Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,600,000 $ 26,000,000 Net operating income $ 672,000 $ 2,340,000 Average operating assets $ 3,200,000 $ 13,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,600,000 $ 26,000,000 Net operating income $ 672,000 $ 2,340,000 Average operating assets $ 3,200,000 $ 13,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
| Division | ||
|---|---|---|
| Osaka | Yokohama | |
| Sales | $ 9,600,000 | $ 26,000,000 |
| Net operating income | $ 672,000 | $ 2,340,000 |
| Average operating assets | $ 3,200,000 | $ 13,000,000 |
Required:
1. For each division, compute the
2. Assume that the company evaluates performance using residual income and that the minimum required
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
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