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08.2 Responsibility Accounting Exercise 2 TBP

1. If the Deed Corporation evaluates managerial performance using return on investment, Edith Carolina would accept the new cosmetics line but Michael Sanders would reject it, as the line is expected to have a return of 12% which is below the division's target of 14%. 2. If the Deed Corporation evaluates using residual income based on the minimum 8% return, both Edith and Michael would accept the line as the division would still achieve a positive residual income of 4% even though the return is below the target 14%. 3. The contribution margin is the difference between sales revenue and variable costs, and the controllable margin is contribution margin less controllable fixed costs.

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Milani Joy Lazo
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239 views3 pages

08.2 Responsibility Accounting Exercise 2 TBP

1. If the Deed Corporation evaluates managerial performance using return on investment, Edith Carolina would accept the new cosmetics line but Michael Sanders would reject it, as the line is expected to have a return of 12% which is below the division's target of 14%. 2. If the Deed Corporation evaluates using residual income based on the minimum 8% return, both Edith and Michael would accept the line as the division would still achieve a positive residual income of 4% even though the return is below the target 14%. 3. The contribution margin is the difference between sales revenue and variable costs, and the controllable margin is contribution margin less controllable fixed costs.

Uploaded by

Milani Joy Lazo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Question 1

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of
8% for any project to be undertaken by her company. The company is decentralized, and leaves
investment decisions up to the discretion of the division managers as long as the 8% return is
expected to be realized. Michael Sanders, manager of the Cosmetics Division, has had a return
on investment of 14% for his division for the past 3 years and expects the division to have the
same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics
that is expected to have a return on investment of 12%.

a. If the Deed Corporation evaluates managerial performance using return on investment,


what will be the preference for taking on the proposed cosmetics line by Edith Carolina
and Michael Sanders?
Edith:A(cept:Michael:Reject
b. If the Deed Corporation evaluates managerial performance using residual income based
on the corporate minimum required rate of return, what will be the preference for taking
on the proposed cosmetics line by Edith Carolina and Michael Sanders?

Question 2
Edith:Accept;Michael: Accept
Question 3

2./M IM
contribution margin
Fixed cost s
(900K) (IM)
<Directs controllable)
Controllable margin 1.2M /M

1.2M -
(M
= 20%
/M

Question 4

Question 5

Minimum price 0.27 +0


=

= 0.27

Maximum price =
0.43
UVC = -

14
· 38. .

(6 =

14
Question 6

Minimum price: 4n+f


=
14

Maximum price: If
Question 7

>
Alternator

24 51
:66
120-
54

Minimum 51 =
+ 6S

= 1)7

270
-

177

=
3

30K
10k43
=

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