Answer to Part 1

Part 1 Ferris Ltd. of Australia has two divisions, one in Perth and one in Darwin. Selected data on the two divisions follow: Division Perth Darwin Sales ................................................................................. 5 9,000,000 5 20,000,000 Operating income ............................................................ 630,000 1,800,000 Average operating assets ................................................. 3,000,000 10,000,000 Requirements: 1. Calculate the rate of return for each division using the ROI formula stated in terms of (i) sales margin, (ii) asset turnover, and (iii) ROI. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Calculate the residual income for each division. 3. which division has the greatest residual income? Is the division with the greater residual income an indication that it is better managed? Explain. [Hint: In addition to answering the above, also compare the results of the ROI analysis with the results of residual income analysis] 4. Should residual income be used to compare divisions of different sizes? Why or why not? Part 2 Consider the following information Vanklomps Machining Inc for the month of March 2023: beginning finished goods inventory .......... 5 76,000 beginning work in process inventory ........ $ 39,000 direct Ia bour costs ..................................... 5 42,000 direct material costs .................................. S 186,000 ending finished goods inventory ............... S 61,000 ending work in process inventory ............. 5 27,000 manufacturing overhead costs .................. S 149,000 operating expenses ................................... S 107,000 salary expense ........................................... S 274,000 sales revenue ............................................. S 953,000 Requirements: 1. Prepare a schedule of the cost of goods manufactured for March. 2. Prepare a schedule of cost of goods sold for March. 3. Prepare an income statement for March