Segment Reporting, Decentralization, and the Balanced Scorecard Division A Division B Division C $12,000,000 Sales Average operating assets. Net operating income.... Minimum required rate of return. $14,000,000 $7,000,000 $560,000 10% ..... $3,000,000 $600,000 $25,000,000 $5,000,000 $800,000 16% 14% Required: Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably ac- cept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?

Segment Reporting, Decentralization, and the Balanced Scorecard Division A Division B Division C $12,000,000 Sales Average operating assets. Net operating income.... Minimum required rate of return. $14,000,000 $7,000,000 $560,000 10% ..... $3,000,000 $600,000 $25,000,000 $5,000,000 $800,000 16% 14% Required: Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably ac- cept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?

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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Question

Please help me do excercise 12-8 . Thank you

Segment Reporting, Decentralization, and the Balanced Scorecard
543
okohama.
Division A
Division B
Division C
$12,000,000
$3,000,000
Sales
Average operating assets
Net operating income
Minimum required rate of return
$14,000,000
$7,000,000
$560,000
$25,000,000
$5,000,000
$800,000
16%
$600,000
14%
10%
Required:
Compute the return on investment (ROI) for each division using the formula stated in terms of
margin and turnover.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 15%
rate of return.
a. If performance is being measured by ROI, which division or divisions will probably ac-
cept the opportunity? Reject? Why?
6. If performance is being measured by residual income, which division or divisions will
probably accept the opportunity? Reject? Why?
ver.
ini-
ach
IL021
d?

Charlie
$4
$11,500,000
$ ?
%$4
?
24
920,000
$210,000
Sales.
%$4
$800,000
4%
$ ?
Net operating income
Average operating assets
Margin.
Turnover
7%
5.
20%
14%
Return on investment (ROI)
EXERCISE 12-8 Evaluating New Investments Using Return on Investment (ROI) and Residual
Income [L02, L03]
Selected sales and operating data for three divisions of different structural engineering firms are
given as follows:

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DONT GIVE ANSWER IN IMAGE FORMAT
Calculator Data for Divisions A, B, C, D, and E are as follows: a. Determine the missing items. Round rate of return on investment, profit margin, and investment turnover answers to one decimal place when required. Div. Sales Income from Operations Inv. Assets Rate of Return on Inv. Profit Margin Invest. Turnover A $ $35,000 $200,000 % % 1.6 B $455,000 $ $284,375 16% % C $525,000 $73,500 $ % % 1.2 D $800,000 $ $ % 13.0% 2.5 E $ $ $250,000 % 16.0% 2.0 b. Which division is most profitable in terms of income from operations? c. Which division is most profitable in terms of rate of return on investment?
Division Northeast Southeast West Sales $ ? $10,980,000 $ ? Net operating income $ ? $878,400 $432,000 Average operating assets $1,000,000 $ ? $ ? Margin 5.00% 7.20% Turnover 4 ? Return on investment (ROI) 14.40% 14.40%
A1 please help.....