(2) Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. Show first your computation of the allocation rate for each of the cost pools. 

(1) Compute the Office Product Division’s ROI for the most recent year; also compute theROI as it would appear if the new product line is added. 

(2) If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain. 

(3) Why do you suppose headquarters is anxious for the Office Product Division to add the new product line? 

a. Compute the Office Product Division’s residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. 

b. Under these circumstances, if you were in Dell Havasi’s position, would you accept or reject the new product line? Explain.

(5) Which measure, ROI or residual income, is more likely to achieve goal congruence, if it is used to evaluate the subunit manager’s performance? Explain. 

(1) Compute the estimated effect on the Compressor Division, from its own viewpoint, if the 17,500 units are supplied to Fridge Division at $50 each. Would the Compressor division accept the offer? 

(2) Determine if it is in the best interest of International Appliance Company for the Compressor Division to supply the 17,500 units to Fridge Division at $50 each. Show your calculation and explain. 

(3) What is the minimum internal transfer price that would guarantee the result of division managers’ decision be congruent with the best interest of the Company as a whole? Show your calculation and explain. 

(4) Now suppose Fridge Division is located at France and is subject to a 40% income tax rate, whereas Compressor Division is located at U.S. and its income tax rate is only 30%. Furthermore, there is a 10% import duty computed on the transfer price that will be paid by the Fridge Division and is deductible when computing Fridge Division’s taxable income. Tax laws of the two countries allow transfer prices to be set at U.S. manufacturing cost or the selling prices of comparable imports in France ($70). Given the tax consideration, what is the internal transfer price that would guarantee the result of division managers’ decision be congruent with the best interest of the Company as a whole? Show your calculation and explain. 

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