Managerial Accounting
3rd Edition
ISBN: 9780077826482
Author: Stacey M Whitecotton Associate Professor, Robert Libby, Fred Phillips Associate Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 1.2GBP
To determine
Concept introduction:
Residual income means income spared after reducing the minimum income of the company on invested assets.
To calculate:
ROI and residual income of company.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Coolbrook Company has the following information
available for the past year: Sales revenue Cost of
goods sold and operating expenses Net operating
income Average invested assets The company's
hurdle rate is 7.26 percent. Required: Calculate
return on investment (ROI) and residual income
for each division for last year. Recalculate ROI and
residual income for each division for each
independent situation that follows: a. Operating
income increases by 11 percent. b. Operating
income decreases by 10 percent. c. The company
invests $259,000 in each division, an amount that
generates $112,000 additional income per
division. d. Coolbrook changes its hurdle rate to
5.26 percent. Complete this question by entering
your answers in the tabs below. Calculate return
on investment (ROI) and residual income for each
division for last year. Note: Enter your ROI answers
as a percentage rounded to two decimal places, (i
.e., 0.1234 should be entered as 12.34% .)
Sales revenue
Cost of goods sold and…
Coolbrook company has the following information available for the past year:(Chart in photo below)
Required:1. calculate return on Investment (ROI) and residual income for each divison for the last year2. Recalculate ROI and residual income for the division for each independent situration that follows:a.) operating income increases by 9 percentb.) operating Income decreases by 9 percentc.) The company invests 255,000 in each division, an amount that generates 106,000 additional income per division.d.) Coolbrook changes its hurdle rate to 5.26 percent
Coolbrook Company has the following information available for the past year:
River
Stream
Division
Division
Sales revenue
$1,200,000
900,000
$1,800,000
1,300,000
Cost of goods sold and operating expenses
Net operating income
$ 300,000
$ 500,000
Average invested assets
$1,200,000
$1,800,000
The company's hurdle rate is 6 percent.
Required:
1. Calculate return on investment (ROI) and residual income for each division for last year.
2. Recalculate ROI and residual income for each division for each independent situation that follows:
a. Operating income increases by 10 percent.
b. Operating income decreases by 10 percent.
c. The company invests $250,000 in each division, an amount that generates $100,000 additional income per division.
d. Coolbrook changes its hurdle rate to 10 percent.
Complete this question by entering your answers in the tabs below.
Req 1
Reg 2A
Req 28
Reg 20
Reg 2D
Calculate return on investment (ROI) and residual income for each division for last year. (Enter your ROI…
Chapter 10 Solutions
Managerial Accounting
Ch. 10 - Explain how centralized and decentralized...Ch. 10 - Why does decentralization create the need for...Ch. 10 - What is the controllability principle and why is...Ch. 10 - Prob. 4QCh. 10 - Prob. 5QCh. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - Prob. 8QCh. 10 - Return on investment may be separated into two...Ch. 10 - Prob. 10Q
Ch. 10 - Prob. 11QCh. 10 - Prob. 12QCh. 10 - Prob. 13QCh. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Why must a company consider its incentive and...Ch. 10 - Prob. 19QCh. 10 - Prob. 20QCh. 10 - Prob. 21QCh. 10 - Prob. 22QCh. 10 - Prob. 23QCh. 10 - Prob. 24QCh. 10 - Prob. 25QCh. 10 - What are negotiated transfer prices? Explain two...Ch. 10 - Sally Thorne is a profit center manager for ABC...Ch. 10 - Prob. 2MCCh. 10 - Which of the following statements is true? a. A...Ch. 10 - Prob. 4MCCh. 10 - Prob. 5MCCh. 10 - Prob. 6MCCh. 10 - Prob. 7MCCh. 10 - Prob. 8MCCh. 10 - Which of the following is not a component of the...Ch. 10 - Prob. 10MCCh. 10 - Using Terms to Complete Sentences about...Ch. 10 - Prob. 2MECh. 10 - Prob. 3MECh. 10 - Applying Balanced Scorecard to Real World Company...Ch. 10 - Applying Balanced Scorecard to Online Company...Ch. 10 - Prob. 6MECh. 10 - Prob. 7MECh. 10 - Prob. 8MECh. 10 - Prob. 9MECh. 10 - Prob. 10MECh. 10 - Prob. 11MECh. 10 - Prob. 12MECh. 10 - Prob. 13MECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Calculating Return on Investment, Residual Income,...Ch. 10 - Prob. 6ECh. 10 - Evaluating Managerial Performance Using Return on...Ch. 10 - Evaluating Managerial Performance Using Return on...Ch. 10 - Prob. 9ECh. 10 - Determining the Impact of Various Transactions on...Ch. 10 - Determining Different Types of Responsibility...Ch. