abdullah khalifa ghanem al mutaiwei h00152904
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Abdullah Khalifa H00152904
Abdullah Khalifa H00152904
Subject Name: Management Accounting ll, Individual Assignment 1
Subject Code: BMAC N350
Student Name: Abdullah Khalifa Ghanem
ID Number: H00152904
Submitted to: Mr. Geoffrey Said
PART A
KRISI PRODUCTS
Last year's operating results for East Division
Sales $ 21,000,000
Variable Expenses 13,400,000
Contribution Margin 7,600,000
Fixed Expenses 5,920,000
Net Operation Income $ 1,680,000
Divisional Operating Assets $ 5,250,000
Additional Information:
Overall company ROI last year 18%
Investment needed for new product line $ 3,000,000
Revenue characteristics for new product Line:
Sales $ 9,000,000
Variable Expenses as a percent of sales 65%
Fixed Expenses $ 2,520,000
Sales $ 9,000,000
Variable Expenses 65% of Sales
Fixed Expenses 2,520,000
The company had an over all ROI of 18% last year [Considering all divisions]. The company's East Division has an opportunity to add a new product line that would require an investment of $3,000,000. The cost and revenue characteristics of the new product line per year would be as follows:
Abdullah Khalifa H00152904
Abdullah Khalifa H00152904 #2
Solution For Part A, for you're references check the assignment questions:
Question 1 Answer:
East Division's ROI for last year=
East Division's ROI for last year= $ 1,680,000 ÷ $ 5,250,000
East Division's ROI for last year= 32%
ROI For The New Product Line:
Before After
Sales $ 21,000,000 $ 30,000,000
Variable Expenses $ 13,400,000 $ 19,500,000
Contribution Margin $ 7,600,000 $ 10,500,000
Fixed Expenses $ 5,920,000 $ 8,440,000
Net Operation Income $ 1,680,000 $ 2,060,000
Divisional Operating Assets $ 5,250,000 $ 8,250,000
ROI for new product line =
ROI for new product line = $ 2,060,000 ÷ $ 8,250,000
ROI for new product line = 25%
Question 2 Answer:
Question 3 Answer:
Question 4 Answer:
Part A:
East Division's ROI for last year=
East Division's R.I for last year= $ 1,680,000 - $ 787,500
Net Operating Income ÷ Average Operating Assets
Net Operating Income ÷ Average Operating Assets
As the East Division manager I would reject the new product line; because the ROI went down from 32% to 25%, which means " Expenses will increase" that might be harming my evaluation, also the return on investments will decrease.
I assume that the only explanation to that question is even if it got rejected, but still the new product line is having a higher ROI than the company's ROI.
Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)
Abdullah Khalifa H00152904
Abdullah Khalifa H00152904 #2
East Division's R.I for last year= $ 892,500
R.I for new product line =
R.I for new product line = $ 2,060,000
-
$ 1,237,500
R.I for new product line = $ 822,500
Part B:
Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)
As the East Division manager I would accept the new production line, the reason for that is the ROI "Return on Investments" {21% (630,000 ÷ 3,000,000) x 100%} is higher than the minimum required rate of return.
Abdullah Khalifa H00152904
Abdullah Khalifa H00152904
Assets
Cash
Accounts Receivabl
Inventory
Plant and Equipmen
Investment in Brier Company
Land (undeveloped)
Total Assets
Liabilities and Stockholders' Equity
Accounts Payable
Long-term Debt
Stockholders' Equity
Total liabilities and Stockholders' Equity
Additional Information
Dividends paid last year
Minimum required Return
The Company paid dividends of $197,000 last year. The "Investment in Brier Company" on the balance sheet represents an investment in the shares of another company.
Abdullah Khalifa H00152904
Abdullah Khalifa H00152904
BRIDGER, INC
Balance Sheet
$ 125,000 $ 130,000
$ 340,000 $ 480,000
$ 570,000 $ 490,000
$ 845,000 $ 820,000
Investment in Brier Company $ 400,000 $ 430,000
$ 250,000 $ 250,000
$ 2,530,000 $ 2,600,000
Liabilities and Stockholders' Equity
$ 380,000 $ 340,000
$ 1,000,000 $ 1,000,000
$ 1,150,000 $ 1,260,000
Total liabilities and Stockholders' Equity $ 2,530,000 $ 2,600,000
BRIDGER, INC
Income Statement
Sales $ 4,180,000
Operating Expenses $ 3,553,000
Net Operating Income $ 627,000
Interest and Taxes:
Interest Expenses $ 120,000
Tax Expenses $ 200,000 $ 320,000
Net Income $ 307,000
Additional Information
Dividends paid last year $ 197,000
Minimum required Return 20%
Beginning Balance
Ending Balance
The Company paid dividends of $197,000 last year. The "Investment in Brier Company" on the balance sheet represents an investment in the shares of another
Abdullah Khalifa H00152904
Abdullah Khalifa H00152904
Question 1 Answer:
A) Margin =
Margin = 15%
B) Turnover =
BRIDGER, INC
Balance Sheet
Assets
Cash $ 125,000 $ 130,000
Accounts Receivable $ 340,000 $ 480,000
Inventory $ 570,000 $ 490,000
Plant and Equipment $ 845,000 $ 820,000
Total Operating Assets $ 1,880,000 $ 1,920,000
Average Operating Assets
=
$ 1,900,000
B) Turnover= 2.2
C) ROI for the last year= Margin x Turnover
= 33%
Question 2 Answer:
= $ 627,000 - $ 380,000
R.I = $ 247,000
Net Operating Income ÷ Sales
Sales ÷ Average Operating Assets
Beginning Balance
Ending Balance
R.I for the last year =
Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)