Three divisions of Jameson Co. report the following sales and operating data: ...
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Accounting
| Three divisions of Jameson Co. report the following sales and operating data: |
| Fitness Training | Spa Services | Athletic Wear | |||||||
| Sales | $ | 600,000 | $ | 750,000 | $ | 400,000 | |||
| Average operating assets | $ | 200,000 | $ | 250,000 | $ | 100,000 | |||
| Operating income | $ | 30,000 | $ | 37,500 | $ | 24,000 | |||
| Minimum required rate of return | 10 | % | 12 | % | 10 | % | |||
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| Required: | |
| 1. | Compute the ROI for each division, using the formula stated in terms of margin and turnover. |
| 2. | Compute the residual income for each division. |
| 3. | Assume that each division is presented with an investment opportunity that would yield a rate of return of 17%. |
| a. | If performance is being measured by ROI, which division or divisions will probably accept the opportunity? |
| b. | If performance is being measured by residual income, which division or divisions will probably accept the opportunity? |
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