Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

In 2018, the Mandarin Division of Key Products Corporation generated an operating income of $3,000,000 from $20,000,000 of sales revenues and using assets worth $15,000,000.

In 2018, the Mandarin Division of Key Products Corporation generated an operating income of $3,000,000 from $20,000,000 of sales revenues and using assets worth $15,000,000.

Mandarin managers are evaluated and rewarded on the basis of ROI. Key Products Corporation expects its division to increase ROI each year.

The year 2019 appears to be a difficult year for Mandarin. Mandarin Division had planned new investments to improve quality but, in view of poor economic conditions, has postponed the investment. ROI for 2018 was certain to decrease had Mandarin made the investment. Management is now considering ways to meet its target ROI of 22% for next year. It anticipates revenue to be steady at $20,000,000.

Required

  1. Calculate Mandarin Divisions ROI for 2018.
  2. By how much would Mandarin have to cut costs in 2019 to achieve its target ROI of 22% in 2019, assuming no change in total assets between 2018 and 2019?
  3. By how much would Mandarin have to decrease total assets in 2019 to achieve its target ROI of 22% in 2019, assuming no change in operating income between 2018 and 2019?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services An Integrated Approach

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley

17th Edition

013517614X, 978-0135176146

More Books

Students also viewed these Accounting questions

Question

How flying airoplane?

Answered: 1 week ago