Analyzing Various Performance Scenarios$$CMA Adapted

$1.$ A retail company has three segments with total operating income of $$500,000.$ Selected financial information for Segment $1$ is presented below.

Segment $1$Unit sales$28,000$Sales revenue$$700,000$Cost of sales$$420,000$Administrative expenses$$144,000$Commissions$$14,000$Rent$$140,000$Salaries$$32,000$

$$ Administrative expenses are allocated to the three segments equally.

$$ Commissions are paid to the salespersons in each segment based on $2\%$ of gross sales.

$$ The company rents the entire building and allocates the rent to the three segments based on the square footage occupied by each.

$$ Salaries represent payments to the employees in the segment.

The controller has expressed concern about the operating loss for Segment $1$ and has suggested that it be closed. If the segment is closed, none of the employees would be retained. Should the company drop Segment $1?$

Answer $1$YesNo

$,$ because total operating income wouldAnswer $2$increasedecrease

by $Answer $3$

$.$

$2.$ Morrison$$s Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market$-$based transfer price? Answer $4$a$.$b$.$c$.$d$.$

a$.$ The buying unit has excess capacity.

b$.$ The selling unit is operating at full capacity.

c$.$ Routine sales commissions and collection costs would be avoided.

d$.$ The profit centers$$ managers are evaluated on the basis of unit operating income.

$3.$ A company$$s management is planning on making an investment of UAE Dirham $($AED$)1,000,000$ to establish a new division in the United Arab Emirates. The new division is expected to generate sales of AED $720,000$ and net income of AED $250,000$ in Year $1.$ If the company$$s required rate of return is $10\%,$ what is the division$$s residual income in Year $1?$

AED Answer $5$

$4.$ A sign of the successful implementation of a balanced scorecard is the presence of cause and effect relationships. An example of this success for a hotel is meeting the target of: Answer $6$a$.$b$.$c$.$d$.$

a$.$ decreasing a customer$$s check$-$in time, which causes an increase in the number of implemented employee suggestions.

b$.$ increasing employee training hours, which causes employee compensation to increase.

c$.$ increasing profit, which causes an increase in employee job satisfaction ratings.

d$.$ receiving more $5-$star ratings from customers, which causes an increase in profit.