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Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).   Investment Center Sales   Income   Average Invested Assets Electronics $ 40,000,000   $ 2,880,000   $ 16,000,000   Sporting goods   20,000,000     2,040,000     12,000,000       Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).   Investment Center Sales   Income   Average Invested Assets Electronics $ 40,000,000   $ 2,880,000   $ 16,000,000   Sporting goods   20,000,000     2,040,000     12,000,000       Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Financial & Managerial Accounting
Financial & Managerial Accounting
13th Edition
ISBN:9781285866307
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter23: Performance Evaluation For Decentralized Operations
Section: Chapter Questions
Problem 23.4CP: Evaluating division performance over time The Norsk Division of Gridiron Concepts Inc. has been...
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Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
 

Investment Center Sales   Income   Average
Invested Assets
Electronics $ 40,000,000   $ 2,880,000   $ 16,000,000  
Sporting goods   20,000,000     2,040,000     12,000,000  
 

 

Exercise 22-10 Computing return on investment and residual income; investing decision LO A1

1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?
2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?
3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? Return on Investment Choose Numerator: I Choose Denominator: Return on Investment Return on Investment Electronics Sporting Goods Which department is most efficient at using assets to generate returns for the company? < Required 1 Required 2 >
Transcribed Image Text:Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? Return on Investment Choose Numerator: I Choose Denominator: Return on Investment Return on Investment Electronics Sporting Goods Which department is most efficient at using assets to generate returns for the company? < Required 1 Required 2 >
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