Exercise 12-6 1. ROI computations: Net operating income × Sales Average operatin

Question

Exercise 12-6 1. ROI computations: Net operating income × Sales Average operating assets ROI- Sales Osaka Division: ROI- $210,000 x $3,000,000-790 x 3 2190 = 3,000, $3,000,000 $1,000,000 Yokohama Division: $720,000 x $9,000,000-896 x 2.25 $9,000,000 $4,000,000 1890 Osaka Yokohama $1,000,000 $4,000,000 2. Average operating assets (a Net operating income. Minimum required return on average 150,000 600,000 $60,000 $120,000 operating assets: 15% x(a) Residual income 1. Explain why Yokohama has a higher Residual Income? 2. Which is a better "managed" Users murtuzatyAppData) LocallTemplch 12_1CW b_post_082218 M.docx

Explanation / Answer

1) Yokohama has a higher residual income as it has higher operating assets which yields in higher sales for the company.

2) Osaka division is better managed as it has high turnover ratio and higher ROI.

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