Performance Evaluation From Horngrens cost accounting a managerial emphasis by Madhav V. Rajan Srikant M. Datar.

4. Using the 2021 financial data, suppose that the company's minimum required rate of return on operating assets is 12%: a. Compute the Beauty Division's Residual Income for 2021, also compute the new Residual Income if the new product line is added. (4%) b. Would the manager of the Beauty Division accept or reject the new product line? Explain! (2%)Univeler Company is a decentralized company with five autonomous divisions. The divisions are evaluated on the basis of ROI and RI. Operating results for the company's Beauty Division for 2021 are given below: Sales $ 12.000.000 Variable cost 6.600.000 Contribution margin 5.400.000 Fixed cost 3.800.000 Operating income 1.600.000 Divisional investment $ 5.500.000 Required: 1. Compute the Beauty Division's ROI for 2021. (2%). 2. Breakdown the ROI into return on sales (ROS) and investment turnover ratio. (3%) For each of the following scenarios, indicate whether the ROS and investment turnover will increase, decrease, or remain unchanged as a result of events described, as compared to the original ratios: a. The company achieves a cost savings of $32,000 per year by using less costly materials (2,5%); b. As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged (2,5%). 3. Using the 2021 financial data, suppose that the Beauty Division has an opportunity to add a new product line that would require an additional investment in operating assets of $1,000,000. The cost and revenue characteristic of the new product line per year would be: Sales $2,200,000 Variable expenses 55% of sales Fixed expenses $660,000 Compute the new ROI. Would the manager of the Beauty Division accept or reject the new product line