1 0

value: 10.00 points

"I know headquarters wants us to add that new product line," said Fred Halloway, manager of Kirsi Products' East Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown."

Kirsi Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI , with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below:

Sales Variable expenses

Contribution margin Fixed expenses

Net operating income

Divisional operating assets

$ 21 ,000,000 13,400,000

7,600,000 5,920,000

$ 1,680,000

$ 5,250,000

The company had an overall ROI of 18% last year (considering all divisions). The company's East Division has an opportunity to add a new product line that would require an investment of $3,000,000. The cost and revenue characteristics of the new product line per year would be as follows:

Sales Variable expenses Fixed expenses

Required:

$ 9,000,000 65% of sales $ 2,520,000

1. Compute the East Division's ROI for last year; also compute the ROI as it would appear if the new product line is added. (Do not round intermediate percentage values. Round your intermediate calculations and final answers to 2 decimal places. Omit the"%" sign in your response.)

Present New product line alone

Total

ROI 32 1%

21 1% 28 %

2. If you were in Fred Halloway's position, would you accept or reject the new product line?

0 Accept (•) Reject

3. Why do you suppose headquarters is anxious for the East Division to add the new product line?

0 Adding the new line would decrease the company's overall ROI. (•) Adding the new line would increase the company's overall ROI.

4. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.

a. Compute the East Division's residual income for last year; also compute the residual income as it would appear if the new product line is added. (Omit the "$" sign in your response .)

Present New product line alone Total

Residual income $ 892500 $ 180000 $ 1072500

b. Under these circumstances, if you were in Fred Halloway's position would you accept or reject the new product line?

1..•) Accept 0 Reject

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2. value: 10.00 points

Rains Nickless Ltd. of Australia has two divisions that operate in Perth and Darwin. Selected data on the two divisions follow:

Sales Net operating income Average operating assets

Required:

Division Perth

$9,000,000 $ 630,000 $3,000,000

Darwin $20,000,000 $ 1,800,000 $10,000,000

1. Compute the return on investment (ROI) for each division. (Omit the"%" sign in your response.)

Perth Darwin ROI 21 1%

2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division. (Omit the "$" sign in your response.)

Perth Darwin Residual income $1 1soooo 1 $1 . 2ooooo 1

3. Is the Darwin Division's greater residual income an indication that it is better managed?

O Yes ® No

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3.

4.

The Abs Shoppe is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI ). The Abs Shoppe reported the following results for the past year:

Sales Net operating income Average operating assets

value: 10.00 points

Required:

$800,000 $ 16,000 $100,000

1. Compute the club's return on investment (ROI). (Omit the"%" sign in your response.)

ROI '1

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value: 10.00 points

.. ..... ........ ........ ........ ........ ... ... . ........ ........ ........ ........ ......... ....... ........ ........ ........ ........ .......... ...... ....... .. ... . . ........ ....... ........ ........ ........ ........ ........ ........ ......... ....... ........ ... ... . .. . .............................................................................................. .

5.

2. Assume that the manager of the club is able to increase sales by $80,000 and that as a result net operating income increases by $6,000. Further assume that this is possible without any increase in

value:

operating assets. What would be the club's return on investment (ROI)? (Do not round intermediate calculations. Omit the "%" sign in your response.)

ROI 22 ] %

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10.00 points ......... -...... -................................................................................................................................................................................................................................................................................................................................................. _

6.

3. Assume that the manager of the club is able to reduce expenses by $3,200 without any change in sales or operating assets. What would be the club's return on investment (ROI)? (Do not round

value:

intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

ROI

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10.00 points

4. Assume that the manager of the club is able to reduce operating assets by $20,000 without any change in sales or net operating income. What would be the club's return on investment (ROI )? (Omit the "%" sign in your response.)

ROI 20 1%

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7.

8.

9.

BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

Sales Net operating income Average operating assets

value: 10.00 points

Required:

$ 8,000,000 $ 800,000 $ 3,200,000

1. Compute the company's return on investment (ROI). (Do not round intermediate calculations. Omit the"%" sign in your response.)

ROI 25 1%

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value: 10.00 points

2. The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets. What would be the company's ROI? (Do not round intermediate calculations. Omit the "%" sign in your response.)

ROI 125 1%

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value: 10.00 points

3. The Chief Financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income. What would be the company's ROI in this scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

ROI [ 26.251 %

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10. value: 10.00 points

lmages.com is a small Internet retailer of high-quality posters. The company has $800,000 in operating assets and fixed expenses of $160,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $5 million per year. The company's contribution margin ratio is 10%, which means that an additional dollar of sales results in additional contribution margin , and net operating income, of 10 cents.

Required: 1. Complete the following table showing the relationship between sales and return on investment (ROI).

(Round your percentage answers to 2 decimal places. Omit the "$" and "%" signs in your response.)

