Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D,which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has acost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completedfollows:Sales revenueDivisional incomeDivisional investmentCurrent liabilitiesR&DAlloys$ 7,4007775,550160200Residual Income of Alloys divisionResidual Income of Petro divisionWhich division performed better?Petro$ 5,5009457,000200300Required:Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income.Note: Enter your answers in thousands of dollars rounded to 1 decimal place.X Answer is not complete.The Petro division performed better

Residual income is the excess of actual operating income over the required return on the assets. Residual income is determined in order to assess the financial performance of a segment, department or a firm. Usually, the residual income is used to compare the performance of two segments. Alloys DivisionThe residual income of Alloys Division is $166.5 thousand dollars.Petro DivisionThe residual income of Petro Division is $175 thousand dollars.Since the residual income of Petro Division is more than that of Alloys Division, Petro Division performed better.Final answers:Residual Income of Alloys division166.5Residual Income of Petro division175Which division performed betterThe Petro division performed better

Business

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Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income Divisional investment O Current liabilities R&D Alloys $ 7,400 777 5,550 160 200 Petro $5,500 945 7,000 200 300 Required: Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Note: Enter your answers in thousands of dollars rounded to 1 decimal place.

Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income Divisional investment O Current liabilities R&D Alloys $ 7,400 777 5,550 160 200 Petro $5,500 945 7,000 200 300 Required: Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Note: Enter your answers in thousands of dollars rounded to 1 decimal place.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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