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 $6,300,000 $1,260,000 $ 340,200 20.00% Division B $10,300,000 $ 5,150,000 2$ Division C $9,400,000 $1,880,000 $ 249,100 17.00% 968,200 18.80% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. I Margin Turnover ROI 5.40 % % % Division A times % Division B 2.00 times % Division C times % 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Roui Division A Division B Division C Average operating assets Required rate of return % Required operating income Actual operating income Required operating income (above) Residual income (loss) 3. Assume that each division is presented with an investment opportunity that would y a. If performance is being measured by ROI, which division or divisions will probably : Division A Division B Division C
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 $6,300,000 $1,260,000 $ 340,200 20.00% Division B $10,300,000 $ 5,150,000 2$ Division C $9,400,000 $1,880,000 $ 249,100 17.00% 968,200 18.80% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. I Margin Turnover ROI 5.40 % % % Division A times % Division B 2.00 times % Division C times % 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Roui Division A Division B Division C Average operating assets Required rate of return % Required operating income Actual operating income Required operating income (above) Residual income (loss) 3. Assume that each division is presented with an investment opportunity that would y a. If performance is being measured by ROI, which division or divisions will probably : Division A Division B Division C
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...
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Transcribed Image Text: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
$6,300,000
$1,260,000
$ 340,200
20.00%
Division B
$10,300,000
$ 5,150,000
$ 968,200
18.80%
Division C
$9,400,000
$1,880,000
$ 249,100
17.00%
Required:
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. I
Margin
Turnover
ROI
Division A
5.40 %
times
%
Division B
%
2.00 times
:%
Division C
%
times
%
2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Roui
Division A
Division B
Division C
Average operating assets
Required rate of return
%
%
%
Required operating income
Actual operating income
Required operating income (above)
Residual income (loss)
3. Assume that each division is presented with an investment opportunity that would y
a. If performance is being measured by ROI, which division or divisions will probably i
Division A
Division B
Division C
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