Answered: Selected sales and operating data for…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 11E: The operating income and the amount of invested assets in each division of Conley Industries are as...

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Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

	Division A	Division B	Division C
Sales	12440000$	35550000$	25550000$
Average operating assets	3110000$	7110000$	5110000$
Net operating income	547360$	639900$	740950$
Minimum required rate of return	10.00%	10.50%	14.50$

Required:

1.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 11% rate of return.

a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject?

b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?

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