BUS 3304 UOPEOPLE Operating Profit And Asset Turnover Journal

Reading Assignment

Chapter Ten, How do Managers Evaluate Performance Using Cost Variance Analysis?, we re-visit the flexible budget model we learned about in BU1301, Financial Accounting. This chapter takes us much deeper into the details of each component sub-budget and how each component relates to the master budget.

Chapter Eleven, How do Managers Evaluate Performance in Decentralized Organizations?, introduces us to a number of ways of viewing segments of a large company and discusses an important assessment tool, the return-on-investment (ROI) calculation.

Discussion Assignment

Describe operating profit margin and asset turnover, and explain how each of these ratios can be used to help division managers improve ROI.

Accounting Assignment

Pool Accessories, Inc., has two divisions—Furniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume the Furniture division had average operating assets totaling $6,500,000 for the year, and the Supplies division had average operating assets of $1,750,000.

Pool Accessories, Inc.

Segmented Income Statements

For the Current Fiscal Year Ended December 31

Furniture Division

Supplies Division

Sales

$3,000,000

$1,000,000

Cost of Goods Sold

1,600,000

430,000

Gross Margin

$1,400,000

$570,000

Allocated Overhead

375,000

125,000

Selling and Administrative Expenses

250,000

200,000

Operating Income

$775,000

$245,000

Income Tax Expense (30% rate)

232,500

73,500

Net Income

$542,500

$171,500

Required:

a. Calculate ROI for each division. What does ROI tell us about each division? Indicate why this measure is useful in evaluating investment centers.

Learning Journal

The Learning Journal is a space where you should reflect upon what was learned during the week. How it applies to your daily life and will help you with your life (career) goals. For this week’s reflection, please write three complete and well composed paragraphs (in your own words) where you use, as an example, a large company that you know about that would have many units of operations. How do you think the leadership of that company monitors routine activity and reacts to unexpected events? How would you organize the business?

  • Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0.

Reading Assignment
Chapter Ten, How do Managers Evaluate Performance Using Cost Variance Analysis?, we re-visit the flexible budget model we learned about in BU1301, Financial Accounting. This chapter takes us much deeper into the details of each component sub-budget and how each component relates to the master budget.
Chapter Eleven, How do Managers Evaluate Performance in Decentralized Organizations?, introduces us to a number of ways of viewing segments of a large company and discusses an important assessment tool, the return-on-investment (ROI) calculation.
Discussion Assignment
Describe operating profit margin and asset turnover, and explain how each of these ratios can be used to help division managers improve ROI.
Accounting Assignment
Pool Accessories, Inc., has two divisions—Furniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume the Furniture division had average operating assets totaling $6,500,000 for the year, and the Supplies division had average operating assets of $1,750,000.
Pool Accessories, Inc.
Segmented Income Statements
For the Current Fiscal Year Ended December 31
Furniture Division
Supplies Division
Sales
$3,000,000
$1,000,000
Cost of Goods Sold
1,600,000
430,000
Gross Margin
$1,400,000
$570,000
Allocated Overhead
375,000
125,000
Selling and Administrative Expenses
250,000
200,000
Operating Income
$775,000
$245,000
Income Tax Expense (30% rate)
232,500
73,500
Net Income
$542,500
$171,500
Required:
a. Calculate ROI for each division. What does ROI tell us about each division? Indicate why this measure is useful in evaluating investment centers.
Learning Journal
The Learning Journal is a space where you should reflect upon what was learned during the week. How it applies to your daily life and will help you with your life (career) goals. For this week’s reflection, please write three complete and well composed paragraphs (in your own words) where you use, as an example, a large company that you know about that would have many units of operations. How do you think the leadership of that company monitors routine activity and reacts to unexpected events? How would you organize the business?

Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0.

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