Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 5,000, 000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 %$4 Division C $ 8,100, 000 $ 1,620, 000 24 205, 000 16.00% 729, 000 16.20% 109, 350 13.00% 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 (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 5,000, 000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 %$4 Division C $ 8,100, 000 $ 1,620, 000 24 205, 000 16.00% 729, 000 16.20% 109, 350 13.00% 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 (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 32E: Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions:...

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Residual income The Commercial Division of Galena Company has operating income of 12,680,000 and assets of 74,500,000. The minimum acceptable return on assets is 12%. What is the residual income for the division?
Service department charges In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of 64,560, and the Purchasing Department had expenses of 40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: A. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division. B. Using the cost driver information in (A), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. C. Why does the Residential Division have a larger support department allocation than the other two divisions, even though its sales are lower?
Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Washingtons actual cost of capital was 12%. Exercise 11-32 Residual Income Refer to the information for Washington Company above. In addition, Washington Companys top management has set a minimum acceptable rate of return equal to 8%. Required: 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.
The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as follows (assuming no support department allocations): The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that 143,750,000 of assets have been invested in the Consumer Products Division. b. If expenses could be reduced by 3,450,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division?
Effect of proposals on divisional performance A condensed income statement for the Jet Ski Division of Amazing Rides Inc. for the year ended December 31. 20Y2, is as follows Assume that the Jet Ski Division received no charges from service departments. The president of Amazing Rides has indicated that the division's rate of return on a $15,000,000 investment must be increased to at least 12% by the end of the next year if operations are to continue. The division manager is considering the following three proposals Proposal 1: Transfer equipment with a book value of J3.000.000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $264,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $480,000. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,000,000 for the year. Proposal 5? Reduce invested assets by discontinuing the tandem jet ski line. This action would eliminate sales of $2,280,000, cost of goods sold of $1,400,000, and operating expenses of $463,600. Assets of $4,200,000 would be transferred to other divisions at no gain or loss. Instructions Which of the three proposals would meet the required 12% return on investment?'