Question
Pharoah Decor sells home decor items through three distribution channelsretail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center.
Pharoah Decor sells home decor items through three distribution channelsretail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center. Selected results from the latest year are as follows:
Retail Stores | Internet | Catalog Sales | ||||
Sales revenue | $10,060,000 | $4,010,000 | $3,260,000 | |||
Variable expenses | 4,010,000 | 1,560,000 | 1,860,000 | |||
Direct fixed expenses | 4,510,000 | 1,060,000 | 1,260,000 | |||
Average assets | 8,010,000 | 4,010,000 | 1,670,000 | |||
Required rate of return | 10% | 10% | 10% |
(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, e.g. -5,125 or parenthesis, e.g. (5,125).)
Residual Income | ||
Retail | $enter a dollar amount | |
Online | $enter a dollar amount | |
Catalog | $enter a dollar amount |
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(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 $860,000 and is expected to generate $161,000 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 | $enter a dollar amount | |
Online | $enter a dollar amount | |
Catalog | $enter a dollar amount |
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