Three divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Sales $640,000 $840,000 Average operating assets $160,000 $210,000 Athletic Wear $700,000 $140,000 Operating income $ 25,600 $ 33,600 $ 35,000 Minimum required rate of return 13% 15% 13% Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover. ROI Fitness training % Spa services % Athletic wear % 2. Compute the residual income for each division. Fitness Training Spa Services Athletic Wear Residual income 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 20%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Fitness Training Spa Services Athletic Wear

Three divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Sales $640,000 $840,000 Average operating assets $160,000 $210,000 Athletic Wear $700,000 $140,000 Operating income $ 25,600 $ 33,600 $ 35,000 Minimum required rate of return 13% 15% 13% Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover. ROI Fitness training % Spa services % Athletic wear % 2. Compute the residual income for each division. Fitness Training Spa Services Athletic Wear Residual income 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 20%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Fitness Training Spa Services Athletic Wear

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...

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hree divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Athletic Wear Sales $ 640,000 $ 840,000 $ 700,000 Average operating assets $ 160,000 $ 210,000 $ 140,000 Operating income $ 25,600 $ 33,600 $ 35,000 Minimum required rate of return 13 % 15 % 13 % 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 20%. 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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