The South Division of Wiig Company reported the following data for the current year.SalesVariable costsControllable fixed costsAverage operating assets1.2.3.Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division tosubmit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses ofaction.Return on Investment$2,950,0001,947,000Increase sales by $300,000 with no change in the contribution margin percentage.Reduce variable costs by $155,000.Reduce average operating assets by 4%.Action 1595,000(a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%.)Action 25,000,000Action 3(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g.1.57%.)Return on investmentdo%%%%

The objective of the question is to calculate the return on investment (ROI) for the current year…

Answered: The South Division of Wiig Company…

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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a. Compute ROI for Division A.b. Compute residual income for Division B.c. Division A could increase its profit by $40,000 by increasing its investment by $150,000. Computeits total residual income.d. Division A could increase its return on sales by one percentage point, while keeping the same totalsales and investment. Compute its ROI.e. Division B could reduce its investment so that its asset turnover increased by one time, whileholding total sales constant. Compute its ROI.
a. Compute ROI for Division B.b. Compute residual income for Division A.c. Division B could increase its profit by $80,000 by increasing its investment by $300,000. Computeits total residual income. d. Division A could increase its return on sales by one percentage point, while keeping the same totalsales. Compute its ROI.e. Division A could increase its sales so that its asset turnover increased by one time, while holdingtotal assets constant. Compute its ROI.
Division G of a large company is approaching its year end. The division is evaluated using ROI with a target rate of return of 15%. The division has control of all aspects of its operation except that all cash balances are centralized by the company and therefore left off divisional balance sheets. The divisional manager is considering the following options. 1. (i) To delay payment of a supplier until next year, the potential prompt payment discount of 5% will be lost. The debt is for $27,500. 2. (ii) To scrap a redundant asset with a book value of $147,000. The manager has been offered $15,000 as immediate scrap proceeds, whilst he is fairly confident that he could get $25,000 in an industry auction to be held at the start of the new year. Assume that the manager is very short‐termist (i.e. only considers the implications for this year) and that the expected ROI for the year, before these options, is 18%. Which of the two options will the manager implement for this year to…
The Electronics Division of Anton Company reports the following results for the current year: Revenues $ 553,000 Operating expenses $ 496,000 Operating income $ 57,000 Operating assets $ 670,000 Anton Company has set a target return on investment (ROI) of 14% for the Electronics Division.The Electronic Division's margin is: Multiple Choice 11.49%. 15.80%. 10.31%. 8.51%.
The following data are available for two divisions of Ryan Enterprises: Alpha Division Beta Division Division operating profit $ 7,360,000 $ 1,240,000 Division investment 32,160,000 3,160,000 The cost of capital for the company is 7 percent. Ignore taxes. Required: a-1. Calculate the ROI for both Alpha and Beta divisions. a-2. If Ryan measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.) b-2. If Ryan measures performance using economic value added, which division had the better performance? c. Would your evaluation change if the company’s cost of capital was 10 percent, when evaluated by ROI? when evaluated by EVA?
Dacker Products is a division of a major corporation. The following data are for the most recent year of operations: Sales $ 37,980,000 Net operating income $ 3,558,960 Average operating assets $ 9,500,000 The company's minimum required rate of return 16 % The division's margin used to compute ROI is closest to: Multiple Choice 34.4% 37.5% 25.0% 9.4%
Profit Margin, Investment Turnover, and return on investment The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges): Sales $960,000 Cost of goods sold 432,000 Gross profit $528,000 Administrative expenses 336,000 Income from operations $192,000 The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $2,400,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place. Profit margin fill in the blank 1 % Investment turnover fill in the blank 2 Rate of return on investment fill in the blank 3 % b. If expenses could be reduced by $48,000 without decreasing sales, what would be the impact on the…
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Do not round your intermediate calculations.) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income $ $ Company A 480,000 156,000 21 % 18 % Company B $ 740,000 GA GA $ 53,000 $ 69 18 % 54.000 % $ $ $ Company C 520,000 155,000 % 12 % 5,000
Searchlight, Inc. uses ROI to evaluate operations and requires the return on its operating units to be 9%. Operating data for the Western division is shown below: Sales $1,000,000 Controllable margin 120,000 Total average assets 600,000 Fixed costs 60,000 How much is ROI for the year? A. 20% B. 17% C. 10% D. 30%
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent and other amounts to whole dollars.) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income $ $ A 470,000 160,000 15 % 16 % $ $ $ Company B 680,000 43,000 19 % 57,000 % C $ 560,000 $ 145,000 $ % 10 % 5,000
Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Multiple Choice O The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B? O O O $(148,000) $(152,000) $(147,600) Total $ 800,000 320,000 $(127,600) 480,000 400,000 $ 80,000 Department A Department B $ 350,000 $ 450,000 120,000 200,000 230,000 250,000 260,000 140,000 $ 90,000 $ (10,000)
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 % % %

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