c 102- UNIT 3 REVIEW: CHAPTERS 7, 8 and 9 Name: 30 The following information rel

Question

c 102- UNIT 3 REVIEW: CHAPTERS 7, 8 and 9 Name: 30 The following information relates to the Apparel Division of ReNew Enterprises Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets Minimum required rate of return 700,000 315,000 $228,000 $1,750,000 12% Assume that the manager of the Apparel Division is evaluated solely on the basis of residual Income, would she pursue a $500,000 investment opportunity with the following revenue and cost characteristics: Sales Variable expenses Fixed expenses $200,000 112,000 $18,000 Show your work as evidence to support your answer. Refer to the information in question #30, but this time assume that the manager of the App Division is evaluated solely on the basis of return on investment. Would she pursue the $500,000 investment opportunity. Show your work as evidence to support your answer. 31, %000 13,05% 29

Explanation / Answer

1 Residual income = net operating income - minimum rate of return Net operating income 228000 Minimum rate of return = 1750000 * 12% 210000 Residual income 18000 Sales revenue 200000 Less Variable expense 112000 Contribution margin 88000 Less Fixed expense 18000 Net operating income 70000 Residual income = net operating income - minimum rate of return Net operating income 70000 Minimum rate of return = 500000 * 12% 60000 Residual income 10000

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