16) The Jazz Division of Heights Recording Corporation had the following results

Question

16) The Jazz Division of Heights Recording Corporation had the following results last year. $10,000,000 $2,200,000 $4,000,000 $2,500,000 Sales Operating income Total assets Current liabilities Management's target rate of return is 12% and the weighted average cost of capital is 9%. Its effective tax rate is 40%. Required: a. Calculate the Return on Investment (ROI). b. Calculate the Residual Income. c. Which is considered the better measure for performance evaluation and why? d. Identify and describe some advantages and disadvantages of decentralization/ responsibility accounting (hint: from textbook and/or the class Discussion Question). e. What are the four areas/categories of performance measurement within the Balanced Scorecard? Which of the four has emerged as the most important in the contemporary global business environment? For what reasons might an organization wish to consider employing the balanced scorecard?

Explanation / Answer

17

Cash flow indirect method Cash flow from operating activities Net income 40000 Adjustments to reconcile the net income Depreciation expense 30000 Changes in current asset and liabilities Increase in accounts receivable -10000 Increase in Inventory -19000 Increase in prepaid expense -500 Increase in accounts payable 6000 Increase in Salaries payable 1500 8000 Cash flow from operating activities 48000

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