Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. selected sales and operating data for three divisi

Selected sales and operating data for three divisions of different structural engineering firms are given as...

Free

60.1K

Verified Solution

Question

Accounting

Selected sales and operating data for three divisions ofdifferent structural engineering firms are given as follows:Division A Division B Division C Sales $ 12,600,000 $ 35,750,000 $20,600,000 Average operating assets $ 3,150,000 $ 7,150,000 $5,150,000 Net operating income $ 516,600 $ 572,000 $ 597,400Minimum required rate of return 9.00 % 9.50 % 11.60 % Required:

1. Compute the return on investment (ROI) for each divisionusing the formula stated in terms of margin and turnover.

2. Compute the residual income (loss) for each division.

3. Assume that each division is presented with an investmentopportunity that would yield a 10% rate of return.

a. If performance is being measured by ROI, which division ordivisions will probably accept or reject the opportunity?

b. If performance is being measured by residual income, whichdivision or divisions will probably accept or reject theopportunity?

Answer & Explanation Solved by verified expert
4.4 Ratings (810 Votes)

1)
Margin Turnover ROI
Division A 4.10% 4 16.40%
Division B 1.60% 5 8.00%
Division C 2.90% 4 11.60%
Margin = Net operating income/sales
Turnover = sales/Average operating assets
ROI         = margin * turnover
2) Division A Division B Division C
Average operating assets 3,150,000 7,150,000 5,150,000
Required rate of return 9% 9.5% 11.6%
required operating income 283500 679250 597400
Actual operating income 516,600 572,000 597,400
Required operating income abo 283,500 679,250 597,400
residual income (loss) 233,100 -107,250 0
Residual income = net operating income -(average operating assets*min
                                                                                 Required rate of return)
3a) Division A Reject
Division B Accept
Division C Reject
3b) Division A Accept
Division B Accept
Division C Reject

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Statistics
1.2K views

What is the minimal sample size needed for a 95% confidence interval to have a maximal...

Advance Math
1.2K views

Define error function and complementary error function, mathematically. Explain how these functions can be tabulated.

Physics
1.2K views

A plane mirror is placed at a distance 12 5 cm from focus of a...

Physics
1.2K views

2 radius TL Figure shows a neutral metal ball of mass 50 kg and m...

Algebra
1.2K views

Determine the intervals of increase and decrease for the given rational function graph 09 H...

Accounting
1.2K views

Blossom Co, estimates that variable costs will be 70% of sales...

Accounting
1.2K views

2. a. In what circumstances is a company required to have an audit? b. Discuss...

Accounting
1.2K views

During 2023, your clients, Mr. and Mrs. Howell, owned the following investment assets: ...

Accounting
1.2K views

During 2014, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2013...

Accounting
1.2K views

On October 10,2023, Hutter Corporation declaned a 50,50 per thare canh divldend on its common...

Accounting
1.2K views

1) 2021 Multi Step Income Statement 2) 2021 Statement of Retained Earnings 3) Comparitive Classified...

Finance
1.2K views

Question 19 2.5 pts If you short a stock, you O a. Expect stock price...