Q.2 Financial data for three different divisions of the same company, for last year, appear below: Division A % B % C % Company Total % Sales $3,500,000 $4,500,000 $5,000,000 Variable Costs 1,450,000 1,750,000 2,750,000 Traceable Fixed Costs 1,250,000 1,350,000 1,450,000 Segment Margin Common Fixed Costs: 1,500,000 Complete the above table showing the Contribution Margin Ratio(CMR), and the segment margin for each of the segments. Determine the CMR for the company as a whole . If the company were to add a new division, what information from the above would you use to assist in the decision-making? Division A B C Company Total Average Operating Assets $2,250,000 $2,500,000 $3,000,000 [AOA] Segment Margin Turnover [T/O] ROI Minimum Required Rate of Return for the industry [MRROR] @ 9% Residual Income [RI] Required: Complete the above comparison and answer the questions that follow

Here are the formulas for:

Margin - > OI Turnover - > Sales ROI -> Margin x Turnover

Sales AOA

RI -> OI - (MRROR x AOA)

1. Compute each division's turnover and ROI for the reporting period. Explain what is meant by "turnover"
2. In the industry the average MRROR is 8%. Determine the residual income (RI) for each division. What is the sigfnificance of the MRROR? Why is RI a better measure of performance than ROI?
3. If sales in the industry increased by 10%, without any increase in operating assets, which company would show the highest largest change in operating income? Why?
4. If an expansion program that would require new investments of $1,000,000 in operating assets, which division would you recommend in order to produce the highest return? Why?