Return on Investment and Residual Income

Simonsen Structural Engineers provides engineering consulting services to clients engaged in major commercial construction projects. The company expanded into the wastewater treatment market when it acquired Scott Industries. Scott Industries fabricates equipment used in wastewater treatment plants. Simonsen decided to maintain Scotts separate identity and, thus, established the Scott Division as an investment center of Simonsen.

Simonsen uses return on average investment ROI as a performance measure, with the investment defined as operating assets employed. All investments in operating assets are expected to earn a minimum return of before income taxes. VSheds ROI has ranged from to since it was acquired.

VSheds operating statement for the year just ended is presented below. The divisions operating assets employed were $ at the end of the year, a increase over the balance at the end of the previous year.

Scott Division Operating Statement

For the Year Ended December

$ omitted

Sales revenue $

Cost of goods sold

Gross profit

Operating expenses

Administrative $

Selling

Income from operations before income taxes $

Calculate the following performance measures for the year just ended for the Scott Division of

Simonsen Structural Engineers:

a Return on average investment in operating assets employed ROI

Round percent to one decimal place.

Answer

b Residual income calculated on the basis of average operating assets employed.

Round amount to nearest dollar.

$Answer

Answer rating: 100% (QA)

a To calculate the Return on Investment ROI for the Scott Division we need to divide the income from ... View the full answer