Nama : Irga Ayudias Tantri

NIM : 12030124100011

Case 13-50
Holiday Entertainment Corporation (HEC), a subsidiary of New Age Industries, manufactures go-
carts and other recreational vehicles. Family recreational centers that feature not only go-cart
tracks but miniature golf, batting cages, and arcade games as well have increased in popularity. As
a result, HEC has been receiving some pressure from New Age’s management to diversify into
some of these other recreational areas. Recreational Leasing, Inc. (RLI), one of the largest firms
that leases arcade games to family recreational centers, is looking for a friendly buyer. New Age’s
top management believes that RLI’s assets could be acquired for an investment of $3.2 million
and has strongly urged Bill Grieco, division manager of HEC, to consider acquiring RLI.
Grieco has reviewed RLI’s financial statements with his controller, Marie Donnelly, and they
believe the acquisition may not be in the best interest of HEC. “If we decide not to do this, the
New Age people are not going to be happy,” said Grieco. “If we could convince them to base our
bonuses on something other than return on investment, maybe this acquisition would look more
attractive. How would we do if the bonuses were based on residual income, using the company’s
15 percent cost of capital?”
New Age Industries traditionally has evaluated all of its divisions on the basis of return on
investment. The desired rate of return for each division is 20 percent. The management team of
any division reporting an annual increase in the ROI is automatically eligible for a bonus. The
management of divisions reporting a decline in the ROI must provide convincing explanations for
the decline in order to be eligible for a bonus. Moreover, this bonus is limited to 50 percent of the
bonus paid to divisions reporting an increase in ROI
In the following table are condensed financial statements for both HEC and RLI for the most recent
year
Required:
1. If New Age Industries continues to use ROI as the sole measure of divisional performance,
explain why Holiday Entertainment Corporation would be reluctant to acquire Recreational
Leasing, Inc
Jawaban :
Holiday Entertainment Corporation enggan mengakuisisi Recreational Leasing, Inc karena
ROI gabungan setelah akuisisi akan menurun dan manajemen HEC akan kehilangan bonus
mereka atau bonus mereka dibatasi hingga 50 persen dari jumlah yang memenuhi syarat.

ROI = Income / Invested capital

RLI HEC Gabungan
Operating income $ 600.000 $ 2.000.000 $ 2.600.000
Total assets $ 3.000.000 $ 8.000.000 $ 11.000.000
Return on investment (ROI) 20% 25% 23,6%

2. If New Age Industries could be persuaded to use residual income to measure the
performance of HEC, explain why HEC would be more willing to acquire RLI.
Jawaban :
Jika New Age Industries dapat dibujuk untuk menggunakan pendapatan residual untuk
mengukur kinerja, HEC akan lebih bersedia untuk mengakuisisi RLI, karena pendapatan
residual dari operasi gabungan akan meningkat.

Residual Income = Investment center’s profit – (Investment center’s invested capital

x Imputed interest rate)
RLI HEC Gabungan
Operating income $ 600.000 $ 2.000.000 $ 2.600.000
Less : Total assets $ 3.200.000 $ 8.000.000 $ 11.200.000
Imputed interest charge 15% 15% 15%
480.000 1.200.000 1.680.000
Residual Income $ 120.000 $ 800.000 $ 920.000

3. Discuss how the behavior of division managers is likely to be affected by the use of the
following performance measures: (a) return on investment and (b) residual income
Jawaban :
a. Kemungkinan perilaku manajer divisi yang kinerjanya diukur dengan laba atas investasi
akan lebih melakukan untuk menunda perbaikan modal atau modernisasi untuk
menghindari pengeluaran modal serta menghindari peluang atau investasi yang
 menguntungkan dan yang akan menghasilkan lebih dari biaya modal perusahaan tetapi
dapat menurunkan ROI.
b. Kemungkinan perilaku manajer divisi yang kinerjanya diukur dengan pendapatan
residual akan lebih mencari peluang atau investasi apa pun yang akan meningkatkan
pendapatan residual secara keseluruhan serta berusahan untuk mengurangi tingkat asset
yang digunakan dalam bisnis
Case 13-50
Inter Global Industries is a diversified corporation with separate operating divisions. Each
division’s performance is evaluated on the basis of profit and return on investment.

Air Comfort’s division manager believes sales can be increased if the price of the air conditioners
is reduced. A market research study by an independent firm indicates that a 5 percent reduction in
the selling price would increase sales volume 16 percent, or 2,400 units. The division has sufficient
production capacity to manage this increased volume with no increase in fixed costs
The Air Comfort Division uses a compressor in its units, which it purchases from an outside
supplier at a cost of $70 per compressor. The Air Comfort Division manager has asked the manager
of the Compressor Division about selling compressor units to Air Comfort. The Compressor
Division currently manufactures and sells a unit to outside firms that is similar to the unit used by
the Air Comfort Division. The specifications of the Air Comfort Division compressor are slightly
different, which would reduce the Compressor Division’s direct material cost by $1.50 per unit. In
addition, the Compressor Division would not incur any variable selling costs in the units sold to
the Air Comfort Division. The manager of the Air Comfort Division wants all of the compressors
it uses to come from one supplier and has offered to pay $50 for each compressor unit.
The Compressor Division has the capacity to produce 75,000 units. Its budgeted income statement
for the coming year, which follows, is based on a sales volume of 64,000 units without considering
Air Comfort’s proposal

