. Compute ROI for Division A. b. Compute residual income for Division B. c. Division A could increase its profit by $40,000 by increasing its investment by $150,000. Compute its total residual income.
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a. Compute ROI for Division A.
b. Compute residual income for Division B.
c. Division A could increase its profit by $40,000 by increasing its investment by $150,000. Compute
its total residual income.
d. Division A could increase its return on sales by one percentage point, while keeping the same total
sales and investment. Compute its ROI.
e. Division B could reduce its investment so that its asset turnover increased by one time, while
holding total sales constant. Compute its ROI.
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- Case 2: Residual Income John is the manager of a production division in ABC Company. ABC Company evaluates John's performance using the ROI of his division, which is the basis of John's bonus. If ROI is maintained or increased, John's bonus will be 1% of the net operating income. If your ROI decreases, John will not receive any bonus. John's division currently has an average operating asset of P120,000, and the net operating income of your division is P30,000. Now, John is considering purchasing a new machine that would cost P40,000 and yield an additional net operating income of P5,000 to John's division. Required: Will John approve the purchase of the machine? Will the Company benefit from this acquisition? To answer this question, you need to: 1. Compute for the ROI of the division (before and after the acquisition) 2. Compute for Residual income of the division (before and after the acquisition)ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment. APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the McLaren Company are shown. McLaren Company Divisional Income Statements For the Year Ending December 31, 2012 Division A Division B Division C Sales Revenue $1,947,000 $1,197,000 $594,000 Operating expenses (1,148,730) (897,750) (314,820) Operating income before service department charges $798,270 $299,250 $279,180 Service department charges (467,280) (177,156) (166,320) Operating income $330,990 $122,094 $112,860 Additional financial data from the three divisions of the McLaren Company are shown. Division A Division B Division C Invested assets $1,100,000 $665,000 $450,000 Calculate the return on investment for each division. If required, round the…The South Division of Bramble Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 3. Return on Investment $2,900,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $160,000. Reduce average operating assets by 3.00%. 1,943,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%) Action 1 600,000 5,000,000 Action 2 Action 3 (b) Using the ROI equation, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g. 1.57%) Return on investment % % 1 % %
- a. Compute ROI for Division B.b. Compute residual income for Division A.c. Division B could increase its profit by $80,000 by increasing its investment by $300,000. Computeits total residual income. d. Division A could increase its return on sales by one percentage point, while keeping the same totalsales. Compute its ROI.e. Division A could increase its sales so that its asset turnover increased by one time, while holdingtotal assets constant. Compute its ROI.1. If Department B is able to reduce its operating assets by $100,000, Department B's new ROI would be 2. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A's new ROI would be"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIS. Operating results for the company's Office Products Division for this year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by…
- Using the following data, estimate the new Return on Investment if there is a 11% decrease in the average operating assets - with the new average operating assets as the base. Sales $2,565,862 Contribution margin 48% Controllable fixed costs 293,294 Average operating assets $4,671,197 Round to two decimal places. Be sure to enter the answer as a percentage but do not include the % sign.The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2 $3,000,000 1,950,000 Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 3. 600,000 5,000,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $150,000. Reduce average operating assets by 6.25%. (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%)Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 3,500 4,000 4,200 4,250 Sales price $38.50 $39.88 $40.15 $41.55 Variable cost per unit $22.34 $22.85 $23.67 $23.87 Fixed operating costs $37,000 $37,500 $38,120 $39,560 This project will require an investment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Garida pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. Which of the following most closely approximates what…
- Required: Consider each part independently 1A. Determine the division’s expected ROI using Dupont formula. What is the division’s expected Residual Income? 1B. How many units must Smart sell to earn P100,000 Residual Income? 1C. The manager has the opportunity to sell additional 15,000 units at P29.50. Variable cost per unit would be the same but fixed cost would be increased by P50,000. An additional investment of P150,000 would be required. If the manager of Smart Division accepts the special order, by how much and in what direction will residual income change? increasing or decreasing direction? Answer 1a to 1c with solution plsReturn on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets: Net Income Assets Las Vegas $1,260,000 $4,000,000 Dallas 1,500,000 8,000,000 Tampa 2,340,000 12,000,000 a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI. Round ROI to the nearest whole percentage. ROI Las Vegas Dallas Tampa 0% 0% 0% Las Vegas $ Dallas Tampa b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income. RI Rank Rank 0 0 0 ♦