Question
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions,which are based on the products they produce. AC Division
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions,which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional investments is as of the beginning of the year. Colonial Pharmaceuticals uses a 9% cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporation OH (AC = $600; SO = $1,800) COGS (AC = $3,200; SO = $7,000) Divisional investment (AC = $9,000; SO = $80,000) R&D (AC = $2,000; SO = $3,600) Sales (AC = $8,000; SO = $20,000) SG&A (AC = $700; SO = $1,530) For each of the two divisions, calculate a) Operating Income b) Operating Margin c) ROI d) Residual Income
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