1.
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Exercise 12-19
Types of Responsibility Centers
For each of the independent scenarios, indicate the type of responsibility center involved (cost,
revenue, profit, or investment).
a.
Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair
back and sighed. December had been a bad month; two machines had broken down, and
some factory production workers (all on salary) were idled for part of the month. Materials
prices increased, and insurance premiums on the factory increased. No way out of it; costs
were going up. He hoped that the marketing vice president would be able to push through
some price increases, but that really wasn't his department.
_________________
b.
Joanna Pauly was delighted to see that her ROI figures had increased for the third straight
year. She was sure that her campaign to lower costs and use machinery more efficiently
(enabling her factories to sell several older machines) was the reason why. Joanna planned to
take full credit for the improvements at her semiannual performance review.
_________________
c.
Gil Rodriguez, sales manager for ComputerWorks, was not pleased with a memo from
headquarters detailing the recent cost increases for the laser printer line. Headquarters
suggested raising prices. "Great," thought Gil, "an increase in price will kill sales and revenue
will go down. Why can't the plant shape up and cut costs like every other company in America
is doing? Why turn this into my problem?"
_________________
d.
Susan Whitehorse looked at the quarterly profit/loss statement with disgust. Revenue was
down, and cost was up—what a combination! Then she had an idea. If she cut back on
maintenance of equipment and let a product engineer go, expenses would decrease—perhaps
enough to reverse the trend in income.
_________________
e.
Shonna Lowry had just been hired to improve the fortunes of the Southern Division of ABC
Inc. She met with top staff and hammered out a three-year plan to improve the situation. A
centerpiece of the plan is the retiring of obsolete equipment and the purchasing of state-ofthe-art, computer-assisted machinery. The new machinery would take time for the workers to
learn to use, but once that was done, waste would be virtually eliminated.
_________________
2.
Cornerstone Exercise 12-13 (Algorithmic)
Calculating Average Operating Assets, Margin, Turnover, and Return on Investment
East Mullett Manufacturing earned operating income last year as shown in the following income
statement:
Sales
$531,250
Cost of goods sold
Gross margin
280,000
$251,250
Selling and administrative expense
Operating income
181,700
$69,550
At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the
value of operating assets was $460,000.
For East Mullett Manufacturing, calculate the following:
1. Average operating assets
$
_________________
2. Margin (round to the nearest whole
percent)
_________________
3. Turnover (round to two decimal places)
_________________
4. Return on investment
_________________
%
%
3.
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Exercise 12-20
Margin, Turnover, Return on Investment
You may use the attached spreadsheet to help you complete this activity, but you are not required to
do so. You will find the spreadsheet by clicking on the link in the drop-down menu above.
Pelak Company had sales of $30,000,000, expenses of $27,600,000, and average operating assets of
$6,000,000.
1. Compute the operating income.
$
_________________
2. Compute the margin (as a percent) and turnover ratio.
Margin :
_________________
%
Turnover
:
_________________
3. Compute the ROI as a percent.
_________________ %
4.
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Exercise 12-21 (Algorithmic)
Park Company provided the following income statement for last year:
Sales
$70,000
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Operating income
56,000
$14,000
19,200
$-5,200
At the beginning of last year, Park had $38,650 in operating assets. At the end of the year, Park had
$41,350 in operating assets.
Compute ROI. Do not round interim calculations, but do round your final answer to two decimal
places. If required, use a minus sign to indicate a negative ROI.
ROI =
_________________
%
5.
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Exercise 12-22
Return on Investment, Margin, Turnover
Links to learning objectives referenced by this question can be accessed in the "Additional Resources"
drop-down menu above.
Data follow for the Construction Division of D. Jack Inc.:
Round all answers to two decimal places.
1. Compute the margin (as a percent) and turnover ratios for each year.
Year 1
Year 2
Margin:
_________________
%
_________________
%
Turnover:
_________________
_________________
2. Compute the ROI as a percent for the Construction Division for each year.
ROI
_________________
year 1 %
ROI
_________________
year 2 %