Question
Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3) Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues,
Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3)
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales).
The following information is from Lauderdale's first year of operations:
Region IRegion IIRegion IIITotal CorporationRevenues$ 1,219,000$ 1,682,000$ 2,269,000$ 5,170,000Cost of sales459,500819,5001,149,5002,428,500Selling, General and Administrative (all fixed)448,500658,500878,5001,985,500Corporate overhead 470,000Information on the division assets in the three regions of Lauderdale Corporation follows:
Region I$ 719,000Region II649,000Region III1,316,000Lauderdale Corporation has a cost of capital of 8.6 percent.
Required:
Compute residual income for the three regions. Ignore taxes.
How have these regions performed?
Compute residual income for the three regions. Ignore taxes. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. How have these regions performed
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