Handle Fabrication is a division of a major corporation. Last year the division had total sales of $21,900,000, net operating income of $2,100,000 and average operating assets of $6,500,000. The company's minimum required rate of return is 10%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $650,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROI of 27% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no. Enter your answers in the same order as above. A/

Handle Fabrication is a division of a major corporation. Last year the division had total sales of $21,900,000, net operating income of $2,100,000 and average operating assets of $6,500,000. The company's minimum required rate of return is 10%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $650,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROI of 27% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no. Enter your answers in the same order as above. A/

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...

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Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:
At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?
Handle Fabrication is a division of a major corporation. Last year the division had total sales of $25,600,000, net operating income of $1,820,000 and average operating assets of $7,300,000. The company's minimum required rate of return is 12%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $700,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROl of 25% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no.
Handle Fabrication is a division of a major corporation. Last year the division had total sales of $25,600,000, net operating income of $1,820,000 and average operating assets of $7,300,000. The company's minimum required rate of return is 12%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $700,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROI of 25% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no.
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Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI.…
Marketing has come up with a new product line for the company. They expect average annual revenue of 25 million USD for the first three years while there will be an increase of 10% in annual revenue from years four to six. Manufacturing cost is expected to be 60% of the annual revenue. A new production line will be needed to be set up, which includes the warehouse to store the raw materials and finished goods. The cost to build the warehouse should be no more than 5% of the total investment cost to set up the new production line. Total investment is projected to be at 100 million USD, inclusive of the warehouse build cost. Assume MARR = 12%. a. Should the company proceed with producing the new product line? You have the option to rent though and are looking at a warehouse in Sta. Rosa, Laguna. The broker is giving it to you for 1 million USD every year with an increase in rent of 7% every year. b. Assuming that the answer to letter (a) is that the project is profitable, which option…
The X Division of XYZ Chemical Co. produced the following operating results for the previous year: Sales $10,000,000; Segment income 1,500,000; Assets 6,000,000. The X Division is considering a $1,000,000 investment in a new project. Minimum required return for XYZ Chemical Company is 20%. If the X Division is evaluated using ROI, how much net income should be generated by the new investment for the X Division to consider investing in it?
DYC Co is a medium sized manufacturing company that plans to increase capacity by purchasing new machinery at an initial cost of $3 million. The new machine will also require a further investment in working capital of $400,000. The investment is expected to increase annual sales by 5,500 units. Investment in replacement machinery would be needed after five years. Financial data on the additional units to be sold is as follows: $ 500 200 Selling price per unit Production costs per unit Variable administration and distribution expenses are expected to increase by $220,000 per year as a result of the increase in capacity. Fixed Costs are expected to $250 000. The scrap value of the machinery after five years is expected to be negligible. Tax liabilities are paid in the year in which they arise and DYC Co pays tax at 30% of annual profits. The Finance Director of DYC Co has proposed that the $3.4 million investment should be financed by an issue of loan notes at a fixed rate of 8% per…
QUESTION IS IN IMAGE Your company has been doing well, reaching $1.09 million in earnings, and is considering launching a new product. Designing the new product has already cost $513,000. The company estimates that it will sell 814,000 units per year for $2.99 per unit and variable non-labor costs will be $1.03 per unit. Production will end after year 3. New equipment costing$1.12 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $301,000. The new product will require the working capital to increase to a level of $381,000 immediately, then to $400,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to$301,000. Your tax rate is 21%. The discount rate for this project is 9.8%. Do the capital budgeting analysis for this project and calculate its NPV.Note: Assume that the equipment is put…
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The project would be implemented by only one of the three divisions. Complete this question by entering your answers in the tabs below. Req 1 Required: 1. Compute the ROI for each division. 2. Compute the residual income for each division. 3. Rank the divisions according to the ROI and residual income of each. 4-a. Compute the return on investment on the proposed expansion project. 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI. 6. Compute the new ROI and residual income for each division if…
The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product…