Results from Extreme Corporation\'s most recent year of operations are presented

Question

Results from Extreme Corporation's most recent year of operations are presented in the following table (Click the icon to view the information.) Requirements 1. Calculate the sales margin, capital turnover, and return on investment (ROI) 2. Calculate the residual income (RI). Requirement 1. Calculate the sales margin, capital turnover, and return on investment (ROI) First enter the formula, then calculate the sales margin. -Sales margin Next enter the formula, then calculate the capital turnover. (Round your answer to two decimal places.) -Capital turnover times enter the formula, then calculate the RO. ROI

Explanation / Answer

Answer for Requirement 1

Calculation of Sales Margin

Operating Income / Sales = Sales Margin %

= $ 9,720 / $ 40,500

= 0. 24 %

Calculation of Capital Turnover

= Sales / Working Capital

We know that sales are $ 40,500. but we don't know Working Capital.

So we have to find out Working Capital as below.

Fining out of Working Capital

= Total Assets - Current Liabilities

= $ 18,000 - $ 3,700

= $ 14,300

Let's use Working Capital $ 14,300 for finding out Capital Turnover.

Calculation of Capital Turnover

= Sales / Working Capital

= $ 40,500 / 14,300

= 2.83 times

Calculation of Return on Investment

= Operating Income / Total Assets

= $ 9,720 / $ 18,000

= 54%

Answer for Requirement 2

Calculation of Residual Income

= Operating Income - ( Total Assets X Target rate of return )

= $ 9,720 - ( $ 18,000 X 15 % )

= $ 9,720 - $ 2,700

= $ 7,020

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