### Lauderdale Corporation Case StudyLauderdale Corporation operates in three geographical divisions with managers responsible for revenues, costs, and assets within their regions. The firm is decentralized, and managers are evaluated based on divisional performance. Corporate overhead is allocated based on regional gross margin.#### Financial Data from the 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 |#### Division Assets:- **Region I**: $700,000- **Region II**: $630,000- **Region III**: $1,287,500Cost of Capital: **8.6%**#### Required Tasks:a. **Compute Residual Income** for the three regions, ignoring taxes.b. **Evaluate Regional Performance**.### Solution Steps**Residual Income Calculation**Residual Income is calculated using the formula:\[ \text{Residual Income} = \text{Operating Income} - (\text{Cost of Capital} \times \text{Division Assets}) \]- **Operating Income** = Revenues - Cost of Sales - Selling, General, and Administrative ExpensesPlease compute the residual income accurately and round to the nearest whole dollar.**Regional Performance**Analyse the residual income to assess how each region's performance compares to its capital costs, providing insights into managerial effectiveness and division profitability.Continue by entering your answers in the provided tabs for further analysis.

Introduction:- Calculation of gross profit ratio Gross profit ratio =Individual Divisional gross profit/Total gross profit x 100Explanations:- Requirement:-1 Particulars Region I $ Region II $ Region III $ Total Revenues (a) 1200000 1650000 2250000 5100000 Less: Cost of sales -450000 -810000 -1140000 -2400000 Gross profit (b) 750000 840000 1110000 2700000 Less: Selling, general, and, administrative overheads -420000 -630000 -850000 -1900000 Less: Corporate fixed costs ($432,000 x Gross profit ratio) -120010 -134395 -177595 -432000 Net Operating income or profit 209990 75605 82405 368000 Gross profit or margin ratio 27.78 31.11 41.11 100 Residual income $ 209,990 - $ (700,000 * 8.60%) $ 75,605 - $ (630,000 * 8.60%) $ 82,405 - (1,287,500 * 8.60%) $149,790 $21,425 $-28,320 Requirement:-2 Based on Residual Income Region 1 is performed best and Region 3 worst.

Answered: Required: a. Compute residual income…

Business

Accounting

Required: a. Compute residual income for the three regions. Ignore taxes. b. 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

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