Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. Thefirm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional grossmargin (regional revenue minus regional cost of sales).The following information is from Lauderdale's first year of operations:Region I Region II$ 1,202,000 $1,652,000451,000 811,000 1,141,000633,000853,000423,000Region I $ 702,000Region II632,000Region III1,290,500RevenuesCost of salesSelling, General and Administrative (all fixed)Corporate overheadInformation on the division assets in the three regions of Lauderdale Corporation follows:Region III Total Corporation$2,252,000 $ 5,106,0002,403,0001,909,000436,000Lauderdale Corporation has a cost of capital of 8.6 percent.Required:a. Compute residual income for the three regions. Ignore taxes.b. How have these regions performed?

Residual income is the income remaining ( required) from the operating income after deduction the…

y decentralized and managers are evaluated solely on divisional performance. C ional revenue minus regional cost of sales). g information is from Lauderdale's first year of operations: Region I Region II $ 1,202,000 $1,652,000 451,000 423,000 ales Seneral and Administrative (all fixed) overhead on the division assets in the three regions of Lauderdale Corporation follows: $ 702,000 632,000 1,290,500 Corporation has a cost of capital of 8.6 percent. residual income for the three regions lapore taves Region III Tota $2,252,000 1,141,000 853,000 811,000 633,000

y decentralized and managers are evaluated solely on divisional performance. C ional revenue minus regional cost of sales). g information is from Lauderdale's first year of operations: Region I Region II $ 1,202,000 $1,652,000 451,000 423,000 ales Seneral and Administrative (all fixed) overhead on the division assets in the three regions of Lauderdale Corporation follows: $ 702,000 632,000 1,290,500 Corporation has a cost of capital of 8.6 percent. residual income for the three regions lapore taves Region III Tota $2,252,000 1,141,000 853,000 811,000 633,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 2PB

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Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Required: Compute divisional operating income for the three regions. Ignore taxes. How have these regions performed?
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