Selected sales and operating data for three divisions of different structural en

Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B $5,100,000 9,100,000 $8,200,000 $1,020,000 $2,275,000 $1,640,000 $ 214,200 746,200 118,900 Division C Sales Average operating assets Net operating income inimum required rate of return 17.00% 32.80% 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 Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) Margin Turnover ROI 1.19)% Division A Division B 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 percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34)) Division A Division B Division C $ 1,020,000 $ 2,275,000 $ 1,640,000 Average operating assets Required rate of return Required operating income Actual operating income Required operating income (above) Residual income (loss) 1.191% 12,138

Explanation / Answer

1) Margin Turnover ROI Division A 4.20% 8.20% 1.45% Division B 5.00 4.00 5.00 Division C 21.00% 32.80% 7.25% 2) Div A Div B Div C Average operating assets 1,020,000 2,275,000 1,640,000 Required rate of return 17% 32.80% 14% required operating income 173400.00 746200.00 229600.00 actual operating income 214,200 746,200 118,900 required operating income 173400.00 746200.00 229600.00 residual income (loss) 40,800.00 0 -110,700.00 3 a) Division A Reject Division B reject Division C accept Division A Accept Division B reject Division C accept

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