Average Net Operating Operating

Sales Income Assets ROI $4,500,000 $290,000 $800,000 36.25 %

$4,600,000 $ I 300000 1 $800,000 37.5 %

$4,700,000 $ 310000 $800,000 38.75 1% $4,800,000 $ 320000 $800,000 40 %

$4,900,000 $ 330000 $800,000 41 .25 1% $5,000,000 $ 340000 $800,000 42.50 %

2. What happens to the company's return on investment (ROI) as sales increase? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

ROI I increases by --;]

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11 . value: 10.00 points

Midlands Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of £400,000 on sales of £2,000,000. The company's average operating assets for the year were £2,200,000 and its minimum required rate of return was 16%. (The currency in the United Kingdom is the pound, denoted by£.)

Required: Compute the company's residual income for the year. (Omit the "£" sign in your response.)

Residual income £ l._ __ 4_eo_o_.o I check my work 1..) eBook Link View Hint #1 1 ~ 1 references

12. value: 10.00 points

Comparative data on three companies in the same service industry are given below.

Required: 2. Fill in the missing information. (Round the "Turnover" answers to 1 decimal place, and all other

answers to the nearest whole number. Omit the"$" & "%"signs in your response.)

Com~an~ A 8 c

Sales $ 4,000,000 $ 1,500,000 $ I 6000000 1 Net operating income $ 560,000 $ 210,000 $ 1 210000 1 Average operating assets $2,000,000 $ 1 3000000 1 $ 3,000,000 Margin I 14 1% I 14 1% 3.5% Turnover I 2 1 I .5 ] 2.0 Return on investment (ROI) I 28 1% 7% 7 1%

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13. value: 10.00 points

Lipex, Ltd., of Birmingham, England, is interested in cutting the amount of time between when a customer places an order and when the order is completed. For the first quarter of the year, the following data were reported:

Inspection time Process time Wait time Queue time Move time

Required: 1. Compute the throughput time.

0.5 days 2.8 days

16.0 days 4.0 days 0.7 days

Throughput time 8.3 1 days

2. Compute the manufacturing cycle efficiency (MCE) for the quarter. (Round your answer to 2 decimal places.)

Manufacturing cycle efficiency .35 1

3. What percentage of the throughput time was spent in non-value-added activities? (Omit the"%" sign in your response.)

Non-value-added throughput time

4. Compute the delivery cycle time.

Delivery cycle time ._ __ 24_.3_,1 days

5. If by using Lean Production all queue time can be eliminated in production, what will be the new MCE? (Round your answer to 2 decimal places.)

New manufacturing cycle efficiency .7o 1

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14.

15.

value: Note: t!Jis question will not be automatically graded. 10.00 points It will be sent to your instructor for review.

Download the Applying Excel form and enter formulas in all cells that contain question marks.

Verify that your worksheet matches the Review Problem in the text.

Check your worksheet by changing the average operating assets in cell 86 to $9,000,000. The ROI should now be 33% and the residual income should now be $750,000. If you do not get these answers, find the errors in your worksheet and correct them.

Save your completed Applying Excel form to your computer and then upload it here by clicking "Browse." Next, click "Save." You will use this worksheet to answer the questions in Part 2.

download reference file

~ ch 11_ applying_ excel_ student_form.xls

value: 10.00 points

Requirement 2: Revise the data in your worksheet as fol lows:

A 1 Chapter 11: Applying Excel 2 3 Oata 4 Sales 5 Net operating Income 6 Average operating assets 7 Mlnumum required rate of return 8

B

I $22,000,000

$1 ,760,000 $11 ,000,000

I 16%

your response

E ch 11_ applying_ excel_ student_form .xis remove

c

If your formulas are correct, you should get the correct answers to the following questions.

(a) What is the ROI? (Leave no cells blank· be certain to enter "0" wherever required. Omit the"%" sign in your response.)

ROI 16] %

(b) What is the residual income? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Residual income $r-= __ o]

(c) Why is the residual income zero? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

[i:J The ROI equals the minimum required rate of return

Iii The ROI equals the minimum required rate of return

Iii The ROI equals the minimum required rate of return

[i:J Average operating assets exceed net operating income

[i:J Sales exceed average operating assets

[i:J Sales exceed net operating income

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16. value: 10.00 points

Tundra Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below:

Sales Net operating income Average operating assets

Required:

$18,000,000 $ 5,400,000 $36,000,000

1. Compute the margin for Tundra Services Company. (Omit the "%" sign in your response.)

Margin

2. Compute the turnover for Tundra Services Company. (Round your answer to 1 decimal place.)

Turnover .s l 3. Compute the return on investment (ROI) for Tundra Services Company. (Do not round intermediate

calculations. Omit the "%"sign in your response.)

ROI 1 check my work Q eBook Link

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Points earned on auto-graded questions: 14 7. 20 /150 pts Points you may earn on instructor-graded questions: 10 pts This assignment is worth: 160 pts