DIALWOOD Manufactures uit machinery. I MICI Cent, ely acquired C suppliers, Delta Steel. To maintain Delta's separate identity, Blackwood reports Delta's operations as an investment center. Blackwood monitors all of its investment centers on the basis of return on investment (ROI). Management bonuses are based on ROI, and all investment centers are expected to earn a minimum 10% return before income taxes. Delta's ROI has ranged from 14% to 18% since 2020. The company recently had the opportunity for a new investment that would have yielded a 13% ROI. However, division management decided against the investment because it believed that the investment would decrease the division's overall ROI. The 2022 operating statement for Delta follows. The division's operating assets were $16,000,000 at the end of 2022, a 6% increase over the 2021 year-end balance. DELTA DIVISION Operating Statement For Year Ended December 31, 2022 (000s omitted) Sales Cost of goods sold Gross profit Operating expenses: Administration Selling Operating income $ 29,500 19,920 9,580 $ 2,808 4,332 7,140 $ 2,440 Required: 1. Calculate the following performance measures for 2022 for the Delta division: a. Return on average investment in operating assets. (Round your final answer to 2 decimal places.) b. Residual income (RI) calculated on the basis of average operating assets. (Enter your answer in whole dollars.) 1a. Return on investment 1b. Residual income %
DIALWOOD Manufactures uit machinery. I MICI Cent, ely acquired C suppliers, Delta Steel. To maintain Delta's separate identity, Blackwood reports Delta's operations as an investment center. Blackwood monitors all of its investment centers on the basis of return on investment (ROI). Management bonuses are based on ROI, and all investment centers are expected to earn a minimum 10% return before income taxes. Delta's ROI has ranged from 14% to 18% since 2020. The company recently had the opportunity for a new investment that would have yielded a 13% ROI. However, division management decided against the investment because it believed that the investment would decrease the division's overall ROI. The 2022 operating statement for Delta follows. The division's operating assets were $16,000,000 at the end of 2022, a 6% increase over the 2021 year-end balance. DELTA DIVISION Operating Statement For Year Ended December 31, 2022 (000s omitted) Sales Cost of goods sold Gross profit Operating expenses: Administration Selling Operating income $ 29,500 19,920 9,580 $ 2,808 4,332 7,140 $ 2,440 Required: 1. Calculate the following performance measures for 2022 for the Delta division: a. Return on average investment in operating assets. (Round your final answer to 2 decimal places.) b. Residual income (RI) calculated on the basis of average operating assets. (Enter your answer in whole dollars.) 1a. Return on investment 1b. Residual income %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:DIALWOOD Manufactures uit machinery. I MICI Cent, ely acquired C
suppliers, Delta Steel. To maintain Delta's separate identity, Blackwood reports Delta's operations as an investment center.
Blackwood monitors all of its investment centers on the basis of return on investment (ROI). Management bonuses are
based on ROI, and all investment centers are expected to earn a minimum 10% return before income taxes.
Delta's ROI has ranged from 14% to 18% since 2020. The company recently had the opportunity for a new investment that
would have yielded a 13% ROI. However, division management decided against the investment because it believed that
the investment would decrease the division's overall ROI.
The 2022 operating statement for Delta follows. The division's operating assets were $16,000,000 at the end of 2022, a
6% increase over the 2021 year-end balance.
DELTA DIVISION
Operating Statement
For Year Ended December 31, 2022 (000s omitted)
Sales
Cost of goods sold
Gross profit
Operating expenses:
Administration
Selling
Operating income
$ 29,500
19,920
9,580
$ 2,808
4,332
7,140
$ 2,440
Required:
1. Calculate the following performance measures for 2022 for the Delta division:
a. Return on average investment in operating assets. (Round your final answer to 2 decimal places.)
b. Residual income (RI) calculated on the basis of average operating assets. (Enter your answer in whole dollars.)
1a. Return on investment
1b. Residual income
%
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