The TREE division and the BRANCH division manufacture and sell similar products. However, the two divisions...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The TREE division and the BRANCH division manufacture and sell similar products. However, the two divisions operate independently of each other in different geographical territories. Each division manager exercises her considerable autonomy in nearly all aspects of operations and argues that in doing so she is helping to deliver maximum shareholder value from her division. The cost of capital is 10% per annum, and the performance of each division manager is measured on a residual income basis. The income statements for the two divisions for the most recent year ended 31 December 2020 are as follows: TREE Division BRANCH Division 2$ $ Sales 490,000 370,000 160,000 150,000 60,000 Divisional variable costs Divisional fixed costs 250,000 170,000 $70,000 Divisional profits For purposes of a residual income calculation, divisional net assets are measured at their statement of financial position valuations at the year-end (31 December 2020). SumJessica statements of financial position at that date were as follows: TREE Division BRANCH Division $ Non-current assets (net book value) 500,000 200,000 128,000 400,000 150,000 70,000 Current assets Current liabilities Divisional net assets 572,000 480,000 The following information is also available: Divisional fixed costs in 2015 included depreciation calculated on a straight-line basis amounting to $50,000 in the TREE division and $40,000 in the BRANCH division. All divisional non- current assets were purchased one year ago (on 31 December 2019). It is estimated that the market value of the non-current assets declined during 2020 by $90,000 in the TREE division and $35,000 in the BRANCH division. Required: (a) Calculate the following for the TREE and BRANCH division: (i) Residual Income. (ii) Economic Value Added (EVA). (4 marks) (11 marks) The TREE division and the BRANCH division manufacture and sell similar products. However, the two divisions operate independently of each other in different geographical territories. Each division manager exercises her considerable autonomy in nearly all aspects of operations and argues that in doing so she is helping to deliver maximum shareholder value from her division. The cost of capital is 10% per annum, and the performance of each division manager is measured on a residual income basis. The income statements for the two divisions for the most recent year ended 31 December 2020 are as follows: TREE Division BRANCH Division 2$ $ Sales 490,000 370,000 160,000 150,000 60,000 Divisional variable costs Divisional fixed costs 250,000 170,000 $70,000 Divisional profits For purposes of a residual income calculation, divisional net assets are measured at their statement of financial position valuations at the year-end (31 December 2020). SumJessica statements of financial position at that date were as follows: TREE Division BRANCH Division $ Non-current assets (net book value) 500,000 200,000 128,000 400,000 150,000 70,000 Current assets Current liabilities Divisional net assets 572,000 480,000 The following information is also available: Divisional fixed costs in 2015 included depreciation calculated on a straight-line basis amounting to $50,000 in the TREE division and $40,000 in the BRANCH division. All divisional non- current assets were purchased one year ago (on 31 December 2019). It is estimated that the market value of the non-current assets declined during 2020 by $90,000 in the TREE division and $35,000 in the BRANCH division. Required: (a) Calculate the following for the TREE and BRANCH division: (i) Residual Income. (ii) Economic Value Added (EVA). (4 marks) (11 marks)
Expert Answer:
Related Book For
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
Posted Date:
Students also viewed these accounting questions
-
Which of the following is TRUE regarding the securitization process of mortgage loans? O The securities created by the securitization of mortgage loans are known as collateralized loan obligations. O...
-
Which scenario demonstrates deregulation efforts? A. A country exercises tight control over the prices of food grains. B. The establishment of private enterprises in the steel industry is prohibited...
-
Galaxy Productions fiscal year ended 31 December 2019. Their net profit was $2,796, the firms equity (new capital) was reduced from $50,000 to $32,796. The was also selling merchandises as part of...
-
The following data applies to the two unrelated companies Lloyd Ltd and Cole Ltd: All taxable and deductible temporary differences relate to the profit or loss. Assume a corporate tax rate of 30%. A....
-
This question uses the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. Consider the same scenario described in the...
-
How do managers use information about scrap?
-
How many forms of main() are there?
-
Raymond Companys trial balance at December 31, 2014, is presented below. All 2014 transactions have been recorded except for the items described shown below. Unrecorded transactions: 1. On May 1,...
-
Need a fix, and explain code. Why can't b.size access Small? If size = 1 is public shouldn't it be able to be accesssed from outside the class? public class Big { private Small s = new Small();...
-
Polly Peyrotte started designing and decorating fine china plates more than 100 years ago. As her artistry caught on, she became famous. She also turned out to have considerable business skills. She...
-
2. Consider the brute force string matching algorithm and the following string: GOOD MORNING_GOOD_DAY_GOOD_NIGHT a. Use the algorithm to find the substring GOOD_DAY. Be sure to show your work? (3...
-
AC&H Group Plc. has just paid dividends of $2.75 per share. The expected growth rate of dividends is 7 percent annually and the current market price of AC&H is $90 per share. Calculate the cost of...
-
Why is capital structure design both an art and a science?
-
Identify several factors that influence the decision to issue debt.
-
What are some examples of unsecured and secured sources of short-term credit?
-
How does internal growth versus the infusion of new capital affect the original shareholders?
-
A writer is working on a research paper in which he argues in favor of warning labels on packs of cigarettes. One of the paragraphs in his paper reads: The article "Cigarette Warning Labels: Should...
-
Is times interest earned meaningful for utilities? Why or why not?
-
Refer to the data in exercise 23. Units in beginning inventory .......0 Units produced ............ 20,000 Units sold ............... 18,000 Units in ending inventory ........ 2,000 Variable costs...
-
The Orville Haberman Company, a small manufacturer, uses a job costing system to measure and track product costs for its line of specialty outdoor clothing and uses normal costing to allocate...
-
Ken Martin is an engineer with a multinational aerospace firm that produces a jet engine that is widely used by airplane manufacturers. Ken recently became aware of a potential defect in an engine...
-
You are managing the development of a case tracking system project for your large law firm. The requirements phase of the project is almost complete, and preliminary design work has begun. The...
-
At the conclusion of this chapter, the textbook mentions that data and process modeling may eventually become obsolete due to the increasing popularity and usage of object-oriented modeling and...
-
Although data and process models depict the same system with different views, systemi designers must synchronize these different views to make sure that their models are consistent and complete. One...
Study smarter with the SolutionInn App