9.36 The following information is available about the status and operations of Jay Arr Company, which has a required ROI of 15% and discount rate of 12%: Division Division A Divisional investment Divisional profit Variable cost P 500,000 P 350,000 P 500,000 P1,500,000 P1,250,000 P 625,000 P3,500,000 P5,500,000 Divisional sales 1. Division A could increase its sales by P300,000 by increasing its investment by P300,000. Compute its ROI. 2. Division A could increase its sales by P150,000 by increasing its investment by P400,000. Compute its total residual income. 3. Division B could reduce its investment so that its asset turnover increased by two, while holding total sales constant. Compute its residual income.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Please answer questions No. 1 to 6 of Jay Arr Company.

Please provide a complete solution. Thank You

9.36
The following information is available about the status and operations of Jay Ar
Company, which has a required ROI of 15% and discount rate of 12%:
Division
Division
A
Divisional investment
P 500,000
P 350,000
P 500,000
P1,500,000
P1,250,000
P 625,000
P3,500,000
P5,500,000
Divisional profit
Variable cost
Divisional sales
1. Division A could increase its sales by P300,000 by increasing its investment by P300,000.
Compute its ROI.
2. Division A could increase its sales by P150,000 by increasing its investment by P400,000.
Compute its total residual income.
3. Division B could reduce its investment so that its asset turnover increased by two, while
holding total sales constant. Compute its residual income.
4. Division B could reduce its investment so that its asset turnover increased by two, while
total sales increased by 10%.. Compute its ROI.
5. Division C is being considered to be added. This would require additional investment of
P750,000. Upon addition of this new division, the ROI for all the company's operations
shall become 40%. What is the income or loss associated with the new investment?
6. If the manager of the division is evaluated on ROI alone, will the company invest on the
new project? Why?
Transcribed Image Text:9.36 The following information is available about the status and operations of Jay Ar Company, which has a required ROI of 15% and discount rate of 12%: Division Division A Divisional investment P 500,000 P 350,000 P 500,000 P1,500,000 P1,250,000 P 625,000 P3,500,000 P5,500,000 Divisional profit Variable cost Divisional sales 1. Division A could increase its sales by P300,000 by increasing its investment by P300,000. Compute its ROI. 2. Division A could increase its sales by P150,000 by increasing its investment by P400,000. Compute its total residual income. 3. Division B could reduce its investment so that its asset turnover increased by two, while holding total sales constant. Compute its residual income. 4. Division B could reduce its investment so that its asset turnover increased by two, while total sales increased by 10%.. Compute its ROI. 5. Division C is being considered to be added. This would require additional investment of P750,000. Upon addition of this new division, the ROI for all the company's operations shall become 40%. What is the income or loss associated with the new investment? 6. If the manager of the division is evaluated on ROI alone, will the company invest on the new project? Why?
Expert Solution
steps

Step by step

Solved in 2 steps with 6 images

Blurred answer
Knowledge Booster
Money Management and Achieving Financial Goals
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education