Exercise 10-20 (Part Level Submission) Presented below is selected information f
ID: 2552640 • Letter: E
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Exercise 10-20 (Part Level Submission) Presented below is selected information for three regional divisions of Medina Company Divisions Contribution margin Controllable margin Average operating assets Minimum rate of return North $299,000 $139,000 $992,857 West $499,000 $359,000 South $399,000 $209,000 $1,492,857 $1,994,444 11 % 14 % 8% Compute the return on investment for each division. (Round ROI to 0 decimal places, e.g. 15.) North Division West Division South Division Compute the residual income for each division. (Round final answers to 0 decimal places, e.g. 1,255.) North Division West Division South Divisiong Assume that each division has an investment opportunity that would provide a rate of return of 16%. If ROI is used to measure performance, which division or divisions will probably make the additional investment? If residual income is used to measure performance, which division or divisions will probably make the additional investment?Explanation / Answer
a Return on investment=Controllable margin/Average operating assets North division 14% =139000/992857 West division 18% =359000/1994444 South division 14% =209000/1492857 b North division 29786 =139000-(992857*11%) West division 79778 =359000-(1994444*14%) South division 89571 =209000-(1492857*8%) c 1 North and South division will accept 2 North, West and South division will accept
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