In: Accounting
A positive evaluation of a manager would include Residual Income of zero and an ROI greater than the minimum requirement
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Question 4
Residual income of $10,000 indicates the manager is earning above the minimum requirement but residual income of zero ($0) indicates the manager is earning below the minimum requirement.
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Residual income should not be used to evaluate a profit center.
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The World Peace Co. has three divisions: the Fox Division, the Tiger Division and the Panther Division. The following was reported at year end for each division. The company’s minimum requirement is 10%:
Fox Division | Tiger Division | Panther Division | |
Income from Operations (Net Income from Operations) | $300,000 | $100,000 | $200,000 |
Average Operating Assets (Invested Assets) | $5,000,000 | $1,000,000 | $1,500,000 |
The Return on Investment (ROI) for the Fox Division is closest to
options:
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The World Peace Co. has three divisions: the Fox Division, the Tiger Division and the Panther Division. The following was reported at year end for each division. The company’s minimum requirement is 10%:
Fox Division | Tiger Division | Panther Division | |
Income from Operations (Net Income from Operations) | $300,000 | $100,000 | $200,000 |
Average Operating Assets (Invested Assets) | $5,000,000 | $1,000,000 | $1,500,000 |
Residual Income for the Tiger Division is closest to options:
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The World Peace Co. has three divisions: the Fox Division, the Tiger Division and the Panther Division. The following was reported at year end for each division. The company’s minimum requirement is 10%:
Fox Division | Tiger Division | Panther Division | |
Income from Operations (Net Income from Operations) | $300,000 | $100,000 | $200,000 |
Average Operating Assets (Invested Assets) | $5,000,000 | $1,000,000 | $1,500,000 |
Which manager is performing the best based on ROI?
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