Required information [The following information applies to the questions displayed below.] Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 14 percent before income taxes. Fairmont's ROI has ranged from 29.2 to 32.4 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 28 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The division's productive assets were $18,900,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. revenue Cost of goods sold Gross margin Operating expenses: Administrative Selling Income from operations before income taxes FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) Req 1A equired: a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. b. Calculate residual income for 20x1 for the Fairmont Division. Complete this question by entering your answers in the tabs below. Req 1B $5,280 15,655 Return on investment Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. % $ 41,600 $ 26,470 20,935 $ 5,535
Required information [The following information applies to the questions displayed below.] Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 14 percent before income taxes. Fairmont's ROI has ranged from 29.2 to 32.4 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 28 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The division's productive assets were $18,900,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. revenue Cost of goods sold Gross margin Operating expenses: Administrative Selling Income from operations before income taxes FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) Req 1A equired: a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. b. Calculate residual income for 20x1 for the Fairmont Division. Complete this question by entering your answers in the tabs below. Req 1B $5,280 15,655 Return on investment Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. % $ 41,600 $ 26,470 20,935 $ 5,535
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Required information
[The following information applies to the questions displayed below.]
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to
be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont
Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into
packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment
center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average
productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return
of 14 percent before income taxes. Fairmont's ROI has ranged from 29.2 to 32.4 percent since it was acquired. Fairmont
had an investment opportunity in 20x1 that had an estimated ROI of 28 percent. Fairmont's management decided against
the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement
for Fairmont Division follows. The division's productive assets were $18,900,000 at the end of 20x1, a 5 percent increase
over the balance at the beginning of the year.
Sales revenue
Cost of goods sold
Gross margin
Operating expenses:
Administrative
Selling
Income from operations before income taxes
FAIRMONT DIVISION
Income Statement
For the Year Ended December 31, 20x1
(in thousands)
Req 1A
Required:
1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
1-b. Calculate residual income for 20x1 for the Fairmont Division.
Complete this question by entering your answers in the tabs below.
Req 1B
$ 5,280
15,655
Return on investment
Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
%
$ 68,070
41,600
$ 26,470
20,935
$ 5,535](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1ea9fffd-30a4-457f-b2f3-73426f541263%2F008d3de3-aec3-43a8-b58e-f5278300f007%2Fjtyzjp_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to
be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont
Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into
packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment
center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average
productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return
of 14 percent before income taxes. Fairmont's ROI has ranged from 29.2 to 32.4 percent since it was acquired. Fairmont
had an investment opportunity in 20x1 that had an estimated ROI of 28 percent. Fairmont's management decided against
the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement
for Fairmont Division follows. The division's productive assets were $18,900,000 at the end of 20x1, a 5 percent increase
over the balance at the beginning of the year.
Sales revenue
Cost of goods sold
Gross margin
Operating expenses:
Administrative
Selling
Income from operations before income taxes
FAIRMONT DIVISION
Income Statement
For the Year Ended December 31, 20x1
(in thousands)
Req 1A
Required:
1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
1-b. Calculate residual income for 20x1 for the Fairmont Division.
Complete this question by entering your answers in the tabs below.
Req 1B
$ 5,280
15,655
Return on investment
Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
%
$ 68,070
41,600
$ 26,470
20,935
$ 5,535
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