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Ivanhoe Decor sells home decor items through three distribution channels--retail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center.

Ivanhoe Decor sells home decor items through three distribution channels--retail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center. Selected results from the latest year are as follows: Sales revenue Variable expenses Direct fixed expenses Average assets Required rate oF retum Retail Stores $10.040.000 3.990.000 4 490 000 7.990.000 11% Internet $3.990.000 1,540,000 1,040,000 3.990.000 11% Catalog Sales $3.240.000 1.840.000 1.240.000 1.690.000 11% (a) Calculate the current residual income for each distribution channel. (If the residual income is a loss then enter with a negative sign preceding the number, eg. -5,125 or parenthesis, eg. (5,1251) Residual Income Retail $ Online $ Catalog $

(b) The corporate office is giving the managers of each channel the option of a customer relationship management system that will allow the managers to gather data about their customers and be more effective in their marketing efforts. The system will cost $840,000 and is expected to generate $159,000 in additional annual segment margin. Calculate the residual income of each distribution channel assuming it purchases the new customer relationship management system. If the residual income is a loss then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).) Residual Income Retail $ Online $ Catalog $

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