Presented below is selected information for three regional divisions of Medina Company.

Divisions North West South Contribution margin $ 300,000 $ 500,000 $ 400,000 Controllable margin $ 140,000 $ 360,000 $ 210,000 Average operating assets $1,000,000 $2,000,000 $1,500,000 Minimum rate of return 13% 16% 10%.

Instructions

(a) Compute the return on investment for each division.

(b) Compute the residual income for each division.

(c) Assume that each division has an investment opportunity that would provide a rate of return of 16%.
(1) If ROI is used to measure performance, which division or divisions will probably make the additional investment?
(2) If residual income is used to measure performance, which division or divisions will probably make the additional investment?AppendixLO1