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Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division. Consolidated monitors its divisions on the basis of
Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division. Consolidated monitors its divisions on the basis of both unit contribution and return on investment ROI with investment defined as average operating assets employed. All investments in operating assets are expected to earn a minimum return of before income taxes.
Reigiss cost of goods sold is considered to be entirely variable; however, its administrative expenses do not depend on volume. Selling expenses are a mixed cost with onethird attributed to sales volume. The operating statement for Reigis follows. The divisions operating assets employed were $ at November unchanged from the year before.
REIGIS STEEL DIVISION
Operating Statement
For the Year Ended November
s omitted
Sales revenue $
Less expenses:
Cost of goods sold $
Administrative expenses
Selling expenses
Income from operations, before tax $
Required:
Calculate Reigis Steel Divisions unit contribution if it produced and sold units during the year ended November Round your answer to decimal places.
Calculate the following performance measures for for Reigis:
a Pretax ROI, based on average operating assets employed. Round your answer to decimal places.
b Residual income RI calculated on the basis of average operating assets employed. Enter your answer in whole dollars, not in thousands.
Reigis management is presented the opportunity to invest in a project that would earn an ROI of Reigis is likely to:
multiple choice
accept the project because ROI is higher than the required rate of return.
reject the project because the ROI would lower the current overall ROI.
accept the project because positive ROI means a positive dollar value of return.
reject the project because it poses too much risk.
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