Questions :

Problem 1

Chicago Company has the subsequent information pertaining to its Brick division for this year:

Bricks

Fixed manufacturing expenses  $ 70,000

Fixed selling and administrative expenses            60,000

Sales      500,000

Direct manufacturing costs (variable)      80,000

Variable selling and administrative expenses      140,000

Corporate expenses allocated to the brick division are $48,000.

Determine the brick division's division margin.

Problem 2

Ruby Division had the subsequent information:

Current Liabilities             $ 3,600,000

Investment base              30,000,000

Net operating income before taxes         4,000,000

Tax rate                35%

Cost of capital    10%

Determine Ruby Division's economic value added.

Problem 3

The Chip Division of Circuit Co has just revised its actual cost data for the year just ended. Chip Division transfers circuit boards to the Assembly Division, and incurs no selling expense for such transfers. Assembly Division will buy the same goods in the open market for $132 each. Chip's new cost data are:

Direct materials                $ 60

Direct labor         30

Variable manufacturing overhead            10

Fixed manufacturing overhead  8

Variable selling expenses             6

Fixed selling and administrative expenses            12

Total costs           $126

Desired return  20

Sales price           $146

Current production is 400,000 units, and Chip has a capacity of 600,000 units.

Required:

a. What is the lowest price Chip could charge for the internal transfer of its goods?

b. What is the highest price Assembly could pay Chip for the units?

c. Provide the primary reason why Chip could reduce its price for internal transfers below the market price.

Problem 4

Hinsdale Company has the subsequent data for this year:

Bottling Division                Mixing Division

Average operating assets             $320,000              $ 800,000

Contribution margin       160,000 500,000

Operating income            80,000   120,000

Sales      400,000 1,200,000

Weighted-average cost of capital             18%        18%

Hinsdale Company has a target ROI of 18 percent.

Required: Determine the following amounts for each division:

a. Return on sales ratio

b. Operating investment turnover

c. ROI

d. Residual income