Question
Three divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Athletic Wear Sales $ 630,000 $ 880,000 $ 650,000
Three divisions of Jameson Co. report the following sales and operating data:
| Fitness Training | Spa Services | Athletic Wear | |||||||
| Sales | $ | 630,000 | $ | 880,000 | $ | 650,000 | |||
| Average operating assets | $ | 126,000 | $ | 176,000 | $ | 130,000 | |||
| Operating income | $ | 31,500 | $ | 44,000 | $ | 39,000 | |||
| Minimum required rate of return | 12 | % | 14 | % | 12 | % | |||
Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 26%.
a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?
b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
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Management Accounting A Business Planning Approach
Authors: Noah P. Barsky, Jr. Anthony H. Catanach
2nd Edition
1516506286, 978-1516506286
