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Problem 1O-7A Delby Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers? lots. Delby
Problem 1O-7A Delby Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers? lots. Delby expanded into the precut housing market when it acquired Jensen Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers? lots for assembly. Delby designated the Jensen Division as an investment center. Delby uses return on investment (ROI) as a performance measure with investment defined as average operating assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum rate of return of 17.2%. Jensen?s ROI has ranged from 20.5% to 23.8% since it was acquired. Jensen had an investment opportunity in 2014 that had an estimated ROI of 19.5%. Jensen management decided against the investment because it believed the investment would decrease the division?s overall ROI. Selected financial information for Jensen are presented below. The division?s average operating assets were $12,582,000 for the year 2014. Controllable margin 2,522,000 Calculate the following performance measures for 2014 for the Jensen Division. (Round ROI to 1 decimal place, e.g. 1.5.) (1) Return on investment (2) Residual income $ Contribution margin 9,114,000 Click if you would like to Show Work for this question: Open Show Work
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