Question 8 of 12

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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)

Your answer is correct.

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		$
Online		$
Catalog		$

(b)

Your answer is incorrect.

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		$
Online		$
Catalog		$

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