Required Part A 1. Calculate the return on investment (ROI) and residual income (RI) for each division of CarniTrin, and briefly explain which manager will get the bonus. 2. Another measure called economic value added (EVA) was brought to the attention of the general manager. The general manager requests that the accountant calculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjusted after-tax operating incomes are $960,000 and $1,660,000, respectively. Also, the clothing division has $600,000 of current liabilities, while the cosmetics division has only $400,000 of current liabilities.Using the preceding information, calculate EVA, and discuss which division manager will get the bonus. 3. What nonfinancial measures could CarniTrin use to evaluate divisional performances?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Please answer in detail
CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it.
The following data relate to the company for the year 2022:
In its clothing division, the company has $6,000,000 invested in assets. After-tax operating income from sales of clothing in 2022 is $900,000. Income for the clothing division has grown steadily over the last few years.
The cosmetics division has $14,000,000 invested in assets and an after-tax operating income in 2022 of $1,900,000.
The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax
The general manager of CarniTrin has asserted that in the future, managers should have their compensation structure aligned with their performance measures with no fixed salaries. However, the general manager has told the manager of each division that the better division in 2022 will get a bonus.
Required
Part A
1. Calculate the return on investment (ROI) and residual income (RI) for each division of CarniTrin, and briefly explain which manager will get the bonus.
2. Another measure called economic value added (EVA) was brought to the attention of the general manager. The general manager requests that the accountant calculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjusted after-tax operating incomes are $960,000 and $1,660,000, respectively. Also, the clothing division has $600,000 of current liabilities, while the cosmetics division has only $400,000 of current liabilities.Using the preceding information, calculate EVA, and discuss which division manager will get the bonus.
3. What nonfinancial measures could CarniTrin use to evaluate divisional performances?
Step by step
Solved in 4 steps
