Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Fruit Division Flower Division 2,610,000 1,957, 500 652,500 Sales revenue Cost of goods sold and operating expenses 1,740,000 1,392,000 348,000 Net operating income Average invested assets 3,480,000 2,718,750 Orange has established a hurdle rate of 6 percent Required: 1-a. Compute each division's return on investment (ROI) and residual income for last year. 1-b. Determine which manager seems to be performing better. 2. Suppose Orange is investing in new technology that will increase each division's operating income by $131,000. The total investment required is $2,200,000, which will be split evenly between the two divisions. Calculate the ROI and residual Income for each division after the investment is made. 3. Determine whether both managers will support the investment.
Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Fruit Division Flower Division 2,610,000 1,957, 500 652,500 Sales revenue Cost of goods sold and operating expenses 1,740,000 1,392,000 348,000 Net operating income Average invested assets 3,480,000 2,718,750 Orange has established a hurdle rate of 6 percent Required: 1-a. Compute each division's return on investment (ROI) and residual income for last year. 1-b. Determine which manager seems to be performing better. 2. Suppose Orange is investing in new technology that will increase each division's operating income by $131,000. The total investment required is $2,200,000, which will be split evenly between the two divisions. Calculate the ROI and residual Income for each division after the investment is made. 3. Determine whether both managers will support the investment.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter14: Decentralized Operations
Section: Chapter Questions
Problem 14.8E: Corrections to service department charges Panda Airlines Inc. has two divisions organized as profit...
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