Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3) 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: Revenues Cost of sales Selling, General and Administrative (all fixed) Corporate overhead Region I $ 1,218,000 459,000 447,000 Region II $ 1,680,000 819,000 657,000 Region III $ 2,268,000 1,149,000 877,000 Total Corporation $ 5,166,000 2,427,000 1,981,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I Region II Region III $ 718,000 648,000 1,314,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: a. Compute residual Income for the three regions. Ignore taxes. b. How have these regions performed? 468,000 Complete this question by entering your answers in the tabs below. 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. Residual Income Region I Region II Region III Required A Required B
Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3) 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: Revenues Cost of sales Selling, General and Administrative (all fixed) Corporate overhead Region I $ 1,218,000 459,000 447,000 Region II $ 1,680,000 819,000 657,000 Region III $ 2,268,000 1,149,000 877,000 Total Corporation $ 5,166,000 2,427,000 1,981,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I Region II Region III $ 718,000 648,000 1,314,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: a. Compute residual Income for the three regions. Ignore taxes. b. How have these regions performed? 468,000 Complete this question by entering your answers in the tabs below. 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. Residual Income Region I Region II Region III Required A Required B
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3)
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:
Revenues
Cost of sales
Selling, General and
Administrative (all fixed)
Corporate overhead
Region I
$ 1,218,000
459,000
447,000
Region II
$ 1,680,000
819,000
657,000
Region III
$ 2,268,000
1,149,000
877,000
Total
Corporation
$ 5,166,000
2,427,000
1,981,000
Information on the division assets in the three regions of Lauderdale Corporation follows:
Region I
Region II
Region III
$ 718,000
648,000
1,314,500
Lauderdale Corporation has a cost of capital of 8.6 percent.
Required:
a. Compute residual Income for the three regions. Ignore taxes.
b. How have these regions performed?
468,000
Complete this question by entering your answers in the tabs below.
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.
Residual Income
Region I
Region II
Region III
Required A
Required B
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