Sunland Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Sunland Corporation requires a 10% minimum return on investment. The following information is available for the year just ended. Divisional Divisional Operating Invested Division Operating Assets Income Capital Ashton $870,000 $93,090 $197,000

Sunland Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Sunland Corporation requires a 10% minimum return on investment. The following information is available for the year just ended. Divisional Divisional Operating Invested Division Operating Assets Income Capital Ashton $870,000 $93,090 $197,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following information is provided for each division. Net Income $6,100,000 2,758,000 1,000,000 Investment Center Cameras and camcorders Phones and communications Computers and accessories Assume a target income of 14% of average invested assets. Required: Compute residual income for each division. (Enter losses with a minus sign.) Target Income Targeted return Target income Residual Income Residual income (loss) Cameras and Camcorders Cameras and Camcorders Average Assets $ 25,700,000 19,700,000 10,400,000 % Phones and Communications Phones and Communications % Computers and Accessories Computers and Accessories %
Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income Divisional investment Current liabilities R&D Alloys $ 7,400 777 5,550 160 200 Residual Income of Alloys division Residual Income of Petro division Which division performed better? Petro $ 5,500 945 7,000 200 300 Required: Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Note: Enter your answers in thousands of dollars rounded to 1 decimal place. X Answer is not complete. The Petro division performed better
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The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating income Invested Assets Retail Division $103,400 $470,000 Commercial Division 105,000 420,000 Internet Division 130,000 500,000 Assume that management has established a 10% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Operating income $103,400 $105,000 $130,000 Minimum acceptable operating income as a percent of invested assets Residual income $ $ $ b. Which division has the most residual income?
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $6,300,000 $1,260,000 $ 340,200 20.00% Division B $10,300,000 $ 5,150,000 $ 968,200 18.80% Division C $9,400,000 $1,880,000 $ 249,100 17.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. I Margin Turnover ROI Division A 5.40 % times % Division B % 2.00 times :% Division C % times % 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Roui 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) 3. Assume that each division is presented with an investment opportunity that would y a. If performance is being…
The following are selected data for the division for the consumer products of ABC Corp for 2019: Sales 50,000,000 Average invested capital (assets) 20,000,000 Net income 2,000,000 Cost of capital 8% What is the return on investment for the division? 2% 4% 8% 10% Group of answer choices 1 2 3 4
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Assume division 1 of the XYZ Company had the following results last year (in thousands) Management's required rate of return is 81% and the weighted average cost of capital is 6% Its effective tax rate is 30% Sales$ 9,000,000 Operating expenses $ 1,200,000 Operating income $1,500,000 Total revenue$ 2,000,000 Total assets $ 12,000,000 Current liabilities$ 5,000,000 What is the division's residual income? $100,000 $200,000 $500, 000 $ 540,000 Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6% effective tax rate is 30% . \table [[Sales, $9, 000, 000
The vice president of operations of Scott Hall and Associates is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Road Bike Division Mountain Bike Division Sales $1,750,000 $1,810,000 Cost of goods sold 1,300,000 1,440,000 Operating expenses 202,000 236,800 Invested assets 1,400,000 800,000 Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management’s minimum acceptable return on investment is 10%, determine the residual income for each division. In your own words…
Long Beach Pharmaceutical Company has two divisions, which reported the following results for the most recent year. Income Average invested capital ROI Division I $ 900,000 $6,000,000 Division II $ 200,000 $1,000,000 15% 20% Which was the more successful division during the year? Think carefully about this, and Required: explain your answer.
Residual Income The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating Income Invested Assets Retail Division $9,600,000 $40,000,000 Commercial Division 12,100,000 55,000,000 Internet Division 6,480,000 36,000,000 Assume that management has established a 15% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Operating income $9,600,000 $12,100,000 $6,480,000 Minimum acceptable operating income as a percent of invested assets fill in the blank 1 fill in the blank 2 fill in the blank 3 Residual income $fill in the blank 4 $fill in the blank 5 $fill in the blank 6 b. Which division has the most residual income?