Selected sales and operating data for three divisions of three different companies are given below: Division A Division B Division C Sales $6,000,000 $10,000,000 $8,000,000 Average operating assets $1,500,000 $5,000,000 $2,000,000 Net operating income $300,000 $900,000 $180,000 Minimum required rate of return 15% 18% 12% Required: i. Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover. ii. Compute the residual income for each division. iii. Assume that each division is presented with an investment opportunity that would yield a rate of return of 17%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?
Selected sales and operating data for three divisions of three different companies are given below:
Division A Division B Division C Sales $6,000,000 $10,000,000 $8,000,000 Average operating assets $1,500,000 $5,000,000 $2,000,000 Net operating income $300,000 $900,000 $180,000 Minimum required
Required: i. Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover.
ii. Compute the residual income for each division. iii. Assume that each division is presented with an investment opportunity that would yield a rate of return of 17%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why? b. i. What does a manufacturing cycle efficiency (MCE) of less than 1 mean? How would you interpret an MCE of 0.40?
ii. Linx, Ltd., of Birmingham, England, is interested in cutting the amount of time between when a customer places an order and when the order is completed. For the first quarter of the year, the following data were reported:
Inspection time 0.5 days Process time 2.8 days Wait time 16.0 days Queue time 4.0 days Move time 0.7 days
Compute the manufacturing cycle efficiency (MCE) for the quarter. Compute the delivery cycle time. What percentage of the throughput time was spent in non–value-added activities? If by using Lean Production all queue time can be eliminated in production, what will be the new MCE?
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