Segment Reporting, Decentralization, and the Balanced Scorecard Division A Division B Division C $12,000,000 Sales Average operating assets. Net operating income.... Minimum required rate of return. $14,000,000 $7,000,000 $560,000 10% ..... $3,000,000 $600,000 $25,000,000 $5,000,000 $800,000 16% 14% Required: Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income 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 ac- cept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?
Segment Reporting, Decentralization, and the Balanced Scorecard Division A Division B Division C $12,000,000 Sales Average operating assets. Net operating income.... Minimum required rate of return. $14,000,000 $7,000,000 $560,000 10% ..... $3,000,000 $600,000 $25,000,000 $5,000,000 $800,000 16% 14% Required: Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income 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 ac- cept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter14: Decentralized Operations
Section: Chapter Questions
Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...
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