Reference no: EM132514641

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East.

                                    South Division                   West Division                  East Division

Sales                         $380,000                         $1,700,000                 $2,000,000

Operating profits          $20,000                            $50,000                      $100,000

Divisional assets          $200,000                       $625,000                                $800,000

Problem 1: Which division has the largest asset turnover?

• The Jones Company purchased assets costing $200,000 which will be depreciated over 5-years using straight-line depreciation and no salvage value. The Jones also purchased land and other assets, which are not depreciate at a cost of $200,000. It is estimated that in 5-years, the value of these assets will be unchanged. Assume that annual cash profits are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-year asset values.

Problem 2: What is the ROI for each year using net book value

                Year 1              Year 2               Year 3                  Year 4

A.              11.1%          12.5%             14.3%               16.7%

B.                10%             10%               10%                10%

C.                 10%             8.9%            7.3%              6.5%

D.               11.1%             11.5%           12.5%            12.3%

Problem 3: If the selling division has excess capacity, the transfer price should be set at its:

Problem 4: An internal transfer between two divisions is in the best economic interest of the entire organization when:

A. the variable costs plus the opportunity cost of the selling division is less than the external price for the buying division.

B. there is excess capacity in the buying division with no alternative use.

or

C. there is no established market prices for the buying division.