Question
(P1) Paula Boothe, president of the Martinez Corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. Given the
(P1) Paula Boothe, president of the Martinez Corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. Given the companys decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 13% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $1,800,000 in a new line of energy drinks that is expected to generate $223,000 in operating income.
- If Martin Koch is evaluated based on the divisions return on investment, will he choose to invest in the new line?
________________
(P2) Joyner Pickled Pepper Company produces pickled jalapeno pepper relish. Selected results from the most current year were as follows:
Sales revenue | $3,992,800 | |
Operating income | 638,848 | |
Average total assets | 4,340,000 |
Production manager Veronica Joyner is investigating the purchase of a new brining station that will increase the plants production capacity. Based on her research, Veronica thinks the station would cost $164,000 and would increase sales revenue by $200,000 and operating profit by $32,000.
Calculate Joyners current margin, asset turnover, and return on investment. (Round answers to 2 decimal places, e.g. 52.75.)
(a)
Current Margin | Enter percentages % | |
---|---|---|
Asset Turnover | ||
Return on Investment | Enter as % |
(b) Calculate Joyner's margin, asset turnover, and return on investment assuming the company purchased the new brining station.
Current Margin: As a % Round to 2 decimal places
Asset Turnover:
Return on investment: As a % Round to 2 decimal places.
_________________
(P3) Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.
Sole Inserts Division | Heel Inserts Division | Total Shoe Shock | ||||
---|---|---|---|---|---|---|
Sales revenue | $493,400 | $2,538,000 | $3,031,400 | |||
Less variable expenses | 312,000 | 2,009,000 | 2,321,000 | |||
Contribution margin | 181,400 | 529,000 | 710,400 | |||
Less traceable fixed expenses | 123,400 | 349,600 | 473,000 | |||
Segment margin | $58,000 | $179,400 | 237,400 | |||
Common fixed costs | 171,800 | |||||
Net operating income | $65,600 |
Chris Kelly is Shoe Shocks sales manager. Although this statement provides useful information, Chris wants to know how well the companys two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.
- Prepare a segment margin income statement for Shoe Shocks two distribution channels. (If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).)
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