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Author Question: LaserLife Printer Cartridge Company is a decentralized organization with several autonomous ... (Read 223 times)

folubunmi

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on: Mar 6, 2021

Question 1

Executive compensation plans are based on both financial and nonfinancial performance measures. Discuss

Question 2

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2018 are budgeted as follows:

Sales$5,000,000
Less variable costs2,500,000
Contribution margin2,500,000
Less fixed expenses1,800,000
   Net operating income$ 700,000
 
Operating assets for the division are currently $3,600,000. For 2018, the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60% of the selling price. 

Required:
a.  What is the effect on ROI of accepting the new product line?
b.  If the company's required rate of return is 6% and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations.
Horngren's Cost Accounting: A Managerial Emphasis ¦ Datar, Rajan ¦ 16th Edition
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Marked as best answer by folubunmi on Mar 6, 2021

Jordin Calloway

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Reply #1 on: Mar 6, 2021
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folubunmi

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Reply 2 on: Mar 6, 2021
YES! Correct, THANKS for helping me on my review

softEldritch

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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