auderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 700,000 Region II 630,000 Region III 1,287,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed

auderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 700,000 Region II 630,000 Region III 1,287,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute residual income for the three regions. Ignore taxes. How have these regions performed

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter16: Multijurisdictional Taxation

Section: Chapter Questions

Problem 38P

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	Region I	Region II	Region III	Total Corporation
Revenues	$ 1,200,000	$ 1,650,000	$ 2,250,000	$ 5,100,000
Cost of sales	450,000	810,000	1,140,000	2,400,000
Selling, General and Administrative (all fixed)	420,000	630,000	850,000	1,900,000
Corporate overhead				432,000

Region I	$ 700,000
Region II	630,000
Region III	1,287,500

Required:

Compute residual income for the three regions. Ignore taxes.
How have these regions performed?

Required A Required B
How have these regions performed?
1a. Based on residual income, which region performed the best?
1b. Based on residual income, which region performed the worst?
< Required A
Required B >

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