
Concept explainers
Calculate the missing amounts and fill the amounts in the appropriate blanks.

Answer to Problem 37P
Calculate the missing amounts.
Particulars | Division A | Division B | Division C |
Sales revenue | $2,000,000 | $10,000,000 | $800,000 |
Income | $400,000 | $ 2,000,000 | $200,000 |
Average investment | $2,000,000 | $2,500,000 | $1,000,000 |
Sales margin | 20% | 20% | 25% |
Capital turnover | 1 | 4 | 0.8 |
20% | 80% | 20% | |
Residual income | $240,000 | $1,800,000 | $120,000 |
Table (1)
Explanation of Solution
Working note (a):
Calculate the amount of sales margin for Division A.
Thus, the amount of sales margin for Division A is $2,000,000.
Working note (b):
Calculate the amount of capital turnover for Division A.
Thus, the amount of capital turnover for Division A is $2,000,000.
Working note (c):
Calculate the amount of return on investment (ROI) for Division A.
Thus, the return on investment for Division A is 20%.
Working note (d):
Calculate the amount of residual income for Division A.
Thus, the amount of residual income for Division A is $240,000.
Working note (e):
Calculate the amount of sales margin for Division B.
Thus, the sales margin for Division B is 20%.
Working note (f):
Calculate the amount of capital turnover for Division B.
Thus, the capital turnover for Division B is 4 times.
Working note (g):
Calculate the return on investment for Division B.
Thus, the return on investment for Division B is 80%.
Working note (h):
Calculate the amount of residual income for Division B.
Thus, the amount of residual income for Division B is $1,800,000.
Working note (i):
Calculate the capital turnover for Division C.
Thus, the capital turnover for Division C is 0.8.
Working note (j):
Calculate the total amount of invested capital for Division C.
Given: The Residual income is $120,000 and the required rate of return on invested capital is 8 percent.
The Return on Investment is 20%. So, calculate the amount of invested capital:
Thus, substituting the equations the invested capital is determined as follows:
Thus, the amount of invested capital for Division C is $100,000.
Working note (k):
Calculate the amount of income.
Thus, the amount of income for Division C is $200,000.
Working note (l):
Calculate the amount of sales revenue for Division C.
Thus, the amount of sales revenue for Division C is $800,000.
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