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 $ 1,200,000 450,000 420,000 Region II $ 1,650,000 810,000 630,000 Region III $2,250,000 1,140,000 850,000 Region I $ 700,000 Region II Region III 630,000 1,287,500 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? Total Corporation $ 5,100,000 2,400,000 1,900,000 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows:

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 $ 1,200,000 450,000 420,000 Region II $ 1,650,000 810,000 630,000 Region III $2,250,000 1,140,000 850,000 Region I $ 700,000 Region II Region III 630,000 1,287,500 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? Total Corporation $ 5,100,000 2,400,000 1,900,000 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows:

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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