**Tan Corporation of Japan: Regional Division Financial Analysis** Tan Corporation of Japan operates two regional divisions with headquarters in Osaka and Yokohama. Below is the selected financial data for these divisions: | Division | Osaka | Yokohama | |--------------|---------------|--------------| | **Sales** | $10,500,000 | $35,000,000 | | **Net Operating Income** | $630,000 | $2,800,000 | | **Average Operating Assets** | $3,500,000 | $17,500,000 | **Required:** 1. **Return on Investment (ROI) Calculation:** - Calculate the ROI for each division. 2. **Residual Income Calculation:** - Determine the residual income for each division, given that the company’s minimum required rate of return is 15%. **Instructions:** Complete the calculations and enter your answers in the designated sections below. **ROI Input Section:** | Division | ROI (%) | |----------|---------| | Osaka | | | Yokohama | | Proceed to the next requirement by selecting "Required 2." Complete all steps for a comprehensive understanding of financial performance. ### Tan Corporation of Japan: Regional Divisions Analysis Tan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. The selected data for these divisions is presented below: #### Division Data | Division | Osaka | Yokohama | |------------|----------------|---------------| | **Sales** | $10,500,000 | $35,000,000 | | **Net Operating Income** | $630,000 | $2,800,000 | | **Average Operating Assets** | $3,500,000 | $17,500,000 | ### Required Tasks 1. **Compute the Return on Investment (ROI) for each division.** ROI is calculated as: \[ \text{ROI} = \left(\frac{\text{Net Operating Income}}{\text{Average Operating Assets}}\right) \times 100 \] 2. **Compute the Residual Income for each division, assuming the company’s minimum required rate of return is 15%.** Residual Income is calculated as: \[ \text{Residual Income} = \text{Net Operating Income} - (\text{Average Operating Assets} \times \text{Minimum Required Rate of Return}) \] ### Interactive Component To complete the analysis, enter your calculations in the tabs provided for each required task. #### Calculation Table | Division | Osaka | Yokohama | |------------|--------------|---------------| | **Residual Income** | ___ | ___ | Click on each required task to input your answers.

Kanye Achebe just became the operations manager of Weston Transportation. Weston transports large crates for online companies and transports containers overseas. Kanye would like to evaluate each divisional manager on a basis similar to segmental reporting required by generally accepted accounting principles (GAAP) financial statements contained in annual reports. These data include a presentation of net sales, operating profit and loss before and after taxes, total identifiable assets, and depreciation for segment reported. Kanye thinks that evaluating business division managers by the same criteria as the total company is appropriate. A. Explain why you think the chief financial officer (CFO) disagrees and tells Kanye that publicly reporting information might demotivate managers. B. For better evaluation of the managers, what type of information should Kanye propose that the CFO might accept?

Profit center responsibility reporting for a service company Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31: The company operates three support departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the companys point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: Instructions 1. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: East, West, and Central. 2. Identify the most successful division according to the profit margin. Round to the nearest whole percent. 3. Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method.

Nottage Company has four separate operating segments:What revenue amount must one customer generate before it must be identified as a major customer?a. $39,600b. $42,200c. $46,500d. $49,200

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An entity and its divisions reported the following for the current year: Sales to unaffiliated customers 40,000,000 Intersegment sales of product similar to those sold to unaffiliated customers 12,000,000 Interest earned on loans to other operating segments 1,000,000   The entity and all of its divisions are engaged solely in manufacturing operations. To qualify as reportable segment, the segment revenue should at least be what amount? A. 5,300,000 B. 4,100,000 C. 5,200,000 D. 4,000,000

Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.22 (pages 6061) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.22 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large enough for the firm to disclose it. Amounts that are not meaningful are shown as n.m. A list of the 12 companies and a brief description of their activities follow. A. Amazon.com: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that reported in Exhibit 1.22. B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. E. eBay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kelloggs: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell, KFC, and Pizza Hut. REQUIRED Use the ratios to match the companies in Exhibit 1.22 with the firms listed above.

Question: Account X Corporation has two divisions-South and North. The divisions have the following revenues and expenses: South North Sales Variable Expenses Traceable Fixed Expenses Allocated Common Corporate Expenses Net Operating Income (Loss) $ 4,50,000 $4,70,000 $1,50,000 $2,25,000 $1,05,000 $ 1,30,000 $95,000 $ 1,20,000 $ 1,00,000 ($ 5,000) Management at X company is pondering the elimination of the North Division. The Traceable fixed expenses of the North Division include $15,000 of depreciation expenses. Given these data, the elimination of the North Division would result in an overall company net operating income of: a. (20,000) b. (35,000) c. $85,000 d. $100,000

Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.23 (pages 6263) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.23 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies and a brief description of their activities follow. A. Abercrombie Fitch: Sells retail apparel primarily through stores to the fashionconscious young adult and has established itself as a trendy, popular player in the specialty retailing apparel industry. B. Allstate Insurance: Sells property and casualty insurance, primarily on buildings and automobiles. Operating revenues include insurance premiums from customers and revenues earned from investments made with cash received from customers before Allstate pays customers claims. Operating expenses include amounts actually paid or expected to be paid in the future on insurance coverage outstanding during the year. C. Best Buy: Operates a chain of retail stores selling consumer electronic and entertainment equipment at competitively low prices. D. E. I. du Pont de Nemours: Manufactures chemical and electronics products. E. Hewlett-Packard: Develops, manufactures, and sells computer hardware. The firm outsources manufacturing of many of its computer components. F. HSBC Finance: Lends money to consumers for periods ranging from several months to several years. Operating expenses include provisions for estimated uncollectible loans (bad debts expense). G. Kelly Services: Provides temporary office services to businesses and other firms. Operating revenues represent amounts billed to customers for temporary help services, and operating expenses include amounts paid to the temporary help employees of Kelly. H. McDonalds: Operates fast-food restaurants worldwide. A large percentage of McDonalds restaurants are owned and operated by franchisees. McDonalds frequently owns the restaurant buildings of franchisees and leases them to franchisees under long-term leases. I. Merck: A leading research-driven pharmaceutical products and services company. Merck discovers, develops, manufactures, and markets a broad range of products to improve human and animal health directly and through its joint ventures. J. Omnicom Group: Creates advertising copy for clients and is the largest marketing services firm in the world. Omnicom purchases advertising time and space from various media and sells it to clients. Operating revenues represent commissions and fees earned by creating advertising copy and selling media time and space. Operating expenses includes employee compensation. K. Pacific Gas Electric: Generates and sells power to customers in the western United States. L. Procter Gamble: Manufactures and markets a broad line of branded consumer products. REQUIRED Use the ratios to match the companies in Exhibit 1.23 with the firms listed above.