Tool Industries

Tool Industries produces tool machinery for manufacturers. The company expanded vertically in 20x1 acquiring one of its suppliers of alloy steel plates.To manage the two separate businesses, the operations of the alloy steel plates are reported separately as an investment center, which will now be titled Alloy Steel Plates Investment Center. Tool Industries evaluates its investment centers on the basis of both unit contribution and return on average investment (ROI), with investment defined as average operating assets employed. Management bonuses are determined on ROI. All investments in operating assets are expected to earn a minimum return of 13% before income taxes.

Alloy Steel Plate

Alloy Steel Plates Investment Centers cost of goods sold is considered to be entirely variable, in which the administrative expenses are NOT dependent on volume. Selling expenses are a mixed cost with 40% attributed to sales volume. Alloy Steel Plates Investment Centers operating assets employed were $12,600,000 on December 31, 20x2 which is a 5% increase over January 1, 20x1 balance. Alloy Steel Plates Investment Center produced and sold the following units for the year ended December 31, 20x2 1,187,000 units. The 20x2 operating statement for Alloy Steel Plates Investment Center follows:

Needed

1. Cal the unit contribution (rounded to the nearest cent) for the Alloy Steel Plates Investment Center for the year ended December 31, 20x2.

2. Calc the following performance measures for 20x2 for Alloy Steel Plates Investment Center.

a. Pretax return on average investment in operating assets employed (ROI)

b. Residual income calculated on the basis of average operating assets employed.

25,000,000 Alloy Steel Plates Investment Center Operating Statement For the year ended December 31, 20x2 Sales Revenue Less Expenses: Cost of goods sold $ 16,500,000 Administrative expenses 3,955,000 Selling expenses Operating income before income taxes 20,455,000 4,545,000