I need a detailed problem solving process.
Posted: Sun May 29, 2022 8:38 pm
I need a detailed problem solving process.
3. Nature's Juice Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2017: Passion Fruit Division Kiwi Fruit Division Mango Frui Division Revenues $1,300,000 $1,800,000 $2,400,000 Operating costs (excluding plant depreciation) 550,000 1,050,000 900,000 Plant depreciation 270,000 290,000 175,000 Operating income 480.000 575,000 $1,210,000 Current assets $ 425,000 $ 600,000 $ 700,000 Long-term assets plant 540,000 1,575,000 3,190,000 Total assets $ 965.000 $2.175.000 $3.890.000 Nature's Juice estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2017, the passion fruit plant is 10 years old, the kiwi fruit plant is 3 years old, and the mango fruit plant is 1 year old. An index of construction costs over the 10-year period that Nature's Juice has been operating (2007 year-end = 100) is as follows: 2007 2014 2016 2017 100 120 185 200 Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same. Required: 1. Compute the ROI ratio (operating income to total assets) of each division using historical-cost measures. Comment on the results. 2. Use the approach in Exhibit 23-2 (page 922) to compute the ROI of each division, incorporating current-cost estimates as of 2017 for depreciation expense and long-term assets. Comment on the results. 3. What advantages might arise from using current-cost asset measures as compared with historical-cost measures for evaluating the performance of the managers of the three divisions?
3. Nature's Juice Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2017: Passion Fruit Division Kiwi Fruit Division Mango Frui Division Revenues $1,300,000 $1,800,000 $2,400,000 Operating costs (excluding plant depreciation) 550,000 1,050,000 900,000 Plant depreciation 270,000 290,000 175,000 Operating income 480.000 575,000 $1,210,000 Current assets $ 425,000 $ 600,000 $ 700,000 Long-term assets plant 540,000 1,575,000 3,190,000 Total assets $ 965.000 $2.175.000 $3.890.000 Nature's Juice estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2017, the passion fruit plant is 10 years old, the kiwi fruit plant is 3 years old, and the mango fruit plant is 1 year old. An index of construction costs over the 10-year period that Nature's Juice has been operating (2007 year-end = 100) is as follows: 2007 2014 2016 2017 100 120 185 200 Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same. Required: 1. Compute the ROI ratio (operating income to total assets) of each division using historical-cost measures. Comment on the results. 2. Use the approach in Exhibit 23-2 (page 922) to compute the ROI of each division, incorporating current-cost estimates as of 2017 for depreciation expense and long-term assets. Comment on the results. 3. What advantages might arise from using current-cost asset measures as compared with historical-cost measures for evaluating the performance of the managers of the three divisions?