Question
Question Three (17 Marks) Top Engine Inc. manufactures engines and is organized into three large divisions: Automotive engine, Outboard motor, and Lawnmower motor divisions. The
Question Three (17 Marks)
Top Engine Inc. manufactures engines and is organized into three large divisions: Automotive engine, Outboard motor, and Lawnmower motor divisions. The following information presents operating incomes and invested assets of the company over the last three years. (all figures in 000s)
Operating Income
Invested Assets
Automotive
2018
4,100
12,500
2019
1,800
12,500
Outboard
2018
800
2,400
2019
600
2,200
Lawnmower
2018
1,800
4,700
2019
1,600
4,900
The following table shows the number of managers covered by the current compensation package of Top Engine Inc.:
Number of
managers
Automotive
Outboard
Lawnmower
2018
350
40
140
2019
375
37
175
The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 12% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 10% on invested assets.
Required:
Calculate ROI for each division and explain the differences in profitability of the three divisions for 2018 and 2019.
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Financial And Managerial Accounting
Authors: Carl S. Warren, Jefferson P. Jones, William Tayler
16th Edition
0357714040, 9780357714041