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Matching Measures of Performance with the Correct...Ch. 10 - Determining Minimum, Maximum, Negotiated Transfer...Ch. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Calculating Return on Investment, Residual Income,...Ch. 10 - Prob. 1.2GAPCh. 10 - Calculating Unknowns, Predicting Relationship...Ch. 10 - Calculating Unknowns, Predicting Relationship...Ch. 10 - Prob. 2.3GAPCh. 10 - Prob. 2.4GAPCh. 10 - Prob. 2.5GAPCh. 10 - Prob. 2.6GAPCh. 10 - Prob. 3.1GAPCh. 10 - Prob. 3.2GAPCh. 10 - Prob. 3.3GAPCh. 10 - Prob. 3.4GAPCh. 10 - Prob. 3.5GAPCh. 10 - Prob. 3.6GAPCh. 10 - Prob. 4.1GAPCh. 10 - Prob. 4.2GAPCh. 10 - Prob. 4.3GAPCh. 10 - Prob. 4.4GAPCh. 10 - Prob. 4.5GAPCh. 10 - Prob. 5.1GAPCh. 10 - Prob. 5.2GAPCh. 10 - Prob. 5.3GAPCh. 10 - Prob. 5.4GAPCh. 10 - Prob. 6GAPCh. 10 - Prob. 1.1GBPCh. 10 - Prob. 1.2GBPCh. 10 - Prob. 2.1GBPCh. 10 - Prob. 2.2GBPCh. 10 - Prob. 2.3GBPCh. 10 - Prob. 2.4GBPCh. 10 - Prob. 2.5GBPCh. 10 - Prob. 2.6GBPCh. 10 - Prob. 3.1GBPCh. 10 - Prob. 3.2GBPCh. 10 - Prob. 3.3GBPCh. 10 - Prob. 3.4GBPCh. 10 - Prob. 3.5GBPCh. 10 - Prob. 3.6GBPCh. 10 - Prob. 4.1GBPCh. 10 - Prob. 4.2GBPCh. 10 - Prob. 4.3GBPCh. 10 - Prob. 4.4GBPCh. 10 - Prob. 4.5GBPCh. 10 - Prob. 5.1GBPCh. 10 - Prob. 5.2GBPCh. 10 - Prob. 5.3GBPCh. 10 - Prob. 5.4GBPCh. 10 - Prob. 6GBP
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.Similar questions
- Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for the last year: At the beginning of last year, Elway had 28,300,000 in operating assets. At the end of the year, Elway had 23,700,000 in operating assets. Required: 1. Compute average operating assets. 2. Compute the margin and turnover ratios for last year. (Note: Round the answer for margin ratio to two decimal places.) 3. Compute ROI. (Note: Round answer to two decimal places.) 4. CONCEPTUAL CONNECTION Briefly explain the meaning of ROI. 5. CONCEPTUAL CONNECTION Comment on why the ROI for Elway Company is relatively high (as compared to the lower ROI of a typical manufacturing company).arrow_forwardForchen, Inc., provided the following information for two of its divisions for last year: Required: 1. For the Small Appliances Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 2. For the Cleaning Products Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 3. What if operating income for the Small Appliances Division was 2,000,000? How would that affect average operating assets? Margin? Turnover? ROI? Calculate any changed ratios (round to four significant digits).arrow_forwardFinancial information for BDS Enterprises for the year-ended December 31, 20xx, was gathered from an accounting intern, who has asked for your guidance on how to prepare an income statement format that will be distributed to management. Subtotals and totals are included in the information, but you will need to calculate the values. A. In the correct format, prepare the income statement using the following information: B. Calculate the profit margin, return on investment, and residual income. Assume an investment base of $100,000 and 6% cost of capital. C. Prepare a short response to accompany the income statement that explains why uncontrollable costs are included in the income statement.arrow_forward
