Manageiral Accounting
Commerce 4AA3 Individual Final Assignment
Chewbacca Motors International
Students are expected to analyze and answer all questions of this final examination without assistance and consultation of any kind from any individuals. Please write down any assumptions you make to answer the questions. Please show all supporting calculations where necessary.
1 Chewbacca Motors International (CMI) is an international company in Canada that is currently organized into three divisions, each of which is treated as an investment centre. Divisional performance evaluation and managerial bonuses are based on achieving a 12% divisional return on investment (ROI). Divisional ROI is calculated as pretax divisional income divided by divisional investment. See Exhibit 1 for a diagram showing the structure of CMI.
Hank Solo, President of CMI, is very concerned about both divisional and overall corporate performance. The following discussion took place recently between Hank Solo and Elan Harrar, the new controller.
Hank Solo, President: "I wonder if the growth we enjoyed in the early years on this planet Earth was really worth it. Now that we're an international organization, I'm not sure what's going on in each of the divisions."
Elan Harrar, Controller: "But you've laid out some ground rules for the divisional managers to work within. I heard you say this morning that they are supposed to act as independent business units and maximize divisional return on investments."
Hank Solo, President: "I've also instructed the divisional managers to buy from and sell to each other whenever possible and that the price for these internal transactions has to be set at 1.25 times full production cost. Every time I turn around, one of them is complaining about what the other divisions are doing."
The Turbine Division (TD) manufactures standard turbine engines and fuel injected engines. The manufacturing process involves product
Chewbacca Motors International
Students are expected to analyze and answer all questions of this final examination without assistance and consultation of any kind from any individuals. Please write down any assumptions you make to answer the questions. Please show all supporting calculations where necessary.
1 Chewbacca Motors International (CMI) is an international company in Canada that is currently organized into three divisions, each of which is treated as an investment centre. Divisional performance evaluation and managerial bonuses are based on achieving a 12% divisional return on investment (ROI). Divisional ROI is calculated as pretax divisional income divided by divisional investment. See Exhibit 1 for a diagram showing the structure of CMI.
Hank Solo, President of CMI, is very concerned about both divisional and overall corporate performance. The following discussion took place recently between Hank Solo and Elan Harrar, the new controller.
Hank Solo, President: "I wonder if the growth we enjoyed in the early years on this planet Earth was really worth it. Now that we're an international organization, I'm not sure what's going on in each of the divisions."
Elan Harrar, Controller: "But you've laid out some ground rules for the divisional managers to work within. I heard you say this morning that they are supposed to act as independent business units and maximize divisional return on investments."
Hank Solo, President: "I've also instructed the divisional managers to buy from and sell to each other whenever possible and that the price for these internal transactions has to be set at 1.25 times full production cost. Every time I turn around, one of them is complaining about what the other divisions are doing."
The Turbine Division (TD) manufactures standard turbine engines and fuel injected engines. The manufacturing process involves product