Selected sales and operating data for three divisions of different structural en

Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows Division A Division B $7,400,000 $11,400,000 $10,500,000 $1,480,000 2,850,000 2,100,000 $ 481,000 1,197,000 393,750 Division C Sales Average operating assets Net operating income Minimum required rate of return 28.00% 42.00% 25.00% Required 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places(i.e., 0.1234 should be entered as 12.34).) Margin Turnover ROI DivisionA Division B Division C 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your Required Rate of Return percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) Division A Division B DivisionC Average operating assets Required rate of return Required operating income Actual operating income Required operating income (above) Residual income (loss)

Explanation / Answer

1.

Margin = Net operating income/ Sales

Turnover = Sales/ Average operating assets

ROI = Net operating income/ Average operating assets

2.

3.

a. Division A and Division B

b. Division A

Margin Turnover ROI Division A 6.50% 5.00 32.50% Division B 10.50% 4.00 42.00% Division C 3.75% 5.00 3.75%

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