auderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 700,000 Region II 630,000 Region III 1,287,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed
auderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 700,000 Region II 630,000 Region III 1,287,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate
The following information is from Lauderdale's first year of operations:
| Region I | Region II | Region III | Total Corporation | |
|---|---|---|---|---|
| Revenues | $ 1,200,000 | $ 1,650,000 | $ 2,250,000 | $ 5,100,000 |
| Cost of sales | 450,000 | 810,000 | 1,140,000 | 2,400,000 |
| Selling, General and Administrative (all fixed) | 420,000 | 630,000 | 850,000 | 1,900,000 |
| Corporate overhead | 432,000 |
Information on the division assets in the three regions of Lauderdale Corporation follows:
| Region I | $ 700,000 |
|---|---|
| Region II | 630,000 |
| Region III | 1,287,500 |
Lauderdale Corporation has a cost of capital of 8.6 percent.
Required:
-
Compute residual income for the three regions. Ignore taxes.
-
How have these regions performed?
Transcribed Image Text:Required A Required B
Compute residual income for the three regions. Ignore taxes.
Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.
Region II
Region III
Residual Income
Region I
< Required A
Required B >
Transcribed Image Text:Required A Required B
How have these regions performed?
1a. Based on residual income, which region performed the best?
1b. Based on residual income, which region performed the worst?
< Required A
Required B >
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