Question
Parts a and b: Celimar Company's Western Division earned operating income last year as shown in the following income statement: Sales $480,000 Cost of Goods
Parts a and b: Celimar Company's Western Division earned operating income last year as shown in the following income statement:
Sales | $480,000 |
Cost of Goods Sold | 222,000 |
Gross Margin | $258,000 |
Selling and Administrative Expenses | 210,000 |
Operating Income | $48,000 |
At the beginning of the year, the value of operating assets was $277,000. At the end of the year, the value of the operating assets was $323,000. Celimar Company requires a minimum rate of return of 12%.
Part c: Celimar Company's Western Division earned net income last year as shown in the following income statement:
Sales | $480,000 |
Cost of Goods Sold | 222,000 |
Gross Margin | $258,000 |
Selling and Administrative Expenses | 210,000 |
Operating Income | $48,000 |
Less: Income taxes (30%) | 14,400 |
Net Income | $33,600 |
Total capital employed equaled $300,000. Celimar Company's actual cost of capital is 10%.
Open the attached spreadsheet. Complete question parts a - c on the spreadsheet. Be sure to use formulas in the gray shaded cells. The results of the formulas will be needed to perform the analysis required in the CengageNOW problem. Compare your spreadsheet answers for question parts a - c to the following Cornerstones to confirm that you have entered your formulas correctly.
a.
Step 1: Calculate the average operating assets. (Cornerstone 12.1) Step 2: Calculate Margin. Step 3: Calculate Turnover. Step 4: Calculate Return on Investment (ROI).
b. Using the data from part a, calculate the residual income. (Cornerstone 12.2) c. Calculate Economic Value Added (EVA) for the division. (Cornerstone 12.3)
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