Return on Investment and Residual Income Skyview Company has two divisions: Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evaluated based on return on investment (ROI). The manage of the Automotive Sunroofs Division is evaluated based on residual income. The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in $000s): Projected operating income Investment in operating assets Residential Skylights Automotive Sunroofs $840 $5,500 $1,344 $8,800 a. What is Residential Skylights' expected ROI on the project? Round percent to one decimal place. 0 % b. What is Automotive Sunroofs' expected residual income on the project? Round answer to the nearest dollar (in $000s). $0 c. According to the current evaluation system for managers, which manager(s) would have incentive to undertake the project?

Return on Investment and Residual Income Skyview Company has two divisions: Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evaluated based on return on investment (ROI). The manage of the Automotive Sunroofs Division is evaluated based on residual income. The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in $000s): Projected operating income Investment in operating assets Residential Skylights Automotive Sunroofs $840 $5,500 $1,344 $8,800 a. What is Residential Skylights' expected ROI on the project? Round percent to one decimal place. 0 % b. What is Automotive Sunroofs' expected residual income on the project? Round answer to the nearest dollar (in $000s). $0 c. According to the current evaluation system for managers, which manager(s) would have incentive to undertake the project?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

The South Division of Bramble Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 3. Return on Investment $2,900,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $160,000. Reduce average operating assets by 3.00%. 1,943,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%) Action 1 600,000 5,000,000 Action 2 Action 3 (b) Using the ROI equation, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g. 1.57%) Return on investment % % 1 % %
ROI and Residual Income: Basic ComputationsWatkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow. Trucking Division Seafood Division Construction Division Sales $ 1,200,000 $ 750,000 $ 900,000 Operating assets 600,000 250,000 350,000 Net operating income 116,000 66,000 63,000 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Answer Seafood ROI = Answer Construction ROI = Answer (b) Compute the residual income for each division. Residual income Trucking Seafood Construction Net operating income Answer Answer Answer Minimum…
Manly Beach Enterprises projects the following information for the coming year. Sales Production 1,900 units 2,000 units Selling price per sewing machine Total variable manufacturing cost Total fixed manufacturing cost Marketing and administrative cost (40% variable based on sales) $200 $160,000 $60,000 $80,000 a. Determine the projected net income using absorption costing: $ b. Determine the projected net income using variable costing: $
Capital Investments has two divisions. Each division's required rate of return is 10%. Planned operating results for 2020 are as follows: (Click the icon to view the planned operating results.) Read the requirements. Requirement a. What is the current ROI for each division? Begin by selecting the formula to calculate ROI, then compute the ROI for each division. Division A Division B + + || = || ROI % %
Submit test Test Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and inline skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and Non-snow Sports. The following divisional information is available for the past year: (Click the icon to view the information.) Test's management has specified a 13% target rate of return. Compute each division's RI. Interpret your results. Are your results consistent with each division's ROI? First, select the formula to calculate residual income (RI). 1) = RI The RI for the Snow Sports division is The RI for the Non-snow Sports division is Both divisions have residual income. This means that the divisions are earning income at a rate that management's minimum expectations. Are your results consistent with each division's ROI? This result is with the ROI calculations. 4 12 144
Required information [The following information applies to the questions displayed below] Nation's Capital Fitness, Inc., operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of the high-low method to develop an equation, in the form of Y=a+bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average "Rounded Hours of Maintenance Service 530 470 260 470 360 450 330 450 470 380 360 360 4,890 408- Maintenance Costs $ 5,068 4,220 2,800 4,330 2,970 4,140 3,100 3,510 4,010 3,200 3,250 3,040 $43,638 $ 3,637 Required: 1. Using the high-low method of cost estimation, estimate the behavior of the…
Please Provide Answer with Full explanation and provide it Step by step
Below is a project WBS with cost apportioned by percent. If the total project cost is estimated to be $650,000, what are the estimated costs for the following deliverables? (Round the final answers to the nearest dollar.) Definition 10% Router systems project $650,000 Implementation 47% Objectives Requirements Inputs Outputs Files Interfaces Programming In-house testing Customer testing and review 3% 7% 3% 4% 5% 9% 22% 38% 9% a. Design? b. Programming? C. In-house testing? Design 43%
$ Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year Investment when computing ROI and residual income. Ignore Income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative (excluding R&D) Economic value added Canal (5000) $4,185 20,170 61,800 12,850 53,400 4,755 Canal Division Division R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current…
Evaluating Investment Centers Terry Enterprises, Inc. has two divisions-the Foods division and the Clothes division. Historically, Terry has used the division's ROI as the performance measure for the bonus determinations. Terry Foods division has gross total assets of $1,000,000, accumulated depreciation of $350,000, current liabilities of $250,000, and sales of $2,000,000. Foods' operating income is $320,000. Terry Clothes division has gross total assets of $5,000,000, accumulated depreciation of $2,100,000, current liabilities of $1,500,000, and sales of $8,000,000. Clothes' operating income is $870,000. Use the DuPont formula to compute ROI for each division and for Terry Enterprises as a whole. Use operating income and gross total assets as the measures of income and investment. Round answers to the nearest whole percentage. ROI Foods Clothes Terry Enterprises % % %
Maira Corporation has set various goals and the management is taking various appropriate actions to ensure the company achieves these goals. One of the actions is to reduce operational costs, which exceeds budgeted amount. Which of the following functions best describes this process? A. Decision-making B. Planning C. Directing operational activities D. Controlling 2. HOC Company's costs for the month of June 2021 were as follows: direct materials, RM25,000; direct labor, RM32,500; selling, RM16,000; administrative, RM15,500; and manufacturing overhead, RM44,400. The beginning work in process inventory was RM17,000 and the ending work in process inventory was RM7,000. What was the cost of goods manufactured for the month? (a) RM105,000 (b) RM31,500 (c) RM133,400 (d) RM111,900 3. Chery Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of…