Managerial Accounting: Tools for Business Decision Making 7e + WileyPLUS Registration Card
7th Edition
ISBN: 9781119036432
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: Wiley (WileyPLUS Products)
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Textbook Question
Chapter 10, Problem 10.20E
Presented below is selected information for three regional divisions of Medina Company.
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 Instructions
(a) Compute the
(b) Compute the residual income for each division.
(c) Assume that each division has an investment opportunity that would provide a
(1) If ROI is used to measure performance, which division or divisions will probably make the additional investment?
 (2) If residual income is used to measure performance, which division or divisions will probably make the additional investment?
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Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
2. Compute the residual income (loss)Â for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 7% 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?
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Division A
Division B
Division C
Sales
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15,950,000
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$
28,760,000
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$
25,950,000
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Average operating assets
$
3,190,000
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$
7,190,000
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$
5,190,000
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Net operating income
$
733,700
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$
373,880
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$
752,550
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Minimum required rate of return
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6.00
%
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6.50
%
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14.50
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Required:
1. Compute the ROI for each division.
2. Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16 degrees. Compute the residual income for each division.
Required:
1. Compute the ROI for each division.
2. Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16%. Compute the residual income for each division.
Chapter 10 Solutions
Managerial Accounting: Tools for Business Decision Making 7e + WileyPLUS Registration Card
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