Data Sales $25,000,000 Net operating income $3,000,000 Average operating assets $9,000,000 Minimum required rate of return 25% Enter a formula into each of the cells marked with a ? below Review Problem: Return on Investment (ROI) and Residual Income Compute the ROI Margin ? Turnover ? ROI ? Compute the residual income Average operating assets ? Net operating income ? Minimum required return ? Residual income ?

Data Sales $25,000,000 Net operating income $3,000,000 Average operating assets $9,000,000 Minimum required rate of return 25% Enter a formula into each of the cells marked with a ? below Review Problem: Return on Investment (ROI) and Residual Income Compute the ROI Margin ? Turnover ? ROI ? Compute the residual income Average operating assets ? Net operating income ? Minimum required return ? Residual income ?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11E

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Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of $30,000, and invested assets of $600000. What is the return on investment for Division A? A. 20% B. 25% C. 33% D. 40%
Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for the last year: At the beginning of last year, Elway had 28,300,000 in operating assets. At the end of the year, Elway had 23,700,000 in operating assets. Required: 1. Compute average operating assets. 2. Compute the margin and turnover ratios for last year. (Note: Round the answer for margin ratio to two decimal places.) 3. Compute ROI. (Note: Round answer to two decimal places.) 4. CONCEPTUAL CONNECTION Briefly explain the meaning of ROI. 5. CONCEPTUAL CONNECTION Comment on why the ROI for Elway Company is relatively high (as compared to the lower ROI of a typical manufacturing company).
Margin of safety Jorgensen Company has sales of 380,000,000, and the break-even point in sales dollars is 323,000,000. Determine Jorgensen Companys margin of safety as a percent of current sales.
Return on Investment and Economic Value Added Calculations with Varying Assumptions Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of 310,000 based on sales of 3.45 million. Without any new investments, the division will have average operating assets of 3 million. The division is considering a capital investment projectadding knitting machines to produce gaitersthat requires an additional investment of 600,000 and increases net income by 57,500 (sales would increase by 575,000). If made, the investment would increase beginning operating assets by 600,000 and ending operating assets by 400,000. Assume that the actual cost of capital for the company is 7%. (Note: Round all answers to four decimal places.) Required: 1. Compute the ROI for the division without the investment. 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1. 3. CONCEPTUAL CONNECTION Compute the ROI for the division with the new investment. Do you think the divisional manager will approve the investment? 4. CONCEPTUAL CONNECTION Compute the margin and turnover ratios for the division with the new investment. How do these compare with the old ratios? 5. CONCEPTUAL CONNECTION Compute the EVA of the division with and without the investment. Should the manager decide to make the knitting machine investment?
Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company Bs fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.
XY Company provided you the following data: Average operating assets 120,000 Margin on sales 15% Minimum required rate of return 20% Return on investment 25% Sales 300,000 Turnover 2.50 What is the residual income? (Correct ans: 21,000) need solution
Golden Goodness (GG) has an investment center that had the following data: Operating Income $28,000 Sales $350,000 Invested assets $175,000 PMB has set a minimum acceptable rate of return at 14%. Using the information, answer the following questions. You must include what type of number it is (%, $, etc.) Part A: What is the profit margin? Part B: What is the investment turnover? Part C: What is the return on investment? Part D: What is the residual income? Part E: Explain each of the calculations you just performed (a-d).
Sales (30,000 units) Tk.15,00,000 Tk.50 Variable Expense 12,00,000 40 Contribution Margin 300,000 Tk. 10 Fixed Expenses 220,000 Net Operating Income 80,000 If sales increase by Tk.350,000 next year and there is no change in fixed expenses, by how much would you expect net operating income to increase? Refer to original data. Compute company’s margin of safety in both dollar and percentage form. Compute company’s degree of operating leverage at present level of sales. 7. If sales increase by 7.5%, by what percentage would you expect net operating income to increase?
ROI, Residual IncomeThe following selected data pertain to the Argent Division for last year:Sales $1,000,000Variable costs $624,000Traceable fixed costs $100,000Average invested capital $1,500,000Imputed interest rate 15% Required:1. How much is the residual income?2. How much is the return on investment? (Rounded to four significant digits.)
Golden Goodness (GG) has an investment center that had the following data: Operating Income $28,000 Sales $350,000 Invested assets $175,000 PMB has set a minimum acceptable rate of return at 14%. Using the information, answer the following questions. You must include what type of number it is (%, $, etc.) Part A: What is the residual income? Part B: Show calcualtions on how you got answer
Golden Goodness (GG) has an investment center that had the following data: Operating Income $28,000 Sales $350,000 Invested assets $175,000 PMB has set a minimum acceptable rate of return at 14%. Using the information, answer the following questions. You must include what type of number it is (%, $, etc.) What is the profit margin? What is the investment turnover? What is the return on investment?
Sales $ 12,000,000 $ 14,000,000 $ 25,000,000 Average operating assets $ 3,000,000 $ 7,000,000 $ 5,000,000 Net operating income $ 600,000 $ 560,000 $ 800,000 Minimum required rate of return 14 % 10 % 16 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

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Data
Sales	$25,000,000
Net operating income	$3,000,000
Average operating assets	$9,000,000
Minimum required rate of return	25%

Enter a formula into each of the cells marked with a ? below
Review Problem: Return on Investment (ROI) and Residual Income

Compute the ROI
Margin	?
Turnover	?
ROI	?

Compute the residual income
Average operating assets	?
Net operating income	?
Minimum required return	?
Residual income	?