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Popular Motor Company makes electric cars and has two products, the Simplegreen and the Populargreen....

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Accounting

Popular Motor Company makes electric cars and has two products, the Simplegreen and the Populargreen. To produce the Simplegreen, Popular Motor employed assets of $11,260,000 at the beginning of 2020 and $64,740,000 of assets at the end of 2020. Other costs to manufacture the Simplegreen include the following: Direct materials $3,000 per unit Setup $1,300 per setup-hour Production $330 per machine-hour General administration and selling costs for Simplegreen total $7,700,000 in 2020. During the year, Popular Motor produced 9,000 Simplegreen cars using 4,000 setup-hours and 138,000 machine-hours. It sold these cars for $10,000 each. Begin by calculating Simplegreen's operating income. Sales revenue Less: Direct materials Setup Production Gross margin Selling and administration Operating income 1. Assuming that Popular Motor defines investment as average assets during the period, what is the return on investment for the Simplegreen division? 2. Calculate the residual income for Simplegreen if Popular Motor has a required rate of return of 9% on investments.

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