Exercise 14-21 Presented below is selected financial information for two divisio

Question

Exercise 14-21 Presented below is selected financial information for two divisions of Samberg Brewing. Supply the missing information for the lettered items. Lager $476,000 179,900 Lite Lager Contribution margin Controllable margin $304,000 I (c) Average operating assets (a) $1,275,000 Minimum rate of return Return on investment Residual income % (b) 12% 14% % (d) $64,250 $178,500 Click if you would like to Show Work for this question: Open Show Work Question Attempts: 0 of 1 used SAVE FOR LATERSUB Ves here to search

Explanation / Answer

Working:

(a) Average operating assets = Controllable margin/Return on investment = $179900/14% = $1285000

(b) Residual income = Controllable margin - (Minimum rate of return x Average operating assets)

Assuming the minimum rate of return is 'X'

$64250 = $179900 - (X x $1285000)

$1285000X = $115650

X = $115650/1285000 = 9%

(c) Controllable margin = Residual income + (Minimum rate of return x Average operating assets)

Controllable margin = $178500 + (12% x $1275000) = $178500 + $153000 = $331500

(d) Return on investment = Controllable margin/Average operating assets = $331500/$1275000 = 26%

Lager Lite Lager Contribution margin $          476,000 $          304,000 Controllable margin $          179,900 $          331,500 Average operating assets $       1,285,000 $       1,275,000 Minimum rate of return 9% 12% Return on investment 14% 26% Residual income $             64,250 $          178,500

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