Question
Q.6 Financial data for three different divisions of the same company, for last year, appear below: Division A % B % C % Company Total
Q.6 Financial data for three different divisions of the same company, for last year, appear below:
Division A % B % C % Company Total %
Sales $3,200,000 $3,500,000 $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
PART I:
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 $4,000,000 $4,375,000 $4,000,000 [AOA]
Segment Margin
Turnover [T/O]
ROI
Minimum Required Rate of Return for the industry [MRROR] @ 8%
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)
Compute each division's turnover and ROI for the reporting period. Explain what is meant by "turnover" as used in this analysis
In the industry the average MRROR is 8%. Determine the residual income (RI) for each division. What is the significance of the MRROR? Why is RI a better measure of performance than ROI?
If sales in the industry increased by 10%, without any increase in operating assets, which division would show the largest change in operating income? Why?
If the company were to undertake an expansion program that would require new investments of $1,000,000 in operating assets, which division would you recom-mend in order to produce the highest return? Why?
[15 marks/16 min] Q.6 Financial data for three different divisions of the same company, for last year, appear below:
Division A % B % C % Company Total %
Sales $3,200,000 $3,500,000 $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
PART I:
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 $4,000,000 $4,375,000 $4,000,000 [AOA]
Segment Margin
Turnover [T/O]
ROI
Minimum Required Rate of Return for the industry [MRROR] @ 8%
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)
Compute each division's turnover and ROI for the reporting period. Explain what is meant by "turnover" as used in this analysis
In the industry the average MRROR is 8%. Determine the residual income (RI) for each division. What is the significance of the MRROR? Why is RI a better measure of performance than ROI?
If sales in the industry increased by 10%, without any increase in operating assets, which division would show the largest change in operating income? Why?
If the company were to undertake an expansion program that would require new investments of $1,000,000 in operating assets, which division would you recom-mend in order to produce the highest return? Why?
[15 marks/16 min] Q.6 Financial data for three different divisions of the same company, for last year, appear below:
Division A % B % C % Company Total %
Sales $3,200,000 $3,500,000 $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
PART I:
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 $4,000,000 $4,375,000 $4,000,000 [AOA]
Segment Margin
Turnover [T/O]
ROI
Minimum Required Rate of Return for the industry [MRROR] @ 8%
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)
Compute each division's turnover and ROI for the reporting period. Explain what is meant by "turnover" as used in this analysis
In the industry the average MRROR is 8%. Determine the residual income (RI) for each division. What is the significance of the MRROR? Why is RI a better measure of performance than ROI?
If sales in the industry increased by 10%, without any increase in operating assets, which division would show the largest change in operating income? Why?
If the company were to undertake an expansion program that would require new investments of $1,000,000 in operating assets, which division would you recom-mend in order to produce the highest return? Why?
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