The correct final answers are provided below, please show your work on how to ge

Question

The correct final answers are provided below, please show your work on how to get the answers. Thanks!

13. ($15,000)

14. Yes, No

15. $53,125

16. 2.5%*6=15%

17. 60% mint, 40% caramel

18. $2,794,118

19. 31.75%

Use the following information to answer questions 13 through 19 York Candy Company makes two kinds of candy: mints and caramels. It operates each product line as a division: Mint Division and Caramel Division. Each division is treated as an investment center, and the division managers are responsible for making the investment decisions in their own divisions. Information about the two divisions is summarized below Caramel Division 1,800,000$1,200,000 Mint Division Total 3,000,000 Revenue Variable Costs Fixed Costs Operating Income 270000.I,980.000 0,000 950,000 1,080,000 Average Operating Assets.$500,000.. .$200,000.$700,000 Current Liabilities Return on Investment (ROI) 8% Contribution Margin Ratio 40% 15% 25% 10% 34% The target rate of return for both divisions is 1 196. 13. Compute the residual income for the Mint Division. 14. Assume that divisions are evaluated on the basis of ROI. Mint Division has the opportunity to make an investment that will yield 9%. Will the Mint Division manager want to make this investment? Would York's central management want Mint Division to make this investment? .

Explanation / Answer

Solution - First Lets put the Data together as below with understanding how ROI and Contribution margin is calculated

13 -

Residual Income (RI) = d - (i × e)

where d = Department's net operating income;    i = Minimum required return on assets; e = Average operating assets of the department

14) Yes MInts Division is currently operating on ROI of 8% and if a new investment opportunity is providing ROI of 9% Mints Division shoud go for it. Central Management may not go for it as central looks at target rate of 11% and the current combine rate of 10% and 9% is less than both of them

Solution - To solve this we need to first know how much Operating Income we need to get the required ROI keeping asset constant

So target Operating income is 61250

Now second part we see that Variable Cost are 60% of sales and Fixed cost is fixed so lets calculate how much sales is needed to have operating income as required

Thus Sales need to be increase by ( 1853125 - 1800000 ) = 53,125

16) Asset Turn over = Sales / Assets  

Returns on Sales = Opearitng Income / Sales

Multiply both the above results we get ROI

17 - 60% and 40%

18 )

So we will calculate what sales can bring a Contribution which will be equal to 950000 that is the point where Break Even happen

Contribution is 34% so we can write the below

34% of sales = 950000

Sales = 950000/34%

Sales = 2,794,118

Mint Division Caramel Division Total a Revenue 1800000 1200000 3000000 b Variable Costs 1080000 900000 1980000 c Fixed Costs 680000 270000 950000 d Operating Income ( a-b-c) 40000 30000 70000 e Average Operating Assets 500000 200000 700000 f Current Liabilities 80000 50000 130000 g Return on Investments ( ROI ) (d/e) 8.00% 15.00% 10.00% h Contribution Margin Ratio {( a-b)/a } 40.00% 25.00% 34.00% i Target rate 11% 11%

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