Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont's ROI has ranged from 19.9 to 23.1 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The division's productive assets were $35,700,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. Sales revenue Cost of goods sold Gross margin FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) $ 61,940 35,600 $ 26,340 Operating expenses: Administrative Selling $ 4,680 14,690 Income from operations before income taxes 19,370 $ 6,970 Required: 1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. 1-b. Calculate residual income for 20x1 for the Fairmont Division.
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure, with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont's ROI has ranged from 19.9 to 23.1 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The division's productive assets were $35,700,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. Sales revenue Cost of goods sold Gross margin FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) $ 61,940 35,600 $ 26,340 Operating expenses: Administrative Selling $ 4,680 14,690 Income from operations before income taxes 19,370 $ 6,970 Required: 1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. 1-b. Calculate residual income for 20x1 for the Fairmont Division.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter10: Standard Costing And Variance Analysis
Section: Chapter Questions
Problem 63P: Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage...
Related questions
Question
![Required information
[The following information applies to the questions displayed below.]
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are
constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing
market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber
are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for
assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on
investment (ROI) as a performance measure, with investment defined as average productive assets.
Management bonuses are based in part on ROI. All investments are expected to earn a minimum return
of 15 percent before income taxes. Fairmont's ROI has ranged from 19.9 to 23.1 percent since it was
acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent.
Fairmont's management decided against the investment because it believed the investment would
decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The
division's productive assets were $35,700,000 at the end of 20x1, a 5 percent increase over the balance
at the beginning of the year.
Sales revenue
Cost of goods sold
FAIRMONT DIVISION
Income Statement
For the Year Ended December 31, 20x1
(in thousands)
$ 61,940
35,600
$ 26,340
Gross margin
Operating expenses:
Administrative
Selling
$ 4,680
14,690
Income from operations before income taxes
19,370
$ 6,970
Required:
1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
1-b. Calculate residual income for 20x1 for the Fairmont Division.
Complete this question by entering your answers in the tabs below.
Req 1A
Req 1B
Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
Return on investment
%
<Req 1A
Req 1B >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F03720dd8-8034-4294-9044-90db00b573f7%2F3587b09c-db13-46ad-847d-f516bab8526f%2F8l2kl5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are
constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing
market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber
are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for
assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on
investment (ROI) as a performance measure, with investment defined as average productive assets.
Management bonuses are based in part on ROI. All investments are expected to earn a minimum return
of 15 percent before income taxes. Fairmont's ROI has ranged from 19.9 to 23.1 percent since it was
acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent.
Fairmont's management decided against the investment because it believed the investment would
decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The
division's productive assets were $35,700,000 at the end of 20x1, a 5 percent increase over the balance
at the beginning of the year.
Sales revenue
Cost of goods sold
FAIRMONT DIVISION
Income Statement
For the Year Ended December 31, 20x1
(in thousands)
$ 61,940
35,600
$ 26,340
Gross margin
Operating expenses:
Administrative
Selling
$ 4,680
14,690
Income from operations before income taxes
19,370
$ 6,970
Required:
1-a. Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
1-b. Calculate residual income for 20x1 for the Fairmont Division.
Complete this question by entering your answers in the tabs below.
Req 1A
Req 1B
Calculate the return on investment (ROI) for 20x1 for the Fairmont Division.
Return on investment
%
<Req 1A
Req 1B >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning