Concept explainers
Calculate the missing amounts and fill the amounts in the appropriate blanks.
Answer to Problem 37P
Calculate the missing amounts.
Particulars | Division A | Division B | Division C |
Sales revenue | $2,000,000 | $10,000,000 | $800,000 |
Income | $400,000 | $ 2,000,000 | $200,000 |
Average investment | $2,000,000 | $2,500,000 | $1,000,000 |
Sales margin | 20% | 20% | 25% |
Capital turnover | 1 | 4 | 0.8 |
20% | 80% | 20% | |
Residual income | $240,000 | $1,800,000 | $120,000 |
Table (1)
Explanation of Solution
Working note (a):
Calculate the amount of sales margin for Division A.
Thus, the amount of sales margin for Division A is $2,000,000.
Working note (b):
Calculate the amount of capital turnover for Division A.
Thus, the amount of capital turnover for Division A is $2,000,000.
Working note (c):
Calculate the amount of return on investment (ROI) for Division A.
Thus, the return on investment for Division A is 20%.
Working note (d):
Calculate the amount of residual income for Division A.
Thus, the amount of residual income for Division A is $240,000.
Working note (e):
Calculate the amount of sales margin for Division B.
Thus, the sales margin for Division B is 20%.
Working note (f):
Calculate the amount of capital turnover for Division B.
Thus, the capital turnover for Division B is 4 times.
Working note (g):
Calculate the return on investment for Division B.
Thus, the return on investment for Division B is 80%.
Working note (h):
Calculate the amount of residual income for Division B.
Thus, the amount of residual income for Division B is $1,800,000.
Working note (i):
Calculate the capital turnover for Division C.
Thus, the capital turnover for Division C is 0.8.
Working note (j):
Calculate the total amount of invested capital for Division C.
Given: The Residual income is $120,000 and the required rate of return on invested capital is 8 percent.
The Return on Investment is 20%. So, calculate the amount of invested capital:
Thus, substituting the equations the invested capital is determined as follows:
Thus, the amount of invested capital for Division C is $100,000.
Working note (k):
Calculate the amount of income.
Thus, the amount of income for Division C is $200,000.
Working note (l):
Calculate the amount of sales revenue for Division C.
Thus, the amount of sales revenue for Division C is $800,000.
Want to see more full solutions like this?
Chapter 13 Solutions
MANAGERIAL ACCOUNTING-ACCESS
- Consider the data for each of the following four independent companies: Required: 1. Calculate the missing values in the above table. (Round rates to four significant digits.) 2. Assume that the cost of capital is 9 percent for each of the four firms. Compute the residual income for each of the four firms.arrow_forwardThe company has three divisions: A, B, and C. The tax rate is 20%. The overall Beta, divisional Beta, asset value, and D/E ratios are given in the following table. What is the Beta of division C? FINA Beta D/E Asset Value 0.6 $100 M 0.4 $40 M 0.4 $35 M 1.5 Division A 1.8 Division B 1.4 Division C ? 0.25arrow_forwardCash Company has income from operations of $51,520, invested assets of $230,000, and sales of $644,000. 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 investmentarrow_forward
- Briggs Company has operating income of $45,760, invested assets of $143,000, and sales of $457,600. 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_forwardBottlebrush Company has operating income of $150,720, invested assets of $314,000, and sales of $1,004,800. Use the DuPont formula to compute the return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment. Round answers to one decimal place.arrow_forwardBustamante Company has income from operations of $24,480, invested assets of $85,000, and sales of $204,000. Use the DuPont formula to compute the return on investment and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment. If required, round your answers to two decimal places. a. Profit margin fill in the blank 1% b. Investment turnover fill in the blank 2 c. Return on investment fill in the blank 3%arrow_forward
- Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Sales revenue Income Divisional assets (beginning of year) Current liabilities (beginning of year) RAD expenditures Carolinas $1,600 160 1,000 240 800 Northeast $5,500 Complete this question by entering your answers in the tabs below. 432 1,500 240 720 R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). a-2. Which division had the better performance?arrow_forwardLousiville Inc. reported the following financial data for one of its divisions for the year; average invested assets of $490,000; sales of $990,000; and income of $113,000. The investment turnover is: Multiple Choice 2.02. 21.30. 433.60. 49.50. 11.40.arrow_forwardBack Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 20 percent. Selected financial information (in thousands of dollars) for the first year of business follows East Mest Sales revenue Incone Investment (beginning of year) Current liabitities (beginning of year) RED expenditures $3,60e $7,600 655 1,650 330 780 2,600 330 1, 15e 1, esa PRED is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming BMI uses economic value added. (Enter answers in thousands of dollars. Round your answers to 1 decimal place.) Divisions EVA East 86.0 West 50.0arrow_forward
- 6. bottlebrush company has operating income of $225,675 , invested assets of $295,000 and sales of $1,327,500. using the DuPont formula to compute the return of investment, and show (a) profit margin, (b) the investment turnover, and (c) the return on investment. round answers to the one decimal placearrow_forwardDavis Corporation reported the following financial data for one of its divisions for the year; average assets of $540,000; sales of $1,069,200; and income of $241,100. The investment turnover is: Multiple Choice 22.3. 50.5. 1.98. 447.6. 11.3.arrow_forwardThe AAA Division has permanent current assets of P50,000 and operating non-current assets of 350,000. It provides annual operating income after tax of P100,000. Its cost of capital is 15% but the minimum required rate of return by the entity is 16%. 1. How much is its current return on investment? 2. How much is its economic value added? 3. How much is its residual income? 4. Assume that the Senna Division is presented by the head office to manage a P60,000 investment option yielding a 20% return on its investment. Should the Division agree to manage this investment opportunity? A. Yes, because the ROI will increase. B. Yes, because the RI and EVA will increase. C. No, because the ROI will decrease. D. No, because the RI and EVA will decrease.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College