# Managerial accounting solutions

Topics: Revenue, Ratio, Income Pages: 15 (1456 words) Published: January 29, 2014
﻿Exercise 11-1 (10 minutes)
1.

2.

3.

Exercise 11-2 (10 minutes)
Average operating assets
£2,200,000
Net operating income
£400,000
Minimum required return:
16% × £2,200,000
352,000
Residual income
£ 48,000

Exercise 11-3 (20 minutes)
1.
Throughput time
=
Process time + Inspection time + Move time + Queue time

=
2.8 days + 0.5 days + 0.7 days + 4.0 days

=
8.0 days

2.Only process time is value-added time; therefore the manufacturing cycle efficiency (MCE) is:

3.If the MCE is 35%, then 35% of throughput time was spent in value-added activities, the other 65% was spent in non-value-added activities.

4.
Delivery cycle time
=
Wait time + Throughput time

=
16.0 days + 8.0 days

=
24.0 days

5.If all queue time is eliminated, then the throughput time drops to only 4 days (0.5 + 2.8 + 0.7). The MCE becomes:

Thus, the MCE increases to 70%. This exercise shows quite dramatically how lean production approach can improve operations and reduce throughput time.

Exercise 11-6 (15 minutes)
1.

2.

Exercise 11-6 (continued)
3.

Exercise 11-7 (20 minutes)
1.ROI computations:

Perth:
Darwin:

2.

Perth
Darwin

Average operating assets
\$3,000,000
\$10,000,000

Net operating income
\$630,000
\$1,800,000

Minimum required return on average operating assets—16% × Average operating assets  480,000
1,600,000

Residual income
\$150,000
\$  200,000

3.No, the Darwin Division is simply larger than the Perth Division and for this reason one would expect that it would have a greater amount of residual income. Residual income can’t be used to compare the performance of divisions of different sizes. Larger divisions will almost always look better. In fact, in the case above, Darwin does not appear to be as well managed as Perth. Note from Part (1) that Darwin has only an 18% ROI as compared to 21% for Perth.

Exercise 11-11 (45 minutes)
1.Students’ answers may differ in some details from this solution.

Exercise 11-11 (continued)
2.The hypotheses underlying the balanced scorecard are indicated by the arrows in the diagram. Reading from the bottom of the balanced scorecard, the hypotheses are:

°If the amount of compensation paid above the industry average increases, then the percentage of job offers accepted and the level of employee morale will increase.

°If the average number of years to be promoted decreases, then the percentage of job offers accepted and the level of employee morale will increase.

°If the percentage of job offers accepted increases, then the ratio of billable hours to total hours should increase while the average number of errors per tax return and the average time needed to prepare a return should decrease.

°If employee morale increases, then the ratio of billable hours to total hours should increase while the average number of errors per tax return and the average time needed to prepare a return should decrease.

°If employee morale increases, then the customer satisfaction with service quality should increase.

°If the ratio of billable hours to total hours increases, then the revenue per employee should increase.

°If the average number of errors per tax return decreases, then the customer satisfaction with effectiveness should increase.

°If the average time needed to prepare a return decreases, then the customer satisfaction with efficiency should increase.

°If the customer satisfaction with effectiveness, efficiency, and service quality increases, then the number of new customers acquired should increase.

°If the number of new customers acquired increases, then sales should increase.

°If revenue per employee and sales increase, then the profit margin should increase.

Exercise 11-12 (30 minutes)
1.

2.

Exercise 11-12...