Question: A number of transactions follow that affect a specific division within a multiple-division firm. For each transaction explained, indicate whether the transaction would increase (IN), reduce (D), have no effect (N) or have an indeterminate (I) effect on the following measures: asset turnover, ROI, profit margin, & RI for the present fiscal year. Each transaction is independent:
[A] The division writes down an inventory of obsolete finished goods. The journal entry is:
Cost of Goods Sold 80,000
Finished Goods Inventory 80,000
[B] A special overseas order is established. The sales price for this order is well below the sales value on normal business but is sufficient to cover all costs traceable to this order.
[C] A piece of machine is sold for $150,000. The machine’s original cost was $900,000. At the time of sale, the book value of the machine is $180,000. The sale of the equipment has no effect on the product sales.
[D] The division fires its R 7 D manager. The manager will not be replaced during the current fiscal year.
[E] The firm raises it target rate of return for this division from 10 to 12%.
[F] At midyear, divisional manager decides to increase scheduled annual productions by 1,000 units. This decision has no effect on scheduled sales.
[G] During the year, division manager spends an additional $250,000 on advertising. Sales immediately increase thereafter.
[H] The divisional manager replaced a labor-intensive operation with machine technology. This action has no effect on sales, but total annual expenses of the operation are expected to decline by 10%.