Question
In: Accounting
Selected information about American Industries is presented below. American has three operating divisions and requires a...
Selected information about American Industries is presented
below. American has three operating divisions and requires a 12%
return on all investments:
| Eastern Division | Central Division | Western Division | |||||||||
| Revenues | $ | 1,000,000 | ? | ? | |||||||
| Operating income | $ | 120,000 | ? | $ | 100,000 | ||||||
| Operating assets | $ | 500,000 | $ | 300,000 | ? | ||||||
| Margin | ? | 12 | % | ? | |||||||
| Turnover | ? | 1 | turn | 2 | turns | ||||||
| ROI | ? | ? | ? | ||||||||
| Residual income | ? | ? | $ | 25,000 | |||||||
Calculate the missing amounts for each division.
Solutions
Expert Solution
| Eastern Division | Central Division | Western Division | ||
| Revenues | 1,000,000 | 300,000 | 520,833 | |
| Operating income | 120,000 | 36,000 | 100,000 | |
| Operating assets | 500,000 | 300,000 | 1,041,667 | |
| Margin | 12.00% | 12% | 19.20% | |
| Turnover | 0.50 | 1 | 2.00 | |
| ROI | 60,000 | 36,000 | 125,000 | |
| Residual income | 60,000 | - | 25,000 | |
| Turover = Total Sales / Average Operating assets | ||||
| Residual income = ROI(IN DOLLAR) - Minimum rate of return(DOLLAR) | ||||
| ROI (Dollar)= Average operating asset * ROI | ||||
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