Rex Motors Ltd makes electric cars and has only two products, the Simplegreen and the Superiorgreen. To produce the Simplegreen, Superior Motors employed assets of $15,500,000 at the beginning of the period and $14,400,000 of assets at the end of the period. Other costs to manufacture the Simplegreen include: Direct materials $4700 per unit Set-up $1400 per set-up hour Production $420 per machine hour General administration and selling costs total $6,340,000 for the period. In the current period, Rex Motors produced 12,000 Simplegreen cars using 6500 set-up-hours and 180,000 machine-hours. Rex Motors sold these cars for $12,500 each. Required: Assuming that Rex Motors defines investment as average assets during the period, what is the return on investment for the Simplegreen division? Calculate the residual income for the Simplegreen if Rex Motors has a required rate of return of 10% on investments.
Rex Motors Ltd makes electric cars and has only two products, the Simplegreen and the Superiorgreen. To produce the Simplegreen, Superior Motors employed assets of $15,500,000 at the beginning of the period and $14,400,000 of assets at the end of the period. Other costs to manufacture the Simplegreen include: Direct materials $4700 per unit Set-up $1400 per set-up hour Production $420 per machine hour General administration and selling costs total $6,340,000 for the period. In the current period, Rex Motors produced 12,000 Simplegreen cars using 6500 set-up-hours and 180,000 machine-hours. Rex Motors sold these cars for $12,500 each. Required: Assuming that Rex Motors defines investment as average assets during the period, what is the return on investment for the Simplegreen division? Calculate the residual income for the Simplegreen if Rex Motors has a required rate of return of 10% on investments.
Chapter10: Short-term Decision Making
Section: Chapter Questions
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Rex Motors Ltd makes electric cars and has only two products, the Simplegreen and the Superiorgreen. To produce the Simplegreen, Superior Motors employed assets of $15,500,000 at the beginning of the period and $14,400,000 of assets at the end of the period. Other costs to manufacture the Simplegreen include:
Direct materials $4700 per unit
Set-up $1400 per set-up hour
Production $420 per machine hour
General administration and selling costs total $6,340,000 for the period. In the current period, Rex Motors produced 12,000 Simplegreen cars using 6500 set-up-hours and 180,000 machine-hours. Rex Motors sold these cars for $12,500 each.
Required:
- Assuming that Rex Motors defines investment as average assets during the period, what is the return on investment for the Simplegreen division?
- Calculate the residual income for the Simplegreen if Rex Motors has a required
rate of return of 10% on investments.
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