Selected sales and operating data for three divisions of different structural en
ID: 2569930 • Letter: S
Question
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $5,700,000 $1,140,000 $ 273,600 Division BDivision C $ 9,700,000 $8,800,000 4,850,000 1,760,000 853,600 S180,400 17.00% 17.60% 14.00% Required 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your answers to 2 decimal places.) Margin Turnover ROI DivisionA DivisionB Division C 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your "Required rate of return" to 2 decimal places.) Division A Division B Division C Average operating assets Required rate of return Required operating income Actual operating income Required operating income (above) Residual income (loss)Explanation / Answer
1) Margin (a) Turnover (b) ROI (c=a/b) Division A 2,73,600 57,00,000 4.80% Division B 8,53,600 97,00,000 8.80% Division C 1,80,400 88,00,000 2.05% 2) Division A Division B Division C Average operating assets (a) 11,40,000 48,50,000 17,60,000 Required rate of return (b) 17% 17.60% 14% Required operating income (c=a*b) 1,93,800 8,53,600 2,46,400 Actual operating income 2,73,600 8,53,600 1,80,400 Required operating income 1,93,800 8,53,600 2,46,400 Residual income (loss) 79,800 - -66,000 3-a) Division A Reject ROI is less than minimum required rate of return Division B Reject ROI is less than minimum required rate of return Division C Reject ROI is less than minimum required rate of return 3-b) Division A Accept Residual income Division B Reject No Residual income Division C Reject Residual loss
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