Question
Wally Steel Division is a unit of Wally Industries, which produces tool and die machinery for manufacturers. The steel division operates as one of
Wally Steel Division is a unit of Wally Industries, which produces tool and die machinery for manufacturers. The steel division operates as one of several separate investment centres of Wally Industries. The investment centres are evaluated on the basis of ROI. Management bonuses are also based on ROI. All investments in operating assets are expected to earn a minimum rate of return of 9%. Divisional ROI of the steel division has ranged from 11% to 14% since it was acquired by the parent company. During the past year, the steel division had an investment opportunity that would yield an estimated rate of return of 11%. But the divisional management decided against the investment because it believed the investment would decrease the division's overall ROI. Last year's income statement for Wally Steel Division is given below. The division's operating assets employed were $29,380,000 at the end of the year, which represents an 13% Increase over the previous year-end balance. WALLY STEEL DIVISION Divisional Income Statement For the Year Ended December 31 Sales Cost of goods sold $ 37,900,200 30,320,200 Gross margin Selling expenses Administrative expenses Net operating income 7,580,000 Less: Operating expenses: 1 $ 2,729,000 1,819,000- 4,548,000 $ 3,032,000 Required: 1. Compute the average operating assets for the year Average operating assets Required: 1. Compute the average operating assets for the year. Average operating assets 2. Compute the ROI of the division. State the ROI in terms of margin and turnover. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI % 3. Compute the residual income for the steel division. Residual income
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