Finals Module: 1st Assignment

Performance Evaluation

Refer to Chapter 15 of your book.

Answer ALL multiple choices. 37 items

1. ROI

Silvanas Inc. had gross margin of P550,000 and selling and administrative expense of P300,000
last year. Also, Flip Flop began last year with P1,400,000 of operating assets and ended the year
with P1,100,000 of operating assets.

Required:
Calculate return on investment for Flip Flop Politics

2. Economic Value Added

Elliana Inc. had sales of P5,000,000, cost of goods sold of P3,500,000, and selling and
administrative expense of P500,000 for its most recent year of operations. Elliana Inc. faces a tax
rate of 40%. Also, Elliana employed P2,000,000 of debt capital and P4,000,000 of equity capital
in generating its return. Finally, the company’s actual cost of capital is 8%.

Required:
a. Calculate after-tax operating income for Elliana Inc.
b. Calculate EVA for El Elliana Inc.

3. Transfer Pricing

Division Z produces a part that is used by the Goods Division. The cost of manufacturing the part
follows:

Direct materials P10

Direct labor 2
Variable Overhead 3
Fixed Overhead* 5
Total cost P20
*Based on a practical volume of 200,000 parts

Other costs incurred by Division Z are as follows:

Fixed selling and administrative P500,000

Variable selling (per unit) 1

The part usually sells for between P28 and P30 in the external market. Currently , the
Components Division is selling it to external customers for P29. The division is capable for
producing 200,000 units part per ear. However, because of a weak economy, only 150,000 parts
are expected to be sold during the coming year. The variable selling expenses are avoidable if the
part is sold internally.
Division Y has been buying the same part form an external supplier for P28. It expects to use
50,000 units of the part during the coming year. The manager of Division Y has offered to buy
50,000 units from Division Z for P18 per unit.

Required:
a. Determine the minimum transfer price that Division Z would accept.
b. Determine the maximum transfer price that the manager of Division Y would pay.
c. Should an internal transfer take place? Why or why not? If you were the manager of Division
Z, would you sell the 50,000 components for P18 each? Explain.
d. Suppose that the average operating assets of Division Z total P10 million. Compute the ROI
for the coming year, assuming that the 50,000 units are transferred to Division Y for P21
each.