Question:
Following is a list of transactions that affected one division within a multiple-division company. Indicate, for the current fiscal year, whether each transaction would increase (I), decrease (D), have no effect (N), or have an indeterminate (?) effect on each of the following: asset turnover, profit margin, ROI, and RI. Each transaction is independent.
a. In September, the division fired its R&D manager; the position will not be filled during the current fiscal year.
b. At mid-year, the division manager increased scheduled annual production by 5,000 units. This decision has no effect on scheduled sales.
c. Equipment with an original cost of $680,000 was sold for $139,000. At the time of sale, the book value of the equipment was $170,000.
The equipment sale had no effect on production or sales activities.
d. The division wrote down obsolete finished goods by debiting Cost of Goods Sold and crediting Finished Goods Inventory for $96,000.
e. The division manager automated a previously labor-intensive operation. The action had no effect on sales, but total annual operating expenses declined by 17 percent.
f. Because of significant changes in its cost of capital, the company lowered the division's target rate of return from 12 to 10 percent.
g. A special overseas order was accepted at a selling price significantly less than that for domestic business. The selling price, however, was sufficient to cover all traceable costs of the order.
h. During the year, the division manager spent an additional $165,800 on advertising, which sparked an immediate increase in sales.