NAMA : FAHMI NUR ALFIYAN

NIM : MAT81766
MATKUL : COST AND MANAGEMENT ACCOUNTING
KELAS : A

Exercise 11.31
1 Calculate the EVA for the Adams Division

Cost of Capital = $ 4.000.000 x 12%

Cost of Capital = $ 480.000

Net (After-Tax) Income $ 605.000

Less: Cost of Capital $ 480.000
EVA $ 125.000

EVA is now positive, and Adams Division is creating wealth.

2 Calculate the EVA for the Jefferson Division

Cost of Capital = $ 3.250.000 x 12%

Cost of Capital = $ 390.000

Net (After-Tax) Income $ 315.000

Less: Cost of Capital $ 390.000
EVA $ (75.000)

Because EVA is negative, Jefferson Dvision is destroying wealth.

3 CONCEPTUAL CONNECTION. Is each division creating or destroying wealth?

No. Adams Division is creating wealth. But, Jefferson Division is destroying wealth.

4 CONCEPTUAL CONNECTION. Describe generally the types of actions that washington's

management team could take to increase Jefferson Division's EVA?

Washington's Management Team should increase Net (After-Tax) Income to increase

Jefferson Division's EVA.

Exercise 11.32
1 Calculate the residual income for the Adams Division.

Residual Income = $ 605.000 - ( 8% x $ 4.000.000 )

Residual Income = $ 285.000

2 Calculate the residual income for the Jefferson Division.

Residual Income = $ 315.000 - ( 8% x $ 3.250.000 )

Residual Income = $ 55.000
 Problem 11.41

The operating results for the past years are as follows:

Year 1 Year 2 Year 3
Sales $ 10.000.000 $ 9.500.000 $ 9.000.000
Operating Income $ 1.200.000 $ 1.045.000 $ 945.000
Average Assets $ 15.000.000 $ 15.000.000 $ 15.000.000

1 Compute the ROI, Margin, and Turnover for Years 1, 2, and 3.

Year 1 Year 2 Year 3

ROI 8,00% 6,97% 6,30%
Margin 12,00% 11,00% 10,50%
Turnover 0,67 0,63 0,60

ROI = Operating Income / Average Operating Assets

Margin = Operating Income / Sales
Turnover = Sales / Average Operating Assets

2 CONCEPTUAL CONNECTION

She also estimates that sales and operating will be restored to Year 1 level.

ROI = $ 1.200.000 / $ 15.000.000 = 8%

Margin = $ 1.200.000 / $ 10.000.000 = 12%
Turnover = $ 10.000.000 / $ 15.000.000 = 0,67

The ROI increased because expenses decreased and assets turn over at a higher rate
(sales increased).

3 CONCEPTUAL CONNECTION

Operating Assets = $ 15.000.000 x 80% = $ 12.000.000

ROI = $ 945.000 / $ 12.000.000 = 7,88%

Margin = $ 945.000 / $ 9.000.000 = 10,50%
Turnover = $ 9.000.000 / $ 12.000.000 = 0,75

The ROI increased because assets are decreased.

4 CONCEPTUAL CONNECTION

Operating Assets = $ 15.000.000 x 80% = $ 12.000.000

ROI = $ 1.200.000 / $ 12.000.000 = 10%

Margin = $ 1.200.000 / $ 10.000.000 = 12%
Turnover = $ 10.000.000 / $ 12.000.000 = 0,83

The ROI increased because expenses decreased and assets turn over at a higher rate
(sales increased and the amount of assets decreased). Both margin and turnover increased.