- The income statement comparison for Forklift Material Handling shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the return on investment. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in part C.arrow_forwardReturn on Investment (ROI) Analysis The contribution formal income statement for Huerra Company for last year is given below: The company had average operating assets of $2,000,000 during the year. Required: 1. Compute the company’s return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (l) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short-term creditors.) 3. The company achieves a cost savings of $32,000 per year by using less costly materials. 4. The company issues bonds and uses the proceeds to purchase machinery and equipment that…arrow_forwardCoolbrook Company has the following information available for the past year: River Division Stream Division Sales revenue $ 1,209,000 $ 1,810,000 Cost of goods sold and operating expenses 900,000 1,286,000 Net operating income $ 309,000 $ 524,000 Average invested assets $ 1,200,000 $ 1,460,000 The company’s hurdle rate is 6.26 percent. Required: 1. Calculate return on investment (ROI) and residual income for each division for last year. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) river steam ROI % % Residual income (loss) 2. Recalculate ROI and residual income for the division for each independent situation that follows: Operating income increases by 11 percent. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.). Loss…arrow_forward
- Coolbrook Company has the following information available for the past year: River Division Stream Division Sales revenue $ 1,215,000 $ 1,818,000 Cost of goods sold and operating expenses 897,000 1,287,000 Net operating income $ 318,000 $ 531,000 Average invested assets $ 1,160,000 $ 1,500,000 The company’s hurdle rate is 7.26 percent. Required: 1. Calculate return on investment (ROI) and residual income for each division for last year. 2. Recalculate ROI and residual income for the division for each independent situation that follows: a. Operating income increases by 9 percent. b. Operating income decreases by 9 percent. c. The company invests $259,000 in each division, an amount that generates $105,000 additional income per division. d. Coolbrook changes its hurdle rate to 5.26 percent.arrow_forwardProfit Margin, Investment Turnover, and ROI Briggs Company has operating income of $13,824, invested assets of $96,000, and sales of $230,400. Use the DuPont formula to compute the return on investment. If required, round your answers to two decimal places. a. Profit margin ? b. Investment turnover ? c. Return on investment ?arrow_forwardThe following information relates to last year's operations at the Legumes Division of Gervani Corporation: Minimum required rate of return Return on investment (ROI) Sales Turnover (on operating assets) What was the Legume Division's net operating income last year? Multiple Choice O $72,000 O $52,500 $19,500 $24,000 7% 9.6% $750,000 3 timesarrow_forward
- Return on Investment, Margin, Turnover Data follow for the Consumer Products Division of Kisler Inc.: Sales Operating income Average operating assets Required: Margin Turnover % $9,250,000 Year 1 18,137,255 1. Compute the margin (as a percent) and turnover ratios for each year. Round your answers to two decimal places. Year 1 519,850 % % Year 2 $7,940,000 307,278 17,644,444 Year 2 2. Compute the ROI for the Construction Division for each year. Note: Enter percentage to two decimal places. ROI year 1 ROI year 2 4 X %arrow_forwardThe Willard Division's operating data for the past two years are provided below: Return on investment Net operating income Turnover Margin Sales The sales for Year 2 were: $ For the past year, the return on investment was: For the past year, the turnover used in ROI calculations was: For the past year, the minimum required rate of return was: Year 1 The Willard Division's margin in Year 2 was 150% of the margin in Year 1. The net operating income for Year 1 was: 12 ? ? ? 3,200,000 % $ Year 2 36 360,000 3 ? ?arrow_forwardProfit Margin, Investment Turnover, and ROI Briggs Company has income from operations of $132,756, invested assets of $299,000, and sales of $1,106,300. Use the DuPont formula to compute the return on investment. If required, round your answers to two decimal places. a. Profit margin % b. Investment turnover c. Return on investment %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Profitability index; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Md5ocNqKHq8;License: Standard Youtube License