Reference no: EM132971966

Decentralized Performance Evaluation Problems -

Problem 1 - The Eastern Division of Tencent Industries Co. produced the following operating results for the previous year:

Sales $10,000,000

Segment income 1,500,000

Assets 6,000,000

The Eastern Division is considering a $1,000,000 investment in a new project. The Eastern Division estimates that its return on investment (for all of its operations) would be at 22% with the new investment.

Required -

a) How much net segment income is the new project expected to produce?

b) If the manager of the Eastern Division is evaluated on return on investment alone, will the manager invest in the new project? Explain.

Problem 2 - Concord Company has two divisions, Rice and Pine. Rice produces an item that Pine could use in its production. Pine currently is purchasing 12,000 units from an outside supplier for $18 per unit. Rice is currently operating at less than its full capacity of 500,000 units and has variable costs of $10 per unit. The full cost to manufacture the unit is $14. Rice currently sells 450,000 units at a selling price of $20 per unit.

Required -

a. What will be the effect on Concord Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Rice's perspective?

c. What is the maximum transfer price from Pine' perspective?

d. Assume that Rice division is operating at full capacity, what would be its minimum transfer price?

e. Assume that Rice division is operating at 494,000 units for the current period, what would be minimum transfer price to be set up by Rice?

Problem 3 - The Kyoritsu Corporation produces puzzles in its Cabuyao manufacturing plant. The company is currently evaluating ways to improve productivity. The accountant of the firm's parent organization suggested that management implement a new compensation plan based on throughput performance measure as an incentive to increase productivity. To demonstrate how such a measure might work, the accountant gathered the following production data for a recent month:

Total units attempted 6,000,000

Good units manufactured 4,800,000

Processing time (total hours) 800

Value-added processing time 600

Required -

a. Compute manufacturing cycle efficiency.

b. Compute process productivity.

c. Compute process quality yield.

d. Compute hourly throughput.