Question
5. Tru-Green Industries has two product lines of sprinklers that it manufactures: Oscillating and Rotary. The following is an income statement for each of the
5. Tru-Green Industries has two product lines of sprinklers that it manufactures: Oscillating and Rotary. The following is an income statement for each of the two product lines and for the total company for the year ended December 31, 2019:
| Oscillating | Rotary | Total |
Sales | $745,000 | $695,000 | $1,440,000 |
Cost of Goods Sold | (503,000) | (512,500) | (1,015,500) |
Sales Commission | (47,000) | (44,000) | (91,000) |
Contribution Margin | 195,000 | 138,500 | 333,500 |
Advertising expense (specific to each individual segment) |
(27,000) |
(7,500) |
(34,500) |
General Fixed Operations Expense |
(45,000) |
(30,000) |
(75,000) |
Operating income | $123,000 | $101,000 | $224,000 |
Tru-Green Industries has a desired rate of return of 11%. Operating assets for each product line and the total operating assets for the company for 2019 are as follow:
Product Line | Operating Assets |
Oscillating | $940,000 |
Rotary | $975,000 |
Total | $1,915,000 |
Required:
- What is the return on investment for each product line and for the entire company?
- What is the margin for each product line and for the company?
- Which product line is most profitable and why?
- What is the residual income of each product line and of the entire company?
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