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: DivisionA Division C Sales Average operating asset:s Net operating income Minimum required rate of return Division B $6,400,000 $10,400,000 9,500,000 $1,600,000 S 5,200,000 $2,375,000 $ 352,000 988,000 261,250 18.00% 19.00% 15.00% 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 placesi.e., 0.1234 should be entered as 12.34).) Margin Turnover ROI Division A Division EB Division 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 placesi.e., 0.1234 should be entered as 12.34).) Division A Division B Division C Average operating assets Required rate of return Required operating income Actual operating income Required operating income (above) Residual income (loss)

Explanation / Answer

Margin = Net operating income/Sales Turnover = Sales/Average operating assets ROI = Margin*Turnover Margin Turnover ROI Division A 5.50% 4 22.00% Division B 9.50% 2 19.00% Division C 2.75% 4 11.00% 2 Division A Division B Division C Average operating assets 1600000 5200000 2375000 Required rate of return 18% 19% 15% Required operating income 288000 988000 356250 Actual operating income 352000 988000 261250 Required operating income 288000 988000 356250 Residual income(loss) 64000 0 -95000 3 Division A No Division B Yes Division C Yes b Division A Yes Division B Yes Division C Yes

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