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

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

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 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:

  1. Compute residual income for the three regions. Ignore taxes.

  2. How have these regions performed?

     

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 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 >
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 >
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 >
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Segment Reporting
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