You can see that if they combined together they will have much more RLI and

You can see that if they combined together they will

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company is $460,000. You can see that if they combined together they will have much more RLI and they will receive the full bonus same like each year. 3. a.) ROI Management behavior seem like these followings : - Avoid the new project, because they have to use the high cost of investment, so it has the risk of decreasing in ROI - Don’t decide to invest although they have the chance to win the project, so the management in this type would be focus only the old project because it has lower risk. b.) RI management behavior seems like these followings: - They will find the chance to invest in the new project that have high cost of investment and not focus on return on investment. - They will try to reduce all of the cost and expense but sometimes they don’t care for the essential operation or efficiency. Case 13-52
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Continental Industries is a diversified corporation with separate operating divisions. Each division’s performance is evaluated on the basis of profit and return on investment. The Air Comfort Division manufactures and sells air-conditioner units. The coming year’s budgeted income statement, which follows, is based upon a sales volume of 15,000 units. AIR COMFORT DIVISION Budgeted Income Statement (In thousands) Total Per unit Sale revenue $12,000 $800 Manufacturing costs: Compressor $2,100 $140 Other direct material 1,110 74 Direct labor 900 60 Variable overhead 1,350 90 Fixed overhead 960 64 Total manufacturing costs $6,420 $428 Gross margin $5,580 $372 Operating expenses: Variable selling $540 $36 Fixed selling 570 38 Fixed administrative 1,140 76 Total operating expenses $2,250 $150 Net income before taxes $3,330 $222 Air Comfort's division manager believes sales can be increased if the price of the air- conditioners is reduced. A market research study by an independent firm indicates that a 5 percent reduction in the selling price would increase sales volume 16 percent or 2,400 units. The division has sufficient production capacity to manage this increased volume with no increase in fixed costs. The Air Comfort Division uses a compressor in its units, which it purchases from an outside supplier at a cost of $140 per compressor. The Air Comfort Division manager has asked the manager of the Compressor Division about selling compressor units to Air Comfort. The Compressor Division currently manufactures and sells a unit to outside firms which is similar to the unit used by the Air Comfort Division. The specifications of the Air Comfort Division compressor are slightly different, which would reduce the Compressor Division's direct material cost by $3 per unit. In addition, the Compressor Division would not incur any variable selling costs in the units sold to the Air Comfort Division. The man ager of the Air Comfort Division wants all of the compressors it uses to come from one supplier and has offered to pay $100 for each compressor unit. The Compressor Division has the capacity to produce 75,000 units. Its budgeted income statement for the coming year, which follows, is based on a sales volume of 64,000 units without considering Air Comfort's proposal. COMPRESSOR DIVISION Budgeted Income Statement (In thousands) Total Per unit
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Sale revenue $12,800 $200 Manufacturing costs: Direct material 1,536 24 Direct labor 1,024 16 Variable overhead 1,280 20 Fixed overhead 1,408 22 Total manufacturing costs $5,248 $82 Gross margin $7,552 $118 Operating expenses: Variable selling $768 $12 Fixed selling 512 8 Fixed administrative 896 14 Total operating expenses $2,176 $34
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