Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,202,000 $ 1,652,000 $ 2,252,000 $ 5,106,000 Cost of sales 451,000 811,000 1,141,000 2,403,000 Selling, General and Administrative (all fixed) 423,000 633,000 853,000 1,909,000 Corporate overhead 436,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 702,000 Region II 632,000 Region III 1,290,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed?
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,202,000 $ 1,652,000 $ 2,252,000 $ 5,106,000 Cost of sales 451,000 811,000 1,141,000 2,403,000 Selling, General and Administrative (all fixed) 423,000 633,000 853,000 1,909,000 Corporate overhead 436,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 702,000 Region II 632,000 Region III 1,290,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed?
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter24: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 8E: Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division...
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Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales).
The following information is from Lauderdale's first year of operations:
| Region I | Region II | Region III | Total Corporation | |
|---|---|---|---|---|
| Revenues | $ 1,202,000 | $ 1,652,000 | $ 2,252,000 | $ 5,106,000 |
| Cost of sales | 451,000 | 811,000 | 1,141,000 | 2,403,000 |
| Selling, General and Administrative (all fixed) | 423,000 | 633,000 | 853,000 | 1,909,000 |
| Corporate overhead | 436,000 |
Information on the division assets in the three regions of Lauderdale Corporation follows:
| Region I | $ 702,000 |
|---|---|
| Region II | 632,000 |
| Region III | 1,290,500 |
Lauderdale Corporation has a cost of capital of 8.6 percent.
Required:
-
Compute residual income for the three regions. Ignore taxes.
-
How have these regions performed?
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