(a) Sher Manufacturing Pty Ltd has two retail divisions., which have the following reported

results for the year:

Furnishing department Dress making Division

Profit $5,400,000 $9,270,000

Average invested Capital 11,250,000 10,687,500

(i) Calculate the ROI for both divisions (1 marks)

(ii) Calculate residual income assuming the firm requires a return of 12% on invested capital (1

marks)

(iii) Which was the more successful division? Explain. (Hint: think carefully about this) (3 marks)

(b) Giratina is a retailer and is a division of a larger retail company. The following data relate to

the most recent year of operations:

Sales Revenue $8,400,000

Variable costs 70% of sales

Fixed costs 2,150,000

Average Invested Capital 1,850,000

(i) Calculate the divisions return on sales, investment turnover and return on investment. (2

marks)

(ii) Describe how the division improve its ROI. (hint issue the 2 component ratios to explain) (3

marks)