Several years ago, Seville Company acquired Salvador Components. Prior to the acquisition, Salvador manufactured and sold automotive
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Sevilles corporate management gives the Salvador Division management considerable latitude in running the divisions operations. However, corporate management retains authority for decisions regarding capital investments, product pricing, and production quantities. Seville has a formal performance evaluation program for all division managements. The evaluation program relies substantially on each divisions ROI. Salvador Divisions income statement provides the basis for the evaluation of Salvadors management. (See the following income statement.)
The corporate accounting staff prepares the divisional financial statements. Corporate general services costs are allocated on the basis of sales dollars, and the computer departments actual costs are apportioned among the divisions on the basis of use. The net divisional investment includes divisional fixed assets at net book value (cost less depreciation), divisional inventory, and corporate working capital apportioned to the divisions on the basis of sales dollars.
Required
a. Discuss Seville Companys financial reporting and performance evaluation program as it relates to the responsibilities of Salvador Division.
b. Based on your response to requirement (a), recommend appropriate revisions of the financial information and reports used to evaluate the performance of Salvadors divisional management. If revisions are not necessary, explainwhy.
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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