (RI).
b. Clipper Corporation is considering an investment of $70,000 in a project that will
generate annual net operating income of $12,950. Would it be in the best
interests of the company to make this investment?
c. Clipper Corporation is considering an investment of $70,000 in a project that will
generate annual net operating income of $12,950. If the division planning to
make the investment currently has a return on investment of 20% and its
manager is evaluated based on the division's ROI, will the division manager be
inclined to request funds to make this investment?
d. Clipper Corporation is considering an investment of $70,000 in a project that will
generate annual net operating income of $12,950. If the division planning to
make the investment currently has a residual income of $50,000 and its manager
is evaluated based on the division's residual income, will the division manager be
inclined to request funds to make this investment?
Ans:
a. Return on investment = Net operating income ÷ Average operating assets =
$380,000 ÷ $2,000,000 = 19%
Residual income = Net operating income − (Average operating assets × Minimum
required rate of return) = $380,000 − ($2,000,000 × 0.18) = $20,000
b. Return on investment = Net operating income ÷ Average operating assets =
$12,950 ÷ $70,000 = 18.5%. Since the return on investment of the project
exceeds the company’s minimum required rate of return, the project should be
accepted. It would increase both the company’s residual income and its return on
investment.
STRATEGIC COST MANAGMENT 3
c. The manager of the division would not be inclined to request funds to make the
investment in the new project since its return on investment is only 18.5%, which
is less than the division’s current return on investment of 20%. The new project
would drag down the division’s return on investment.
d. The manager of the division would be inclined to request funds for the new
project. The project’s return on investment of 18.5% exceeds the minimum
required rate of return of 18%, which would result in an increase in residual
income if the project were accepted.
Problem V.
Brodrick Corporation uses residual income to evaluate the performance of its divisions. The
minimum required rate of return for performance evaluation purposes is 19%. The Games
Division had average operating assets of $140,000 and net operating income of $25,900 in
August.
Required:
What was the Games Division's residual income in August?
Ans:
Net operating income ..........................................
Minimum required return (19% × $140,000) ........
$25,900
26,600
Residual income .................................................
($700)
Problem VI.
Stevens Company has two divisions that report on a decentralized basis. Their results for
2011 were as follows:
Sales
Income
Asset base
Weighted average cost of capital
Helmet
$150,000
$ 15,000
$ 75,000
12%
Ball
$300,000
$ 45,000
$150,000
12%
Required:
Compute the following amounts for each division:
a. Return on investment (ROI) if the desired rate of return is 12 percent.
b. Residual income if the desired rate of return is 20 percent.
c. EVA.
d. Turnover.
STRATEGIC COST MANAGMENT 4
e. Margin for each division.
Ans.
a.
Helmet Division:
ROI = $15,000/$75,000 = 20%
Ball Division:
ROI = $45,000/$150,000 = 30%
b.
c.
d.
e.
Asset base
Desired return rate
Minimum return
Helmet
$75,000
0.20
$15,000
Ball
$150,000
0.20
$ 30,000
Earned income
Minimum return
Residual income
$15,000
15,000
$ -0-
$ 45,000
30,000
$ 15,000
Helmet Division:
EVA = $15,000 -
$6,000
Ball Division:
EVA = $45,000 -
Helmet Division:
Turnover = $150,000/$75,000 = 2.0
Ball Division:
Turnover = $300,000/$150,000 = 2.0
Helmet Division:
Margin = $15,000/$150,000 = 10%
Ball Division:
Margin = $45,000/$300,000 = 15%
$27,000
Part VII.
Sporadic Company has the following data for 2018:
Division A
Sales
Contribution margin
Operating income
Average operating assets
Weighted average cost of capital
15%
Division B
$400,000
160,000
80,000
$300,000
125,000
30,000
320,000
200,000
15%
Sprint Company has a target ROI of 20 percent.
Required:
Calculate the following amounts for each division:
a. Margin ratio
b. Turnover ratio
c. ROI
d. Residual income
STRATEGIC COST MANAGMENT 5
e. EVA
Answers:
Division A:
a. Margin ratio = $80,000/$400,000 = 20%
b. Turnover ratio = $400,000/$320,000 = 1.25
c. ROI = 0.20 × 1.25 = 25%
d. Residual income = $80,000 – 0.20($320,000) = $16,000
e. EVA = $80,000 - 0.15($320,000) = $32,000
Division B:
a. Operating income margin = $30,000/$300,000 = 10%
b. Turnover ratio = $300,000/$200,000 = 1.50
c. ROI = 0.10 × 1.50 = 15%
d. Residual income = $30,000 – 0.20($200,000) = $(10,000)
e. EVA = $30,000 - 0.15($200,000) = $0
Part VIII
Balanced scorecards contain a number of factors that are important to the success of a business.
These factors are often divided into four categories: financial, customer, learning and growth, and
internal operations.
Consider the twelve factors that follow.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Market share
Earnings per share
Manufacturing cycle efficiency
Machine downtime
Number of patents held
Employee suggestions
Number of repeat sales
Levels of inventories held
Number of vendors used
Cash flow from operations
Employee training hours
Gross margin
Required:
Determine the proper classification (financial, customer, learning and growth, or internal operations)
for each of the twelve factors listed.
STRATEGIC COST MANAGMENT 6
Answers:
1.
2.
3.
4.
5.
6.
Customer
Financial
Internal operations
Internal operations
Learning and growth
Learning and growth
7.
8.
9.
10.
11.
12.
Customer
Internal operations
Internal operations
Financial
Learning and growth
Financial
Mateo 5:3
Mapapalad ang mga mapagpakumbabang-loob: sapagka’t kanila ang kaharian ng langit.
Blessed are the poorin spirit: for theirs is the kingdom of heaven.
STRATEGIC COST MANAGMENT 7