1. a.
Residual Income:
The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.
The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.
Economic Value Added:
The economic value added is the excess of the income over the required return on the investment which is the residual income.
To determine: The U.S. division’s operating income for 2017.
1. b.
The Norwegian’s division’s ROI for 2017 in kroner.
2.
To explain: The top management about the division which earned better in 2017.
3.
The division which has the better residual income performance.
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Chapter 23 Solutions
EBK HORNGREN'S COST ACCOUNTING
- Selected sales and operating data for three divisions of a multinational structural engineering firm are provided below: Sales Average operating assets Net operating income Minimum required rate of return Required: 1. Compute the ROI for each division using the formula stated in terms of margin and turnover. 2. Compute the RI for each division. Asia $12,000,000 $3,000,000 $ 420,000 14% Division Europe $14,000,000 $ 5,000,000 $ 400,000 10% North America $25,000,000 $10,000,000 $ 1.000.000 16%arrow_forwardA U.S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows the following results: U.S. LDCSales (units) 100,000 20,000Labor (hours) 20,000 15,000Raw materials (currency) $20,000 FC 20,000Capital equipment (hours) 60,000 5,000a. a. Calculate partial labor and capital productivity i gures for the parent and subsidiary. Do the results seem confusing?b. Compute the multifactor productivity i gures for labor and capital…arrow_forwardMeiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 3,000,000 $ 9,000,000 Net operating income $ 210,000 $ 720,000 Average operating assets $ 1,000,000 $ 4,000,000 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?arrow_forward
- Consider the following data and determine which of the corporate divisions is more profitable. Explain your reasoning. Domestic International Operating income $8,000,000 $ 11,000,000 Average total assets 20,000,000 32,000,000 C Begin by selecting the formula to calcula return on investment (ROI), and then enter the amounts to calculate each division's ROI. (Enter your answer as a percent rounded to one decimal place, X.X%) ROI % Domestic % International In terms of return on investment (ROI) the Division is more profitable becausearrow_forwardSelected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Division Salen Average operating assets. Net operating income Property, plant, and equipment (net) Queensland $1,296,000 $540,000 $ 129,600 $ 254,000 Required: 1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. 2. Which divisional manager seems to be doing the better job? Complete this question by entering your answers in the tabs below. Queensland division New South Wales division New South Malen $2,655,000 $ 590,000 $ 185,850 $ 204,000 Required 1 Required 2 Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROIarrow_forwardMeiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 11,000,000 $ 40,000,000 Net operating income $ 880,000 $ 4,000,000 Average operating assets $ 2,750,000 $ 20,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed? REQUIRED 1 For each division, compute the return on investment (ROI) in terms of margin and turnover. Osaka Yokohama ROI % % REQUIRED 2 Assume that the company evaluates performance using residual income and that the minimum…arrow_forward
- Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 11,000,000 $ 40,000,000 Net operating income $ 880,000 $ 4,000,000 Average operating assets $ 2,750,000 $ 20,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?arrow_forwardMeiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,500,000 $ 25,000,000 Net operating income $ 855,000 $ 2,750,000 Average operating assets $ 2,375,000 $ 12,500,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?arrow_forwardMeiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,800,000 $ 28,000,000 Net operating income $ 588,000 $ 2,240,000 Average operating assets $ 2,450,000 $ 14,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 14%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed? Osaka Yokohama ROI % % Osaka Yokohama Residual incomearrow_forward
- Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,800,000 $ 28,000,000 Net operating income $ 588,000 $ 2,240,000 Average operating assets $ 2,450,000 $ 14,000,000 Required: 1a. For each division, compute the return on investment (ROI) in terms of margin and turnover. Osaka Yokohama ROI ?# % ?# % 1b. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 14%. Compute the residual income for each division. Osaka Yokohama Residual income ?# ?# 1c. Is Yokohama’s greater amount of residual income an indication that it is better managed? YESarrow_forwardSelected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Sales Average operating assets Net operating income Property, plant, and equipment (net) Required 1 Required 2 Required: 1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. 2. Which divisional manager seems to be doing the better job? Complete this question by entering your answers in the tabs below. Queensland division New South Wales division Queensland $ 1,984,000 $ 620,000 $ 148,800 $ 262,000 Margin Division Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % % Turnover New South Wales $ 2,907,000 $570,000 $ 145, 350 $ 212,000arrow_forwardTan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Sales Net operating income Average operating assets Division Osaka $ 10,100,000 $ 808,000 $ 2,525,000 Yokohama $ 31,000,000 $ 3,100,000 $ 15,500,000 Required: 1. For each division, compute the return on investment (ROI). 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 17%. Compute the residual income for each division.arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning