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SirJohnny SirJohnny
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7 months ago
Nobles Corporation provided the following segment margin income statement for two of its divisions: East and West.

​​EastWestTotal
Revenue$510,000$480,000$990,000
Variable expenses​​​
  Product370,000 260,000630,000
  Selling and administrative   80,000    88,000 168,000
Contribution margin60,000 132,000192,000
Less traceable fixed costs   20,000    40,000   60,000
Segment margin$  40,000$  92,000132,000
Common fixed costs​​ 140,000
Net operating income​​($   8,000)

Nobles' actual weighted-average cost of capital is 10% and its tax rate is 30%. The East division balance sheet showed $300,000 of assets ($60,000 current and $240,000 long-term) and $320,000 of liabilities ($120,000 current and $200,000 long-term). The West division reported $360,000 of assets ($80,000 current and $280,000 long-term) and $260,000 of liabilities ($60,000 current and $200,000 long-term).

Required:

a.Calculate the economic value added for each division.
b.Which of the two managers will be rated higher on performance? Why?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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fnc28304fnc28304
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More solutions for this book are available here
a.EVA calculations for East and West:
East[$40,000 × (1 - 30%)] - [($300,000 - $120,000) × 10%] = $10,000
West[$92,000 × (1 - 30%)] - [($360,000 - $60,000) × 10%] = $34,400

b.The manager of the West division will receive higher performance ratings because the
manager has earned a larger profit after covering the cost of operations and the cost of invested capital.
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SirJohnny Author
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7 months ago
Brilliant ツ
zsc999
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Yesterday
You make an excellent tutor!
Jose^2
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2 hours ago
Thank you, thank you, thank you!
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