Accounting for Decision Makers
Question 1 - A business is considering dropping a segment of its business. Describe the issues that the business should consider in making this decision.
Question 2 - a) What is a "transfer price?"
b) List and describe 3 main reasons for using transfer prices. Be specific in your descriptions.
Question 3 - Consider the following information about a potential project:
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Investment required
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$15,000,000
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Expected annual project revenue
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$17,000,000
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Expected annual project expenses
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$14,500,000
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Required rate of return
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15%
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Current division return on investment
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19%
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a) Calculate the project's return on investment.
b) Based solely on ROI, is this project in the firm's best interests? Why or why not?
c) Is this project in the division manager's best interests? Why or why not?
d) Perform DuPont Analysis on this project.
e) What is the project's residual income?
Question 4 - Assume the CFO of your organization approaches you to ask your advice about implementing and using the Balanced Scorecard at your organization.
a) List and describe the four perspectives of the Balanced Scorecard.
b) What steps would you encourage him or her to take in order to successfully implement and use the Scorecard to manage the organization? As part of your answer, be sure to describe any roadblocks to be avoided. Be specific in describing the steps and roadblocks.