Question
Presented below is selected information for three regional divisions of Medina Company. Divisions North West South Contribution margin $299,700 $499,800 $399,300 Controllable margin $140,000 $359,100
Presented below is selected information for three regional divisions of Medina Company.
Divisions | |||||||||
North | West | South | |||||||
Contribution margin | $299,700 | $499,800 | $399,300 | ||||||
Controllable margin | $140,000 | $359,100 | $208,600 | ||||||
Average operating assets | $1,000,000 | $1,890,000 | $1,490,000 | ||||||
Minimum rate of return | 12 | % | 15 | % | 8 | % |
a) Compute the return on investment for each division.
North Division |
| % | |
West Division |
| % | |
South Division |
| % |
b) Compute the residual income for each division
Compute the return on investment for each division.
North Division |
| $ | |
West Division |
| $ | |
South Division |
| $ |
c) Assume that each division has an investment opportunity that would provide a rate of return of 16%.
1) If ROI is used to measure performance, which division of divisions will probably make the additional investment?
2) If residual income is used to measure performance, which division or divisions will probably make the additional investment?
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