Question Completion Status: Financial data for three different divisions of the same company, for last year, appear below: Division % B % % 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 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 . > OL Turnover -> Sales ROI-> Margin x Turnover Sales RI-> Ol-(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 significance 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? If an expansion program that would require new investments of $1,000,000 in operating assets were undertaken, which division would you recommend in order to produce the highest return? Why? Question Completion Status: Financial data for three different divisions of the same company, for last year, appear below: Division % B % % 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 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 . > OL Turnover -> Sales ROI-> Margin x Turnover Sales RI-> Ol-(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 significance 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? If an expansion program that would require new investments of $1,000,000 in operating assets were undertaken, which division would you recommend in order to produce the highest return? Why