Required:
1. Should the Air Comfort Division institute the 5 percent price reduction on its air-
conditioner units even if it cannot acquire the compressors internally for $50 each? Support
your conclusion with appropriate calculations.
Jawaban :
Ya, divisi Air Comfort harus menerapkan pengurangan harga 5% pada unit air conditioner
karena laba bersih akan meningkat sebesar $132.000
 Before 5% After 5%
Price Reduction Price Reduction Total
Difference
Per Unit Total Per Unit Total (in
(in thousands) (in thousands) thousands)
Sales revenue $ 400 $ 6.000 $ 380 $ 6.612 $ 612
Variable costs:
Compressor  $ 70 $ 1.050,0 70  $ 1.218,0 $ 168,0
Other direct material 37 555 37 643.8 88.8
Direct labor  30 450 30 522.0 72.0
Variable overhead 45 675 45 783.0 108.0
Variable selling  18 270 18 313.2 43.2
Total variable costs $ 200 $ 3.000 $ 200 $ 3.480,0 $ 480,0
Contribution margin $ 200 $ 3.000 $ 180 $ 3.132,0 $ 132,0

Contribution margin of sales increase ($180  2,400) $432,000

Loss in contribution margin on original volume arising from
decrease in selling price ($20  15,000) 300,000
Increase in net income before taxes $132,000

2. Independently of your answer to requirement 1, assume the Air Comfort Division needs
17,400 units. Should the Compressor Division be willing to supply the compressor units
for $50 each? Support your conclusions with appropriate calculations
Jawaban :
Tidak, Divisi Kompresor tidak boleh menjual 17.400 unit ke Divisi Air Comfort seharga
$50. Jika Divisi Kompresor benar-benar menjual 17.400 unit ke Air Comfort, Kompresor
hanya akan mampu menjual 57.600 unit ke pelanggan luar, bukan 64.000 unit karena
pembatasan kapasitas. Ini akan menurunkan laba bersih Divisi Kompresor sebelum pajak
sebesar $35.500. Divisi Kompresor akan bersedia menerima pesanan apa pun dari Air
Comfort jika pesanan di atas level 64.000 unit dengan harga $50 per unit karena akan ada
margin kontribusi positif sebesar $21,50 per unit.

Outside Air Comfort

Sales Sales
Selling price $100 $50.00
Variable costs: 
Direct material 12 $10.50
Direct labor 8 8.00
Variable overhead   10 10.00
Variable selling expenses 6 —
Total variable costs $ 36  $28.50
Contribution margin $ 64  $21.50
 Kapasitas per unit
Total capacity 75.000
Sales to Air Comfort 17.400
Balance 57.600
Projected sales to outsiders 64.000
Lost sales to outsiders 6.400

Contribution from sales to Air Comfort ($21.50 x 17,400) $ 374.100

Loss in contribution from loss of sales to outsiders ($64 x 6,400) $ 409.600
Decrease in net income before taxes $ 35.500

3. Independently of your answer to requirement 1, assume Air Comfort needs 17,400 units.
Suppose InterGlobal’s top management has specified a transfer price of $50. Would it be
in the best interest of InterGlobal Industries for the Compressor Division to supply the
compressor units at $50 each to the Air Comfort Division? Support your conclusions with
appropriate calculations
Jawaban :
Ya, alangkah baiknya jika Divisi Kompresor menjual unit ke Divisi Air Comfort masing-
masing seharga $50. Keuntungan bersih yang akan didapat Inter Global Industries adalah
$312.500. Keuntungan bersih adalah hasil dari penghematan biaya dari pembelian unit
kompresor secara internal dan margin kontribusi yang hilang dari 6.400 unit yang akan
dijual oleh Divisi Kompresor ke pelanggan luar.

Compressor Division: 
Outside purchase price $ 70.00 
Compressor Division’s variable cost to produce 28.50 
Savings per unit $ 41.50
x Number of units x 17,400
Total cost savings    $ 722,100
Compressor Division’s loss in contribution from loss
$ 409,600
of sales to outsiders : $64 x 6,400
Increase in net income before taxes for InterGlobal Industries $ 312,500

4. Is $50 a goal-congruent transfer price? [Refer to your answers for requirements 2 and 3.]
Jawaban :
Tidak, karena $50 bukanlah harga transfer yang sesuai dengan tujuan. Meskipun transfer
adalah demi kepentingan terbaik Inter Global Industries secara keseluruhan, transfer
sebesar $50 tidak akan dianggap oleh manajemen Divisi Kompresor sebagai kepentingan
terbaik divisi tersebut.