Three divisions of Jameson Co. report the following sales and operating data: (F

Question

Three divisions of Jameson Co. report the following sales and operating data:

(For question 3-a and 3-b please write accept or reject)

2. Three divisions of Jameson Co. report the following sales and operating data Fitness Training Athletic Wear Sales Average operating assets Operating income Minimum required rate of return Spa Services 700,000 900,000 S 600,000 S 175,000 225,000 150,000 $ 35,000 45,000 36,000 11% 13% 11% Required 1. Compute the ROl for each division, using the formula stated in terms of margin and turnover. ROI Fitness training Spa services Athletic wear 2. Compute the residual income for each division Fitness Training Spa Services Athletic Wear Residual income 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 21% a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Fitness Training . Spa Services Athletic Wear Accept Reject b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Fitness Training Spa Services Athletic Wear

Explanation / Answer

1 Margin = Net operating income/Sales Turnover = Sales/Average operating assets Fitness training Spa services Athletic wear Margin 5% 5% 6% Turnover 4 4 4 ROI 20% 20% 24% 2 Fitness training Spa services Athletic wear Average operating assets 175000 225000 150000 Required rate of return 11% 13% 11% Required operating income 19250 29250 16500 Operating income 35000 45000 36000 Residual income 15750 15750 19500 3 Fitness training Accept Spa services Accept Athletic wear Reject b Fitness training Accept Spa services Accept Athletic wear Accept

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